Challenging the Premisses
| Start with the debt problem, three views of it,
and the most important thing. Here's a longer look at the debt problem.
Here's a short one on economic policy, some surprising trends, and a few unusual policy recommendations. How'd we get into this mess? Read Policy Venn and Policies of the Venn Overlap. Still with me? Read A Matter of Life and Death. And for an overview, download my 12-page PDF |
"This goes all the way back to Sumer in the third millennium"
Michael Hudson says we have been interpreting the bible incorrectly. And he has written an entire book about it. Rather than sex and sin, both Christianity and Judaism are preoccupied with debt. As it turns out, Jesus was a socialist activist who paid the ultimate price fighting for the reinstatement of regular debt jubilees.
2 comments:
Art
Since consumer spending makes for almost 70 percent of the economy, any time you see most it is coming from debt-fueled spending, will always cast for me a dark cloud on it.
I do not think you will ever see a purposely significant drop in the stock of US consumer debt ($3.8 trillion and climbing) without defaults and wealth paying for its write off or giving the debtors some reasonable access (without much penalty) to existing savings (401K).
Debt Jubilees are wonderful things but losses must be covered for balance sheets to balance.
An idea I heard being thrown around during tax bill negotiations was modifying the tax code to allow people younger than 59-1/2 the ability to use 401k savings with a simple 10% tax penalty to withdraw funds if they had enough to pay off existing homestead mortgages.
In doing this you generate additional tax revenues for the federal government and private sector debt reductions.
I only owe $90,000 on my home so for approx. 100,000 dollars I could pay off my loan quicker give the Government $10,000 without the worry of additional penalty or tax and avoid future interest payments for the remaining term of the loan.
If my remaining interest payments exceeded $10,000 I am better off, assuming I am going to live at this location through the term of the remaining loan and losing the interest rate deductions would not cause additional income tax obligations.
I think this is an example is what you would consider as positive policy changes to promote the reduction in the overall stock of private debt.
Of course, the FIRE sector will fight tooth and nail, since those interest payments I save will not flow to them.
Speaking of tax policy
SALT, Interest rate and property tax deductions are IMO a federal government appropriation to the FIRE, state and local government sectors.
I find qualifying tax deductions an interesting thing, it seems to me an argument could be made that they are not constitutional since money is in a roundabout way being appropriated from the government without legislative process as prescribe by the constitution. (Appropriation bill)
It is to me one thing for the government to say we are going to tax your income of XYZ at 15%(constitutional), but then give someone else with the same income a deduction of that rate if they meet some prescribe qualification (not constitutional) since I see that as an appropriation from the government.
I know way off topic.
Best case we could at least hope for is growing the economy without increasing the current stock of US consumer debt, but no one will see that as reasonable growth and will start tinkering on how to accelerate it.
Unfortunately for economies where debt is responsible for much of their growth, Debt Jubilees are at best recessions or worse depressions.
OT: "I find qualifying tax deductions an interesting thing, it seems to me an argument could be made that they are not constitutional since money is in a roundabout way being appropriated from the government without legislative process as prescribe by the constitution."
That's pretty interesting!
"Unfortunately for economies where debt is responsible for much of their growth, Debt Jubilees are at best recessions or worse depressions."
Debt jubilees are a "fix" for economies where debt is responsible for much of their growth. But the jubilee is not the problem. The problem is relying on debt for growth. If we eliminate the problem, we don't need the fix.
What do we need, new debt equal to 10% of GDP to get decent annual growth? If we pay off debt fast enough, we can borrow enough to get decent growth and still prevent the debt/GDP ratio from rising.
The problem with this plan is that paying down debt reduces aggregate demand. Why? Because people don't have the money to spend, because they used it to pay down debt.
But we can solve that problem by letting the government spend money into circulation, enough to compensate for the accelerated repayment of debt.
Over time, our accumulation of debt will decline while our stock of interest-free money increases.
Under our existing monetary system, much of the interest the Federal Reserve earns on government securities is returned to the Treasury. This is a source of "interest-free" money.
My targets are: Non-Federal debt between two and three times the size of the Federal debt, and the total (Federal plus non-Federal) at or below $1.50 debt per dollar of GDP. Or whatever range best promotes economic growth.
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