The Big Threat to the Economy Is Private Debt and Interest Owed on It, Not Government Debt
Continued from previous page
President Obama announced that he hoped the banks would lend it out. So the solution by his advisors, including some here today, is for the economy to “borrow its way out of debt.” The aim of the Fed and Treasury subsidies of the commercial banks is to re-inflate housing prices, stock and bond prices – on credit. That means on debt.
This obviously will make matters worse. But what will make them worse of all is the demand that the government “cure” the public-sector deficit by spending less generally, and specifically by cutting Social Security and Medicare. As in the case of the recent FICA withholding ostensibly to fund Social Security, the effect of less public spending into the economy is to force the private sector more deeply into debt.
I find there to be something hypocritical about this. Instead of writing down debts of the 99% to keep their financial heads above water, the government is trying to save the banks and the 1% – at public expense. Why do they call for governments to balance the budget by pushing the economy at large deeper into debt, while trying to save the banks from taking a loss?
The ultimate question to be posed is thus whether the economy really needs Wall Street and the banks to be made whole on credit that has been created largely to inflate asset prices (the Bubble Economy) and to gamble on derivatives and computer programs (Casino Capitalism), without really interfacing with the industrial sector and employment – except to provide takeover credit for leveraged buyouts that load down companies further with debt?
Placed in this context, the financial problem thus turns into a structural social problem.