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Web Letter

This article blew my mind. I appreciate the matter-of-fact character and Dr. Galbraith's straightforward ideas about deficit spending. The discussion on this page is great. Will someone please explain this paragraph to me? It was the only thing I didn't understand.

"A recent projection from the Center on Budget and Policy Priorities, based on Congressional Budget Office assumptions, has public-debt interest payments rising to 15 percent of GDP by 2050, with total debt to GDP at 300 percent. But that can't happen. If the interest were paid to people who then spent it on goods and services and job creation, it would be just like other public spending. Interest payments so enormous would affect the economy much like the mobilization for World War II. Long before you even got close to those scary ratios, you'd get full employment and rising inflation--pushing up GDP and, in turn, stabilizing the debt-to-GDP ratio."

Suzanne Prichard

Plainfield, NJ

Mar 31 2010 - 9:33am

Web Letter

If you disagree with this article and think the USA should pay back all its loans and print no more Treasury Bonds, think what that would do to the world economy. There are lots of folks around the world who would miss the stability and interest paid from good old US Treasury Bonds.

On the other hand, just printing money can get out of hand too. Germany suffered through a trillion-to-one inflation between 1914 and November 20, 1923. But Germany still exists. And it is now extremely careful about inflation.

A balance is necessary. Looking at ratios of debt to GNP and annual budget deficit to GNP is a reasonable way to determine if a country is spending over its means. These are the criteria used to judge whether a country is financially sound enough to enter the EU. Currency speculators also look at these ratios--and they profit knowing this information.

Read the article again and commit these concepts to memory. You will profit greatly.

Bob Gustafson

Chicago, IL

Mar 28 2010 - 10:26pm

Web Letter

It seems to me that expanding federal debt and deficits--while it may be indicated during a downturn--still has a price. Short of paying back debt with dollars devalued by inflation (which has its own cost), future taxpayers will have to shoulder this burden. And to me, the impact of the interest burden is not at all egalitarian. Overwhelmingly, it will be taxpayers of ordinary or average means paying interest to wealthier bondholders.

Sure, if growth restarts, then that helps pay off the debt quicker. In that sense, we sort of get a "free lunch." However, what if growth falters?

It never delivers as much benefit to median incomes as Galbraith might hope because of the hangover of debt obligations acquired during the downturns. Also, the classic Keynesian fiscal stimulus is less efficient than it used to be because so much spending leaks out of the domestic economy to pay for foreign imports.

How much of this deficit strategy in economics is technically called for, and how much is politically dictated? If our macroeconomic policy is in fact class-biased, then maybe we reach to strategies that enrich the rentier ahead of other strategies that could more directly stimulate the incomes of workers first.

To wit, what about raising taxes on the rich, or taxing idle lower-earning hoards of wealth and redistributing these proceeds down the income scale? Didn't Lord Keynes offer that as a neglected prescription to revive aggregate demand--redistribute money to those who have a "greater propensity to consume"?

Finally, the good Dr. Galbraith is blind to current politics, which won't allow a second stimulus. We need other strategies to put people to work that don't add to the deficit and debt.

I think we'd be much better off if the Fed originated direct no-interest loans for energy efficiency improvements. The energy conservation loans could be secured via property liens and payments collected through utility bills. Banks could service the loans for a fixed fee, rather than charging interest, yet could count performing loans in their reserves.

While accomplishing important national goals of carbon emissions reduction and lessening oil dependence, such a program could put millions to work. The loan debts would be counted off the federal budget, which would improve the deficit picture.

Steve Beers

Austin, TX

Mar 24 2010 - 2:11pm

Web Letter

This article is an extremely dangerous and (for this magazine) strange appearance of the typical and prevalent neoliberal economic rationale that is causing so many problems for common citizens in the United States and abroad. For Mr. Galbraith to claim, in such a baldfaced manner, that an open-ended national deficit is the solution to economic recovery and even personal prosperity, is beyond ludicrous.

Many other letters state the above in general terms, so I will attempt to specifically address some of the basic fallacies implied by the article:

• The US government, or any government subscribing to the central banking model, does not itself create money. The central bank (for us, the Fed) does that.

• A central bank (for us, the Fed) is not the property of the host government, nor is it legally under the direct control of the host government. A central bank like our Fed is privately owned and privately held (research this yourself). A central bank is the monetary lending institution to its host government, operating under charter but independently of that same government.

• Whether a central bank literally prints money, or "virtually" keys money into a financial computer system, the effects are the same: (1) more money is injected into the money supply, (2) the value of the national currency is diluted and its buying power in the market drops. We call this inflation.

• A higher national deficit, since it reduces the value of the national currency, reduces the wealth of all citizens using that currency.

• All citizens using that currency system must now incur more and more personal debt by acquiring more and more of their own credit to pay for things, both discretionary and necessary.

• As citizens pay for more things with credit, they throw money away to banks in the form of more interest paid on their credit debt.

I know that's long-winded, but the concept behind it all is this simple: higher national deficits mean higher personal deficits. And in any system where the ability to pay for things over time depends upon the unending growth of the credit spending wedge in the pie chart of available funds, one has to ask what it all means for those who do not qualify for credit, or who only qualify for terrible terms...

When even the necessities of life must, for the average citizen, be paid for increasingly by credit, what happens to those who can't get credit? And that is where this picture begins to explain the effect of this system on poor nations. This is the engine behind the operations of the World Bank, the IMF and other such schemes, when the system of "debt as money" is expanded to a global scale.

