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For all my adult life while working and even into my retirement years I was a critic of federal deficits and our public debt. I looked at that big debt number rise every year...every single year. Always going up...never down. Somewhere around late 1981 it surpassed the $1 trillion mark. I made note of the fact that Ronald Reagan tripled the debt and George W. Bush doubled it. I waved those statistics in the face of my Republican friends.
I worried about the debt when President Obama took office, and although I recognized the necessity of having to run up even more debt to avoid a depression, I still worried about it. It's debt that my generation was passing on to my children. Would my retirement savings be eaten up by double dip inflation that always has been "just around the corner?" I recalled the double digit inflation of the late 1970s and early 1980s. I don't want that again.
Then one day Carlitos Bam Bam wrote a forum post about Modern Monetary Theory that turned my vision of debt upside down. Well, I'll admit it wasn't an "a ha moment." I was slow to digest what he was saying. He wrote numerous posts with good links to Warren Mosler and others trying to educate us. Sometimes his economic jargon left my head spinning. I went along in part, but still had doubts. I reverted to reading Paul Krugmann and Robert Reich, my favorite economists. I took comfort in the fact that as far as the short term need for more stimulus spending, Mosler, Reich and Krugmann were all on the same page. They diverged some in their longer term views.
I still have questions and some lingering doubt about how it would or could work out in the global context with so many politicians (Tea Partiers) seeking to politicize the great debt debate. And as far as taxation goes, I'm not quite ready to cut taxes further except to fix the inequities in the tax code that disproportionately favor the rich. However, I am now very much on board with our current levels of debt and forecasts of rising debt...and the need for even larger deficit spending to get our economy back to support higher employment. I now read MMT stuff by Warren Mosler, Cullen Roche and Bill Mitchell...as well as the posts by Carlitos.
I have looked at our historical debt 100 years back and as CBB noted, whenever we have made an effort to pay down the debt, our economy went into a slump, either a recession or in the case of the late 1920s, the Great Depression. The mid 1920s to the year 1930 was especially notworthy because we reduced the public debt in every one of those years, an unprecedented period in our economic history. And predictably, the worst depression in our history followed that "pay back the debt" period.
I now fully understand and accept what CBB and Mosler are saying...
I'll leave this discussion with an exarct from one of Warren Mosler's columns in the Huffington Post: Modern Monetary Theory: The Last Progressive Left Standing."And as for the U.S. national debt and all the talk about borrowing from China, MMT recognizes that U.S. Treasury securities are, functionally, nothing more than savings accounts at the Fed, which the Fed in fact happens to call securities accounts. Yes, the trillions of dollars of U.S. national debt is nothing more than that many dollars in savings accounts at the Fed. So when China buys Treasury securities, which we call going into debt to China, all that happens is the dollars they got from selling things to us that went into their checking account at the Fed, get shifted to their savings account at the Fed. And when we pay back China, which happens every month as some of their Treasury securities come due, all the happens is the Fed shifts those dollars (plus interest) from China's savings account back to China's checking account, all on the Fed's books. (note: there are no grandchildren involved in this process!)
"Confronted with MMT, all mainstream financial arguments for defunding and 'strengthening' Social Security and Medicare utterly fail. All mainstream financial arguments for defunding education utterly fail. All mainstream financial arguments against maintaining desired public infrastructure utterly fail. And unemployment, for all practical purposes can be eliminated in short order."
Thank you CBB and Warren Mosler. I've been slow to get there, but I no longer worry about our debt or hyper inflation around the corner. Neither should American middle class workers. I just wish our politicians would get on board, including President Obama. Maybe in his second term.
Please read Warren Mosler's column in its entirety at the above link if you want to engage me on this topic. Don't reply with a snide one line sound bite.