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8 Facts That Prove Our Govt. Is Not Going Broke

The Republicans are out to shred our social safety net -- and they're using debt as their excuse.

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Here’s the rub. Debt is only too high if the underlying economy is shaky. Investors all over the world are betting that the U.S. is the strongest, most stable nation right now, and over the long haul. They expect our economy to grow which automatically will shrink the debt ratio. It’s simple math. Economy up, debt down as a percentage of the economy (all other things being equal).

Despite what you hear from nearly every media outlet and every politician, investors do not see our debt as dangerously high. They are more than willing to pour money into the most stable, dynamic economy in the world – one that is both safe now, and likely to grow in the future.

2. Aren’t we’re in danger of becoming the next Greece?

Greece is in a heap of trouble even though its debt-to-GDP ratio (169.8%) is far below Japan’s (229.8%). With an unemployment rate of over 25 percent, Greece’s economy is shrinking rapidly. The more it shrinks the more it has to borrow to pay back previous loans and to balance its budget. But it can’t borrow unless it cuts its budgets. To cut its budgets, it has to lay off public employees and cut its social safety net, which further increases unemployment and shrinks its economy. Unless you’re in love with retsina, this is not a great time to be living in Greece.

Perhaps the biggest obstacle to Greece’s recovery is that it doesn’t have its own currency. If Greece did, it could let the value of that currency fall, which would make its economy more competitive. Obviously, both the US and Japan have their own currencies. Also, the U.S. and Japanese economies are much, much richer, stronger and diverse than Greece’s. Therefore, there is no chance – none whatsoever --- that the U.S and Japan will face Greece’s debt problems. Anyone who makes that comparison is either a fool or a demagogue hoping to skewer popular social programs like Medicare, Medicaid and Social Security.

3. Won’t cutting the national debt make the economy grow?

When economic calamity strikes, we humans seem instinctively to hoard our remaining resources. (Once we had belts, we tightened them.) But complex modern economies are not like families. Economies mired in major recessions require spending, not austerity, to function properly. As John Maynard Keynes noted two generations ago, when an economy is in a depression, the worst thing you can do is pay down government debt, precisely because families and businesses already are belt-tightening so much. Instead you need to run up even more debt to make up for the demand we lose when households “tighten their belts.” If major governments move to austerity during hard times, the recession grows deeper.

You want proof? Look at Europe today, where a real-time austerity experiment is in progress. Led by Germany, each European nation is cutting back on social services and increasing taxes. The net result: The 17-nation Eurozone is falling back into another recession with unemployment now rising to 11.4%. As the New York Times reports:

Greece had an unemployment rate of 24.4 percent in June, the latest month for which data were available. Spain still had the region’s highest jobless rate, at 25.1 percent, and an even bigger problem among young people. Nearly 53 percent of Spaniards younger than 25 were classified as unemployed in August.

There is no way in hell that cutting government debt will put America back to work. Instead it will send our economy into a nosedive. We’ve already unnecessarily unemployed more than 650,000 public employees due to self-destructive cuts in local, state and federal budgets. It would have been far, far, better for the government to borrow more to put America back to work.

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