<div dir="ltr"><p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif">Good Morning Visionaries:</span></p><p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif"><br></span></p>
<p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif">Paul said he would do more research
about why national debt is different from personal debt, and here is a good
article for him and others to read. </span></p><p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif"><br></span></p><p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif">Here
is the crux of Paul Krugman’s op-ed:</span></p>
<p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif"><br></span></p><p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif">“An indebted family owes money to
other people; the world economy as a whole owes money to itself.” As I posted
earlier, Japan’s debt is 200% of GDP, higher than Greece’s, but they owe it all
to themselves, not to other countries.</span></p>
<p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif"><br></span></p><p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif">Another point that Krugman makes:
even with extreme austerity in Europe and dramatic budget cuts, the debt is
still about the same, primarily because the tax base of declining incomes has
shrunk. Thanks to the Obama stimulus and
tax hikes, we, relatively speaking, are in much better economic shape.</span><b><i><span style="font-size:13.5pt;font-family:'Times New Roman',serif"></span></i></b></p>
<p class="MsoNormal"><b><span style="font-size:24pt;font-family:'Times New Roman',serif"><br></span></b></p><p class="MsoNormal"><b><span style="font-size:24pt;font-family:'Times New Roman',serif">Nobody
Understands Debt</span></b></p>
<p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif">FEB. 9, 2015 <i>The New
York Times</i></span></p>
<p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif"><br></span></p><p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif">Many economists, including Janet Yellen, view global
economic troubles since 2008 largely as a story about “deleveraging” — a
simultaneous attempt by debtors almost everywhere to reduce their liabilities.
Why is deleveraging a problem? Because my spending is your income, and your
spending is my income, so if everyone slashes spending at the same time,
incomes go down around the world.</span></p>
<p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif"><br></span></p><p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif">Or <a href="http://www.frbsf.org/our-district/press/presidents-speeches/yellen-speeches/2009/april/yellen-minsky-meltdown-central-bankers/" title="Federal Reserve"><span style="color:blue">as Ms. Yellen put it</span></a>
in 2009, “Precautions that may be smart for individuals and firms — and indeed
essential to return the economy to a normal state — nevertheless magnify the
distress of the economy as a whole.”</span></p>
<p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif"><br></span></p><p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif">So how much progress have we made in returning the economy
to that “normal state”? None at all. You see, policy makers have been basing
their actions on a false view of what debt is all about, and their attempts to
reduce the problem have actually made it worse.</span></p>
<p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif"><br></span></p><p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif">First, the facts: Last week, the McKinsey Global Institute
issued a report titled “<a href="http://www.mckinsey.com/insights/economic_studies/debt_and_not_much_deleveraging" title="McKinsey"><span style="color:blue">Debt and (Not Much) Deleveraging</span></a>,”
which found, basically, that no nation has reduced its ratio of total debt to
G.D.P. Household debt is down in some countries, especially in the United
States. But it’s up in others, and even where there has been significant
private deleveraging, government debt has risen by more than private debt has
fallen.</span></p>
<p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif"><br></span></p><p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif">You might think our failure to reduce debt ratios shows that
we aren’t trying hard enough — that families and governments haven’t been
making a serious effort to tighten their belts, and that what the world needs
is, yes, more austerity. But we have, in fact, had unprecedented austerity. As <a href="http://www.imf.org/external/pubs/ft/weo/2013/01/c1/fig1_1_2.pdf" title="PDF"><span style="color:blue">the International Monetary Fund</span></a>
has pointed out, real government spending excluding interest has fallen across
wealthy nations — there have been deep cuts by the troubled debtors of Southern
Europe, but there have also been cuts in countries, like Germany and the United
States, that can borrow at some of the lowest interest rates in history.</span></p>
<p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif"><br></span></p><p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif">All this austerity has, however, only made things worse —
and predictably so, because demands that everyone tighten their belts were
based on a misunderstanding of the role debt plays in the economy.</span></p>
<p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif">You can see that misunderstanding at work every time someone
rails against deficits with slogans like “<a href="http://opinionator.blogs.nytimes.com/2013/03/14/stop-stealing-from-our-kids/" title="New York Times"><span style="color:blue">Stop stealing from our kids</span></a>.”
It sounds right, if you don’t think about it: Families who run up debts make
themselves poorer, so isn’t that true when we look at overall national debt?</span></p>
<p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif"><br></span></p><p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif">No, it isn’t. An indebted family owes money to other people;
the world economy as a whole owes money to itself. And while it’s true that
countries can borrow from other countries, America has actually been borrowing
less from abroad since 2008 than it did before, and Europe is a net lender to
the rest of the world.</span></p>
<p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif"><br></span></p><p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif">Because <a href="http://krugman.blogs.nytimes.com/2015/02/06/debt-is-money-we-owe-to-ourselves/" title="New York Times"><span style="color:blue">debt is money we owe to
ourselves</span></a>, it does not directly make the economy poorer (and paying
it off doesn’t make us richer). True, debt can pose a threat to financial
stability — but the situation is not improved if efforts to reduce debt end up
pushing the economy into deflation and depression.</span></p>
<p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif"><br></span></p><p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif">Which brings us to current events, for there is a direct
connection between the overall failure to deleverage and the emerging political
crisis in Europe.</span></p>
<p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif"><br></span></p><p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif">European leaders completely bought into the notion that the
economic crisis was brought on by too much spending, by nations living beyond
their means. The way forward, Chancellor Angela Merkel of Germany insisted, was
a return to frugality. Europe, she declared, should emulate the famously
thrifty <a href="http://www.theguardian.com/world/2012/sep/17/angela-merkel-austerity-swabian-housewives" title="The Guardian"><span style="color:blue">Swabian housewife</span></a>.</span></p>
<p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif"><br></span></p><p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif">This was a prescription for slow-motion disaster. European
debtors did, in fact, need to tighten their belts — but the austerity they were
actually forced to impose was incredibly savage. Meanwhile, Germany and other
core economies — which needed to spend more, to offset belt-tightening in the
periphery — also tried to spend less. The result was to create an environment
in which reducing debt ratios was impossible: Real growth slowed to a crawl,
inflation fell to almost nothing and outright deflation has taken hold in the
worst-hit nations.</span></p><p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif"><br></span></p>
<p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif">Suffering voters put up with this policy disaster for a
remarkably long time, believing in the promises of the elite that they would
soon see their sacrifices rewarded. But as the pain went on and on, with no
visible progress, radicalization was inevitable. Anyone surprised by the left’s
victory in Greece, or the surge of <a href="http://www.reuters.com/article/2015/02/08/us-spain-politics-idUSKBN0LC0MR20150208" title="Reuters"><span style="color:blue">anti-establishment forces in Spain</span></a>,
hasn’t been paying attention.</span></p><p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif"><br></span></p>
<p class="MsoNormal"><span style="font-size:12pt;font-family:'Times New Roman',serif">Nobody knows what happens next, although bookmakers are now
giving <a href="https://twitter.com/ericbeebo/status/564502366037475328" title="Twitter"><span style="color:blue">better than even odds</span></a> that
Greece will exit the euro. Maybe the damage would stop there, but I don’t
believe it — a Greek exit is all too likely to threaten the whole currency
project. And if the euro does fail, here’s what should be written on its
tombstone: “Died of a bad analogy.”</span></p>
<p class="MsoNormal"> </p></div>