Saturday, June 17, 2017

That tangent again

There is an excess of private sector debt. This creates problems, in response to which public debt has increased. Almost everyone sees and objects to the increase in public debt. Few see and object to the high level of private debt that created the problems and caused the public debt to grow. Those who do see private debt as the problem seem universally to point to faster increase in public debt as the solution. But this solution is not quite right.

Those who call for faster increase in public debt are right in the sense that increasing the public debt reduces the imbalance between public and private debt. But the analysis must not stop there. For in our economy, increases in the public debt lead to greater increases in private debt, making the imbalance worse. So the solution, as I see it, is not to focus on increasing the public debt, but rather to focus on limiting the increase of private debt.


The Arthurian said...

In our economy we use credit for growth, so limiting the increase of private debt may seem to be a bad way to get growth. But using credit for growth is an unsustainable policy, and it is this unsustainable policy that must change.

Oilfield Trash said...

We use to have in place such things. Not hard to do over, same reasons exists today. Plutocracy is always getting in the way. IMO it will take another depression for something like it to come back.

Glass–Steagall Act most of it was repealed in 1999 by the Gramm–Leach–Bliley Act(GLBA).

The separation of commercial and investment banking prevented securities firms and investment banks from taking deposits, and commercial Federal Reserve member banks from:

dealing in non-governmental securities for customers

investing in non-investment grade securities for themselves

underwriting or distributing non-governmental securities

affiliating (or sharing employees) with companies involved in such activities