Pied Pipers of Debt

Investors are celebrating an incipient “recovery,” but the interventions that were responsible for it are sowing the seeds of a more violent contraction down the road. The problem, quite simply, is debt. We’ve accumulated record amounts, yet many economists tell us we need more.

Leading the charge is Paul Krugman. He exhorts us to borrow our way back to prosperity, but he doesn’t acknowledge that his brand of Keynesian economics ignores the consequences of debt. Krugman dismisses deficit “hysteria,” arguing that we can grow our way out of debt. “We did it during the Clinton administration,” he told me when he visited Reuters last week.

But we didn’t. While Clinton balanced the federal budget, Americans plowed through their savings. We kept growing because, in the aggregate, we were still accumulating debt. Today, private debt is a suffocating 300 percent of GDP, making more public debt that much harder to pay down.

As Krugman warned in 2003: “My prediction is that politicians will eventually be tempted to resolve the (fiscal) crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt. And as that temptation becomes obvious, interest rates will soar.”
Still More Paul Krugman, Then and How

Please consider Paul Krugman: "Deficits Saved The World"
Dateline August 27, 2009
Paul Krugman: "Deficits Saved The World"

Dateline November 3, 2004
Paul Krugman: "[The Budget Deficit] is comparable to the worst we've ever seen in this country. It's bigge[r] than Argentina in 2001."
Whether or not budget deficits are irresponsible seems to depend on whether a Democrat or a Republican is in the White House. Such is the "Conscience of a Liberal".

Meanwhile, the treasury market and bank lending are both flashing huge warning signals.

Are you paying attention?