On July 12, 2012, Joe Weisenthal states in the Business Insider that Nobel Prize-winning economist and New York Times columnist Paul Krugman says that in order to avoid a full-on depression, the federal government needs to ignore the size of the deficit and start spending to stimulate the economy.
“Somebody has to spend more than their income, and, for the time being, that has to be the government,” says Krugman.
But what about the deficit, that so many people are concerned about? After all, Krugman was something of a deficit hawk during the Bush administration.
He notes two things: One is that the deficit spending under Bush was totally wasteful, and that that should have been time to pay down debts. But he also says he’s learned from watching the US and Japan that it’s much harder for a country to have a debt crisis than he previously appreciated.
“My thinking has evolved,” says Krugman. “If you haven’t updated your views in the face of new experiences, you’re not doing your job.”
He still thinks a debt crisis is theoretically possible, but the evidence of the last several years shows it’s much harder than he realized.
In reality, the annual Federal Budget Deficit, at the rate we are borrowing, will be trillion-dollar deficits for years to come. Krugman acknowledges this and concludes that a new stimulus package is necessary. The interest on a single trillion dollars at 3 percent each year equals $30 billion a year in interest to finance the stimulus debt. Without paying down the debt principal, the interest over 10 years on an initial $1 trillion of stimulus debt would amount to $1.35 trillion, at $40 billion per year. At 20 years the debt would swell to $1.8 million, at $54 billion a year in interest alone. This all assumes that the United States will be able to borrow form other countries and entities at a low 3 percent interest rate.
What Krugman and others in economy and social policy academia fail to address is the idea of simultaneously using debt financing to fuel economic growth in REAL productive capacity and connect the American people to the ownership of the future productive capital assets created. Thus, as a people we could use the powerful force of compound interest to work in our favor with the earnings from the stimulus paid to retire the debt and then continue to provide a sustainable stream of earnings generated from the production of products and services.
What is needed is for the Federal Reserve to stop monetizing unproductive debt, including bailouts of banks “too big to fail” and Wall Street derivatives speculators, and
• Begin creating an asset-backed currency that could enable every man, woman and child to establish a Capital Homestead Account or “CHA” (a super-IRA or asset tax-shelter for citizens) at their local bank to acquire a growing dividend-bearing stock portfolio to supplement their incomes from work and all other sources of income.
• The CHA would process an equal allocation of productive credit to every citizen exclusively for purchasing full-dividend payout shares in companies needing funds for growing the economy and private sector jobs for local, national and global markets,
• The shares would be purchased on credit wholly backed by projected “future savings” in the form of new productive capital assets as well as the future marketable goods and services produced by the newly added technology, renewable energy systems, plant, rentable space and infrastructure added to the economy.
• Risk of default on each stock acquisition loan would be covered by private sector capital credit risk insurance and reinsurance, but
• Would not require citizens to reduce their funds for consumption to purchase shares.
It also means that as governments spend taxpayer monies in the private sector they stipulate that employees of the contracted companies share in the ownership of the future productive capital assets that are created as a result.
Please read and digest the thinking presented at http://www.aipnews.com/talk/forums/thread-view.asp?tid=1696&posts=25 for greater in-depthness.
