Getting Economic Growth: Forgive or Restructure Debt American Citizens Hold

Getting Economic Growth: Forgive or Restructure Debt American Citizens Hold

from The Washington Note by Steve Clemons

Restructuring Private Debt May Be Better Option than Austerity or More Stimulus
by Steve Clemons and Richard Vague

In the Spring of 2011, the Obama administration started to rev up a campaign called "The Summer of Recovery" and planned to deploy the President, VP Joe Biden, and the economically connected Cabinet members and advisers to go to all parts of the country, particularly battleground states, and convince Americans that things were getting better, that jobs were being created, and that the vector of the nation was pointing in a great direction.

The Summer of Recovery became a Summer of Anxiety as the jobs machine sputtered and as other parts of the global economy slowed reducing demand for American exports. Voices like Paul Krugman and former Labor Secretary Robert Reich lambasted the White House for not having been Keynesian enough and not opening the government spending spigots to more deeply invest in US infrastructure, shore up deteriorating state balance sheets, and keep more Americans employed and in their homes that were still being foreclosed at record rates.

But Republicans, who under George W. Bush's leadership hatched the conditions of inattentive and lax regulatory attention that contributed significantly to the Great Recession of 2008-2009, decided to convince Americans that the nation's economic malaise was a product of Obama's massive government post-crisis spending.  In a dangerous game of government debt limit brinksmanship, House Speaker John Boehner and his Tea Party-fearing Republican caucus took the nation to the brink of default. 

Even though the crisis that had unfolded had been a function of behavior in private debt markets, the debate about what to do next has focused entirely on what level of debt the government should deploy or cut back. 

The debt-hawks and uber-Keynesians may both be well meaning in their desire to steady the US economic ship and relaunch it towards growth -- but they are distracted by ideology and conventional economic thinking from looking at more compelling causes of major economic crises and more efficacious policy responses. 

It's private debt that matters most.

There is about $24 trillion in consumer and business debt held in the United States today and this dwarfs the federal debt, money supply, and the nation's GDP.