Monday, August 24, 2009

How Much Debt is Too Much, Or What Happens Next?

Let's discount the Icelandic experience, or the one in Argentina. And assume we can still float paper ad infinitum. And then let's look at the Pres. Clinton experience. When the government assumes an every growing position in the economy private industry is pushed further out. And the space that would otherwise be filled with a private co. is now a government entity. And as Pres Clinton discovered when he cut the deficit by sunsetting some government programs and consolidating or closing others is that a "black hole' is created. That is the space that was formally occupied by these entities has now created a void. And a protracted recession insued, the longest in US history, characterized by deflationary pressures. Pressures created by the existence of a "black hole". The same aggregate demand that was created by these make work jobs created a vacuum when they were shut down. And it took time before private industry could take up this space.
Private industry theoretically can exist forever, by definition government programs are only supposed to last until they have achieved their end. Unless you believe they are merely make work endless go nowhere programs that go on forever? You can't have it both ways

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