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The iron cage of the deficit debate

August 9, 2010

The Wall Street Journal has an article today entitled Quarterbacks Get Out ‘Hail Mary’ Passes on Economy that well illustrates both the level of desperation and confusion on the part of our economic leaders and the limited cage of options provided by the noble principles of ‘financial orthodoxy’.

The key dilemma within this cage of orthodoxy is that the private sector is not spending despite near zero interest rates and the government can’t do anything because 1) it needs to borrow from the private sector in order to spend and 2) its debt to them has become too large.

Ideas from the ‘experts’ cited in the article range from pre-committing today for austerity tomorrow or instituting austerity today in exchange for easy monetary policy today.  These ideas are totally bankrupt and an insult to common sense.

Society cannot be in debt to itself and the whole concept is therefore nonsensical.  Why would society  need to enforce austerity upon itself (either now or in the future) in order to utilize unemployed resources today?  It’s absurd.  The only way out of this dilemma is to recognize the true nature of money, purchasing power, and debt.  I argued this at length here but to summarize: We have control of the currency and do not need to borrow or tax in order to spend.  Inflation is not a risk when we have massive unused capacity.  The government should finance its spending through the printing press and cease doing so when unemployment is eliminated.  Spending should be cut back when we’re approaching capacity which provides a sound basis for inflation control.

The whole debate between austerity and deficits is false.  Austerity and debt limits are not forces of nature.  They’re human constructions that can exist only within the iron cage of the orthodox finance view of capitalism.

From → Dynamics, Suppression

One Comment
  1. Robert permalink

    Agreed. Periodic hand-wringing about government debt and deficits is an attempt at subterfuge. The public is being bamboozled yet again. Greater awareness of Modern Monetary Theory is needed to break this cycle.

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