Government Debt and Deficits Are Not the Problem - Private Debt Is

Summary

In this Real News Network interview, economist Michael Hudson challenges the notion that public debt is the primary issue facing the U.S. economy. Instead, he argues that the real problem is private debt, which has ballooned due to bank bailouts and reckless lending practices. Hudson contends that the government can manage its debt without causing hyperinflation, as it has the power to print its own currency, whereas private debt must be repaid and is strangling consumer demand and economic growth.

Takeaways

• 📊 The speaker, Michael Hudson, argues that public debt is not the main issue facing the American economy, unlike private debt which has to be repaid.
• 💼 Hudson emphasizes the difference between public and private debt, noting that governments can print their own currency and are not at risk of insolvency in the same way as private entities.
• 💡 He points out that the U.S. public debt has been financed largely by the Federal Reserve through money creation, contradicting the common belief that it crowds out other markets.
• 🏦 Hudson criticizes the lack of discussion on the $13 trillion increase in government debt due to bank bailouts since 2008, which he sees as a significant driver of public debt.
• 💔 He highlights the social impact of high levels of private debt, which leaves less disposable income for consumers, affecting demand in the economy.
• 🏠 The script discusses how the increase in mortgage debt, up to 43% of income, is unsustainable for many families, leading to reduced spending on goods and services.
• 📉 Hudson suggests that the focus on fiscal responsibility by reducing government debt is misguided and could be detrimental to economic growth and employment.
• 💬 There is a call for a reevaluation of the policy approach to debt, with a need to address the burden of private debt rather than focusing solely on public debt.
• 🌐 Hudson notes that the rest of the world is imposing austerity measures, which is contributing to the flow of money into U.S. Treasuries as a safe haven.
• 📈 He argues that inflation is not caused by government money creation but by commercial banks inflating asset prices, leading to debt bubbles.
• 🚫 The script suggests that current policies are not addressing the root cause of economic problems, which is the overhang of private debt from the bubble economy.

Q & A

What is the main argument of Michael Hudson regarding the American economy's biggest challenge?

Michael Hudson argues that the American economy's biggest challenge is not public debt, but rather private debt, which must be repaid and is currently at unsustainable levels.

According to Hudson, why can governments with their own currency not become insolvent?

Hudson explains that governments can't become insolvent with debt in their own currency because they have the power to issue money, avoiding insolvency.

What does Hudson believe has been the main driver of increased government debt since 2008?

Hudson points out that the main driver of increased government debt since 2008 has been the bank bailouts, which amounted to $13 trillion, rather than social programs.

How does Hudson describe the current approach to handling private debt in the American economy?

Hudson criticizes the current approach as one that avoids addressing the real issue of private debt by instead focusing on inflating asset prices, particularly in real estate, and pushing for more borrowing.

What is Hudson's view on the relationship between government debt and inflation?

Hudson suggests that the concern about government debt leading to hyperinflation is misplaced, as the U.S. has been increasing its debt without limit since 2008 without such consequences.

Why does Hudson argue that printing money for the banks is acceptable but not for the real economy?

Hudson implies a double standard where money creation for banks to reinflate asset markets is seen as acceptable, while money creation to stimulate the real economy is not.

What historical rule of thumb did banks use to limit home mortgage payments to ensure affordability?

Historically, banks limited home mortgage payments to no more than 25% of a borrower's income to ensure affordability, a rule that has since been relaxed.

How does Hudson connect the level of private debt to the demand in the economy?

Hudson connects high levels of private debt to reduced demand in the economy, as a significant portion of income is consumed by debt payments, leaving less for consumption.

What is Hudson's opinion on the government's role in the student loan market?

Hudson criticizes the government's policy of guaranteeing student loans without concern for the recklessness of the loans or the ability of students to repay them.

What does Hudson suggest is the consequence of not addressing the issue of private debt?

Hudson suggests that failing to address private debt will lead to economic austerity and potential future crises, similar to what has been seen in countries like Greece, Spain, and Ireland.

How does Hudson view the current policy of promoting more private debt as a solution?

Hudson views the current policy as flawed, arguing that it's based on the belief that Americans can borrow their way out of debt, which he sees as unsustainable.