Eric Hovde is Scared of the Boogeyman...

Yesterday we brought you the story of how Eric Hovde is sick and tired of reading stories about poor people in America.  He prays that these incessant stories stop, because Jesus also was sick and tired of hearing about poor people. 

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.

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.

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.

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.