By Michael Hudson and Paul Craig Roberts
March 15, 2021 "Information
Clearing House" - Out of habit, American
economists worry about federal debt. But federal
debt can be redeemed by the Federal Reserve printing
the money with which to retire the bonds.
The debt problem rests with individuals,
companies, and state and local governments.
They have no printing press.
We have explained that the indebtedness of the
population means there is little discretionary
income with which to drive the economy.
The offshoring of middle class jobs lowered
incomes, and after paying debt service—mortgage
interest, car payments, credit card interest,
student loan debt—Americans’ pockets are empty.
This situation has been worsened by Covid
In the US the federal government has sent out
a few Covid payments to help keep people’s heads
above water as they face expenses without income.
The financial press refers to these Covid
checks as “fiscal stimulus,” but there is no
The Covid checks do not come close to
replacing the missing wages, salaries and business
profits from lockdowns.
Corporations have indebted themselves and
impaired their capitalization by borrowing money
with which to repurchase their stock. This has built
up their debt in the face of stagnant or declining
consumer discretionary income.
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We propose to deal with the debt crisis by
forgiving debts as was done in ancient times.
Our basic premise is that debts that
cannot be paid won’t be. Widespread foreclosures
and evictions would further worsen the
distribution of income and wealth and further
contrain the ability of the economy to grow.
Writing debt down to levels that can be
serviced would clear the decks tor a real
Income that would be siphoned off in debt
service would instead be available to purchase
new goods and services.
A few economists muttered that we were
overlooking the “moral hazzard” of absolving people
of their debts.
But leaving the economy stagnated in debt is
also a moral hazzard.
Policymakers did not endorse our proposal, but,
in effect, policymakers adopted our policy.
However, instead of forgiving the debt
itself, they forgave payment of the debt service.
Individuals and businesses who cannot pay
their landlords or lenders cannot be evicted or
foreclosed until June.
This doesn’t hurt the lenders or banks,
because the loans are not in default, and their
balance sheet is not impaired. The banks add the
unpaid payments to their assets, and their balance
sheets remain sound.
When June arrives, the prohibition against
eviction and foreclosure will have to be extended as
the accrued debt service cannot be paid.
Extending the moratorium on foreclosures and
evictions will just build up arrears.
Is the implication a perpetual moratorium?
The question is: If policymakers are willing to
forgive debt service, why not just forgive the debt.
The latter is neater and clears the decks for
an economic renewal.
The US economy has been financialized. Debt has
been built up without a corresponding gain in
productive capital investment in order to carry the
In financialized capitalism, the main purpose of
bank loans is to refinance existing investments, not
to expand productive capacity with which to service
It is not possible to grow out of debt in a
financialized economy, because too much income is
used for debt service.
The way to deal with this problem is to write
Michael Hudson is an American economist,
Professor of Economics at the University of
Missouri–Kansas City and a researcher at the Levy
Economics Institute at Bard College, former Wall
Street analyst, political consultant, commentator
Dr. Paul Craig Roberts was
Assistant Secretary of the Treasury for Economic
Policy and associate editor of the Wall Street
Journal. He was columnist for Business Week, Scripps
Howard News Service, and Creators Syndicate. He has
had many university appointments. His internet
columns have attracted a worldwide following.
Roberts' latest books are
The Failure of Laissez Faire Capitalism and
Economic Dissolution of the West,
How America Was Lost, and
The Neoconservative Threat to World Order.
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