Tuesday, August 18, 2015

My Take on US Debt

US government debt is about 1 x GDP and total public and private debt is about 3 x GDP.

Interest rates are at historic lows with little chance of major inflation because of globalization and overwhelming deflationary forces. Plus, we have the most diversified economy, so benefit from such forces, long-term.

Also, there is good and bad debt. Before the 2008 crash, we had too much bad debt, like subprime and liar mortgage loans, financing two misguided wars with debt and tax cuts for the rich, financed with debt.

Now, much of our debt is good debt....Social Security, Medicare, and Medicaid. Plus, lending standards are much stronger than before the crash. Plus, even bad car debt is OK, because if defaulted, cars can easily be repossessed and resold, plus while still used they help the economy with maintenance costs. Also, student loan debt at least shows how dedicated Americans are in improving themselves and do make them more educated.

During bad times, it is best to expand debt, here to save the banking system and stimulus programs to create jobs and expand the economy.

During good times, it is best to begin paying down debt/restructuring debt laden programs. So, now, since the economy is healthy, best to start now with Social Security, Medicaid, Medicare, etc. But, since the recovery has been uneven and interest rates are so low there is no need to overdue it and punish the lower classes. Plus, since lower classes spend most or all of their improved income/benefits from such programs, they recycle into the economy (multiplier effect), actually punishing them hurts the economy..