Lets refresh our memory:
Now let's look at this a little deeper than what we did yesterday. First of all he is dead wrong on media coverage as the debt gets tremendously more coverage than the unemployment crisis. That is a minor problem with Hovde's ramblings. The major problem is the end where he says this:
He also implored the people who were at this Q & A to read "the best book ever written on the debt issue" - This Time Is Different: Eight Centuries of Financial Folly by "two of the greatest economists of our time" Carmen Reinhart and Kenneth Rogoff.
Hovde said that they found out "empirically" that if a government gets more than 90% debt to their economy, and it stays that way for 3 years, you are left with only two choices, both utterly disasterous - 1. default or 2. major debasement of the currency which causes hyper inflation.
Hovde then went on to say "folks we are at 100% and its scary. It scares the heck out of me. I am 6' 3" and not much scares me."
This was followed up with NO questions, just a quick laugh line where the reporter wanted it be known he did not write the sob story about the person who could not get food stamps. Since no state reporter would do a follow up to this I thought I would.
I contacted one of the nation's leading economists, Dean Baker, to see if Hovde has a legitimate fear about our debt crisis. Here is his answer in full:
Japan has had a debt to GDP ratio of over 100 percent for more than a decade. It is not in any danger of default (at least the financial markets don't think so -- they are lending it money for 10-years at less than 1.0 percent interest) and it has deflation. Obviously this is not some sort of law of nature.So Mr. 6 foot 3, Washington DC resident, who wants to be our Senator, is scared of the 'debt crisis", but he might as well be scared of the boogey man or the dark for all of the good it does him.
Furthermore, Hovde obviously does not even understand what debt means. Much of the debt we owe to ourselves -- literally. The Fed holds more than $3 trillion in government debt. The Fed is part of the government. We pay interest to the Fed, which then refunds the interest to the Treasury. Is that going to bankrupt us? Not where I learned my economics.
Also, debt itself is an incredibly arbitrary measure. Suppose we sold off assets to reduce the debt -- then is everything cool? It would be according to your hedge fund friend's logic.
In short, Reinhart and Rogoff are both good economists, but they end up being really sloppy here. Nations usually run-up large debt because they faced serious economic problems -- as was the case with us in the last 5 years. However, they have confused the trouble caused by these economic problems with troubles caused by the debt. If an otherwise healthy economy suddenly finds itself with large amount of debt, as the U.S. did after WWII, when its debt to GDP ratio was 116 percent, the debt will not be a big issue. That is what history teaches us.
How can someone who understands so little about our economy actually seriously run for a position as important as United States Senator? An even better question is why would a room full of reporters NOT do a follow up story?
PS: Again please give some support to Tammy Baldwin so we do not let another empty suit buy one of our Senate Seats!
Also, if you have had too much lately of Paul Ryan ( R - Wall St) lies and Ron Johnson's flat out idiocy, then go buy Dean Baker's books and learn some actual economics! I recently read "Plunder and Blunder" and highly recommend it.
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Wasn't terribly long ago, the GOP fretted over the prospect of zero national debt.
ReplyDeletehttp://malcontends.blogspot.com/2009/03/remember-2001-fear-of-zero-national.html
Thanks Mal, they are so thoroughly hypocritical that its hard to keep up!
ReplyDeleteExactly Mal! In fact, if we had zero debt, Social Security would be insolvent!
ReplyDeleteI never realised what a whiner Hovde was until I heard that clip. That is the sign of a true plutocrat, no matter how wealthy and privileged you are, finding the time to bitch about the poor proves the man's breeding. By comparison Tommy Thompson looks like a Progressive, while Fizgerald remains a sullen bastard and Neumann is still crazier than a shithouse rat. Nice field of candidates.
ReplyDeleteand they say the dems have no bench
ReplyDeleteGreece. Spain. How's massive debt working out for them?
ReplyDeleteMLM - It's working out very well for German and French banksters who had their bad loans guaranteed by client country's tax payers.
ReplyDeleteIreland, Greece and Spain were flooded with money by these banksters which fed property speculation that was bound to go bad at some point. Do you think German bankers don't practice due diligence?
No one forced them to make bad real estate loans, they did it because they earned fat commissions on those loans and could privatize the profits and socialise the losses. Sound familiar? That is what the unmanageable portion of the debt is comprised of, failed loans to speculators.
The problem the smaller countries of Europe have is they have become the dumping ground for hot money from the dominant countries which literally blows up their economies.
They are locked into a monetary mechanism that doesn't permit them to devalue their currency to match imbalances in trade and as a result have lost their national sovereignty. Rather than Banksters taking haircuts the people are forced into an austerity driven, budget cutting cycle that only results in lower living standards, unemployment, hunger, economic depression and political instability.
It's kind of a European version of "Divide and Conquer", beggar they neighbor and then exploit them for low wage labor. These nations should leave the Euro but the elite classes hold their assets in that currency and are fighting a ferocious rear guard action against this common sense solution.
American banksters have also been up to their eyeballs in this economic rape which explains why the consensus of our corporate media it that the banksters must be made whole and the people must starve.
To say that these debts must be paid is a simple minded answer to a complex question which satisfies the uncurious but is absolutely wrong.
As an economist, I'm astounded by the stupidity that other economist showed in this blog post.
ReplyDelete1) Japan's personal savings rate is much higher than the US and therefore they can buy up their government's debt. They also run major trade surpluses so they can continue to do this for awhile longer... although they're day of reckoning is coming as the population ages and those trade surpluses turn to deficits. That's when crap hits the fan there.
2) The fed holds $3 trillion?! Yes, that's debt they've already bought up by printing money. If they continue they will spark a bond market crisis.
This man is wrong! Our "money" is debt. It's a 100% debt based system that will fail. The US can not continue to consume more than it produces. We are running massive trade deficits and have no way to pay back our debts we owe. Once interest rates rise, the US consumer that powers our economy is dead in the water along with our economy. The debt to GDP ratio will soar and the fed will likely print money like crazy to keep it together causing hyperinflation. Don't listen to the Keynesians, listen to the people who understand economics. The gold and silver markets are smarter than these moron Keynesian economists...
yes all keynesian economics does is work....
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