Think, People. Galbraith's "Defense of Deficits" is just more shortsighted neoliberal insanity.

Michael S. Pukish III

Auburn, AL

Mar 18 2010 - 1:29pm

Web Letter

Mr Galbraith's disingenuousness about the whimsical nature of money would be comical if not for the fact that politicians and policymakers, serving a global corporate agenda, will rush to use it as justification for continuing to employ government as a one-way siphon of wealth to the already-wealthy--until everyone else is left in abject poverty and the currency itself loses all value.

Money, whether in the form of electronic entries, paper or even gold, works only as long as the parties exchanging it believe it will have future value. And it is only presumed to have future value if it represents present value. To suggest that any financial entity, including the US government will be able to interminably create, borrow and spend real money if it owns--and expects to own--nothing of real value (represented by tax revenues), is moronic.

As a true progressive, I take offense at the very real damage this kind of neoliberal academic alchemy does to a truly progressive agenda. How 'bout we end our imperialist warmongering, seriously tax the incomes of the wealthy as well as their excessive consumption (a linchpin of Mr. Galbraith's father's theories, by the way) and press our bought-and-paid-for neoliberal Democratic Congress to close the hundreds of loopholes that allow hugely profitable corporations to largely avoid paying any taxes at all?

Then maybe our academic community can find a more productive way to spend its time than conjuring specious arguments that there are absolutely no repercussions to spending money that we don't--and everyone knows we never will--have.

Neal Marlens

Telluride, CO

Mar 14 2010 - 5:57pm

Web Letter

Mr. Galbraith is correct when he says, "Governments and banks are the two entities with the power to create something from nothing." Unfortunately, these entities don't create wealth but currency.

If one could create wealth from printing currency, why not simply send every American a check for $1,000? How about $1,000,000? While we would all possess more money, we would not have created wealth. If we could create wealth this way, Zimbabwe would be the richest country in the world.

Of course borrowing can be useful when a person, or even a country, needs extra capital to make a prudent investment; but when Mr. Galbraith says, "With government, the risk of nonpayment does not exist," he's talking nonsense--dangerous nonsense. One wonders if he believes it. If the US government prints money to pay back its debt, the value of the US dollar will drop accordingly.

When will we learn that we simply cannot get something for nothing?

Michael Mattiacci

Chicago, IL

Mar 14 2010 - 4:57pm

Web Letter

The ignorance, possibly willful, reflected in the comments contained in some of the web letters criticizing this article is truly astounding. Based on the apoplectic responses by the critics, I do believe Professor Galbraith is on to something. Job well done!

Also, The Nation deserves kudos for publishing articles like this one. Such articles help people to understand the machinations of their government and the role of plutocrats in those schemes.

John Scott

Cave Creek, AZ

Mar 10 2010 - 9:17am

Web Letter

Mr. Galbraith paints a picture of competition between the banks and the government when it comes to deficits, but aren't banks part of the deficit process? Don't the banks rake in huge profits with fees and interest via the loans they receive through the Treasury and Federal Reserve when trying to balance out the costs of the deficit?

Also, he states that deficits are a problem only if you're tied to something you can't control (e.g., Argentina and the dollar), but isn't the dollar tied to oil, which is something we certainly aren't in control of? Oil permeates our society, and increased oil prices drive up everything else.

Lastly, don't huge deficits put pressure of policy makers to increase inflation? Isn't that where we are going? I read otherwise, but when is the last time an expert got anything right? The housing boom? Nope! The dotcom boom? Nope! Long Term Capital Management? Nope!

Jason Ray

Longmont, CO

Mar 9 2010 - 4:46pm

Web Letter

Re "Bonds owed by the government yield net income to the private sector, unlike all purely private debts, which merely transfer income from one part of the private sector to another. " This statement is false! Owners of those bonds receive interest, paid for by taxes and additional debt. Each year we add more debt, which adds more interest. As debt increases, and we continue to allow the US Government to roll the debt, our interest expense grows.

The government is now quietly replacing longer-term (thirty- or twenty-year) T-bonds with shorter term bonds. This will have the effect of intensifying the interest expense, as shorter-term instruments will increase our payout drastically.

In sum, of course there is a mostly right-wing-driven push to use deficits and debt as a "reason" to cut Medicare, Social Security and other domestic programs.

But we should not delude ourselves into believing that increasing interest expense from $400 billion a year to, say, $800 billion a year, which is what will happen as interest rates rise, will not have a negative effect on our country. Money spent on interest on the debt is money we won't have to fix roads, bridges, other needed infrastructure projects, or spend on healthcare and other necessities.

Mike Pukmel

Burlington, MA

Mar 8 2010 - 1:21pm

Web Letter

This article advocates nothing less than generational pedophilia.

Have you noticed that most of the people pushing high deficits will be dead when payback time arrives? To the boomers who are reaching retirement age, I offer some advice: save money now. Many of you will outlive the excesses of your generation. If you plan on relying on Medicare and Social Security, you will be seriously disappointed. It's time to grow up.

For those younger than the boomers, I also offer some advice: save money and be flexible. Unfortunately, the boomers plan on sticking their children with the tab. As articles like this demonstrate, they are hell bent on running it up ever further.

Paul Thiel

Houston, TX

Mar 7 2010 - 2:29pm

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