Today we learned from the IMF that World Debt Hits $152 Trillion.
That’s a record breaking amount. It’s also more than two times the size of
the entire global economy.
The problem is: It’s simply not enough.
How do I know it’s not enough? Paul Krugman, Larry Summers and other
Keynesian economists tell us that.
Not Enough Debt
Paul Krugman tells us Debt is Good.
Krugman says … “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.”
Too Much Savings
Larry Summers speaks of The Age of Secular Stagnation.
Summers says … “The core problem of secular stagnation is that the neutral
real interest rate is too low. This rate, however, cannot be increased
through monetary policy. Indeed, to the extent that easy money works by
accelerating investments and pulling forward demand, it will actually reduce
neutral real rates later on. That is why primary responsibility for
addressing secular stagnation should rest with fiscal policy. An expansionary
fiscal policy can reduce national savings, raise neutral real
interest rates, and stimulate growth.”
There you have it. Despite being $152 Trillion in debt, we actually have
too much in savings.
So, how much debt do we need? It’s hard to say. Perhaps another $200
trillion would be enough. To be safe, perhaps a quadrillion dollars in new
debt is necessary.
Then again, perhaps Krugman and Summers are trapped in academic wonderland
or some alternate universe.
Those in the real world may wish to consider the distinct possibility debt
is the problem, not the solution.
Mike “Mish” Shedlock
