Macro think: debt

I am noodling about this delevering thing. Consumer spending is 14T a year in the US. Basically the US consumes what it produces (by definition of money) and then some. The "some" part is of course debt on the future which means that our children will have to spend what they produce minus the some payments. Please note that in this case I am talking about debt that fuels consumption, debt that fuels production is a different beast as it increases GDP and creates positive net present value.

If we were at 106 of GDP, then (bar inflation) we will need to be at 99 of GDP (100-6/6 assuming we repay over 6 years on average). With a little bit of saving juice on the way down (suckers like me) we may see spending on the order of 97%.

In a economy that produces 100, that will leave a shortfall of 3% for a few years. That is a contraction to be sure, a recession to be sure. Remember these are back of the mouse numbers, see real economist for something else than "order of magnitude" talk.

Keynes all of the sudden is back in style. Keynes is dubbed the "savior of capitalism". Let the government spend freely in things that matter because if we let the average joe the plumber spend the money, he will do a pretty crappy job at it. Yes a new SUV for mom! a hummer! yes!

Let's shun out of control consumption and invest in roads, infrastructure, energy research and above all, above all, education. Those are immediate investments that will pay off handsomely in the future. We will reap the rewards of education and energy in particular in spades. Luckily Obama seems bent on boosting education. Go Obama! I hate the fact he is going to raise my taxes (yes I make more than joe the plumber) but it is time for a new realism when dealing with public and private debt.

Comments

Anonymous said…
I'm with you. I want to see the next president and congress invest in America even if it means the we (the other 5%) have to pay for it.

It still baffles my mind that we can spend $150B per year on war and call it patriotic, while if we invested the same amount per year in improving our power grid, building nuclear plants, and subsidizing solar, wind, and electric cars its called Socialism and Un-American.
adt43wt342 said…
Yeah but you are a communist.

Popular posts from this blog

$6.66B for BEA: Larry goes Shopping

Thug vs Thug: Porsche 1, Hedge Funds: 0

Quickies #3, protecting IP in OSS