Richard wrote:

On 8/28/2012 7:44 PM, jim wrote:


The current economic problems was created by 60 years of
runaway private sector debt. The govt debt isn't the problem.

You are exactly right.

But they are still the current problems.
The ones we are trying so hard not to deal with.

Yes you appear desperately trying to avoid
looking at the real problem.


The current choices are simple the govt can stop borrowing
the funds the private sector is devoting to repaying debt
and force more than 50% of households and businesses
into bankruptcy or the govt can continue to borrow what the
private sector is currently under-spending and allow the
private sector to continue to delever and repair their
balance sheets.

Either way, the government winds up bankrupt.

Remember Greece?

Yes Greece is not a sovereign nation.
Greece is just like the US private sector it
can go bankrupt.
The US govt is sovereign and
can't go bankrupt by definition. Of course, the US could
agree to give up its sovereignty and join the EU. Then
it would be just like Greece.

Reducing the deficit will make the US dollar
worth more. Right now, That is not a good thing.
As it
makes the private debt problem much worse.

In 1933 Irving Fisher described exactly what happened in
2008 and it will happen again when Congress tries to
reduce the deficit.
++++++++++++++++++++++++++++++++++++++++++++++++++ ++++++++

Each dollar of debt still unpaid becomes a bigger dollar,
and if the over-indebtedness with which we started was great
enough, the liquidation of debts cannot keep up with the fall
of prices which it causes. In that case, the liquidation
defeats itself. While it diminishes the number of dollars
owed, it may not do so as fast, as it increases the value of
each dollar owed. Then, the very effort of individuals to
lessen their burden of debts increases it, because of the mass
effect of the stampede to liquidate in swelling each dollar
owed.
-Irving Fisher,
The Debt Deflation Theory of Great Depressions, 1933.
http://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf

++++++++++++++++++++++++++++++++++++++++++++++++++ ++++++++

The US govt can bear the burden of any amount of debt. The
only issue with govt borrowing is how much inflation it
causes. Since WW2 the driving force of inflation has been
excessive private sector borrowing. That force is now gone.
When the govt stops borrowing you will see massive
disinflation. That is, a a collapse in prices just as in
the fall of 2008.

And no the private sector cannot go back to borrowing like
it was 2007. The egg has now been scrambled it cannot be unscrambled.