Paul Krugman “What Ails The World Right Now Is That Governments Aren’t Deep Enough In Debt”


You can’t make this stuff up!

–  Paul Krugman “What Ails The World Right Now Is That Governments Aren’t Deep Enough In Debt” (ZeroHedge, Aug 21, 2015):

This was written by a Nobel prize winning economist without a trace or sarcasm, irony or humor. It is excerpted, and presented without commentary.

From the NYT:

Debt Is Good

… the point simply that public debt isn’t as bad as legend has it? Or can government debt actually be a good thing?

Believe it or not, many economists argue that the economy needs a sufficient amount of public debt out there to function well. And how much is sufficient? Maybe more than we currently have. That is, there’s a reasonable argument to be made that part of what ails the world economy right now is that governments aren’t deep enough in debt.

I know that may sound crazy. After all, we’ve spent much of the past five or six years in a state of fiscal panic, with all the Very Serious People declaring that we must slash deficits and reduce debt now now now or we’ll turn into Greece, Greece I tell you.

But the power of the deficit scolds was always a triumph of ideology over evidence, and a growing number of genuinely serious people — most recently Narayana Kocherlakota, the departing president of the Minneapolis Fed — are making the case that we need more, not less, government debt.


One answer is that issuing debt is a way to pay for useful things, and we should do more of that when the price is right. The United States suffers from obvious deficiencies in roads, rails, water systems and more; meanwhile, the federal government can borrow at historically low interest rates. So this is a very good time to be borrowing and investing in the future, and a very bad time for what has actually happened: an unprecedented decline in public construction spending adjusted for population growth and inflation.

Beyond that, those very low interest rates are telling us something about what markets want. I’ve already mentioned that having at least some government debt outstanding helps the economy function better. How so? The answer, according to M.I.T.’s Ricardo Caballero and others, is that the debt of stable, reliable governments provides “safe assets” that help investors manage risks, make transactions easier and avoid a destructive scramble for cash.

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[L]ow interest rates, Mr. Kocherlakota declares, are a problem. When interest rates on government debt are very low even when the economy is strong, there’s not much room to cut them when the economy is weak, making it much harder to fight recessions.  There may also be consequences for financial stability: Very low returns on safe assets may push investors into too much risk-taking — or for that matter encourage another round of destructive Wall Street hocus-pocus.

What can be done? Simply raising interest rates, as some financial types keep demanding (with an eye on their own bottom lines), would undermine our still-fragile recovery. What we need are policies that would permit higher rates in good times without causing a slump. And one such policy, Mr. Kocherlakota argues, would be targeting a higher level of debt.

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Now, in principle the private sector can also create safe assets, such as deposits in banks that are universally perceived as sound….

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greek atm line 2

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At this point we stopped reading.


1 thought on “Paul Krugman “What Ails The World Right Now Is That Governments Aren’t Deep Enough In Debt””

  1. There cannot be more household spending when there is no money left to spend……..Wake up, Paul Krugman……!

    Excessive debt is what is causing the current global collapse, it is obvious, the entire world economy has come to a halt.

    What we need is what is finally happening, the greedy guts are finally getting caught in a greed trap of their own making.

    Look at the evaluation of the world economy…….a world of shoppers and sellers……it isn’t that simple. Without economic opportunity for the people, there can be no shoppers….this has been building since 2001…….my family lost a fortune in that crash. We thought we were out of it when the real estate bubble burst in 2008-09, and it never came back because it was all built on credit, debt and more debt. Without real economic growth, not just funds for a few greedy guts, an economy of buyers and sellers is unsustainable.

    We had one from 1945-1997 because there were evolving industries, good jobs and true economic growth, especially in the US. 1997 came the push for NAFTA by that scumbag, Clinton. Those of us who knew better didn’t win…..Then, the coup of 2000, and Americans slept through it.

    I am not going to recount all that happened since except to say all opportunity from NAFTA to Obama’s debacle of a trade deal has done everything to gut this economy and feed the few at the cost of everyone else. Slowly, Americans began to realize the good times were not coming back…….but this world crash will bring it home to the world. Even the US, all wealth removed from the real economy can no longer fend it off.

    And, that is why I think it was a long time coming, very overdue, and it will wake up enough people to demand real economic changes. It happened after the crash of 1929, too, this time it is the entire world, and greed has swallowed too much…….

    Things have to change, the greedy guts have eaten up all world economic opportunity….

    In any case, this cannot be stopped by a few greedy guts controlling the US stock market…..They lost a trillion last week…..1000 points…….Even the few greedy ones cannot stop a world implosion. They didn’t even attempt to manipulate the closing numbers as they did two weeks ago when the market closed 151 down, and 15 minutes after closing, it was adjusted to 91 down……a similar game happened a few days later. Cynic that I am, I said they were in trouble………looks like I was right.


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