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Is there is a dent in the deficit terrorist’s argument?  The message (and the truth) that uncle Sam won’t go broke appears to be becoming more and more mainstream.  A recent report from the Jerome Levy Forecasting Center shows that more and more mainstream economists are actually beginning to understand our monetary system and the realities that currently confront us.  Too bad they’re about two years late to the party….From the report”

“While some countries deserve to have their creditworthiness doubted, others, including the United States, do not. The United States is not another Greece, and the likelihood of default or any dire consequences from the present run-up of Treasury debt is minimal.

Nations vary sharply in their capacity to carry public debt. The United States, the United Kingdom, and Japan are all high-debt-capacity nations. All have had debt-to-GDP ratios over 100%, and in Britain’s case over 250%, without calamitous consequences.

Defaults on sovereign debt have never solely reflected high debt levels. The when and why of soaring debt matters; when a depression or great war is responsible, then high-debt-capacity nations can accumulate vastly more debt—and later safely bring the debt ratio back down—than widely believed today.

The U.S. Treasury debt is soaring because of a depression, and the budget deficits have been essential in keeping the depression contained, avoiding a disaster worse than the 1930s.  During a depression, an economy cannot absorb much if any deficit reduction. History shows deficit-slashing actions during depressions tend to be self-defeating because they
so damage the economy that revenue plunges.

A high public debt ratio in a high-debt-capacity country tends to shrink rapidly for years after the end of a major war or depression. The conditions presently causing high public debt growth in the United States and other advanced economies are not permanent and will eventually reverse, improving government fiscal situations dramatically.

High public debt does not necessarily imply inflation, especially when the debt is caused by a deflationary private economy. Historically, there has been no connection between inflation and the level of public debt in the United States, the United Kingdom, or Japan.

High public debt is unlikely to be a drag on future growth or prosperity. Future generations will not bear the burden of current deficit spending, as is widely believed. A collection of other items that some people count as public debt—including the social security trust funds and projected shortfalls for Medicare or other programs labeled “unfunded liabilities”—are in fact not public debt. Advanced funding for any such mandates and programs does nothing to ease the potential problems of meeting retiree needs in the future and could make matters significantly worse.”

Let’s hope this message continues to spread….You can read the full report here.

One comment
  1. Timmcleer

    Total idiot. High debt capacity has not shrunk for many years. We have had 3 recessions, No declared War
    and our debt has gone up in a straight line. So, when did it reverse? Some say the Clinton years but he borrowed
    from the Social Security Trusts funds to balance the budget. So, actually Clinton increased the government debt capacity. Uncle Sam is bankrupt—not broke.

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