The Big Threat to the Economy Is Private Debt and Interest Owed on It, Not Government Debt

[xchrom]

http://www.alternet.org/economy/big-threat-economy-private-debt-and-interest-owed-it-not-government-debt



Editor's Note: These remarks were made by by Prof. Michael Hudson at The Atlantic’s Economy Summit, Washington DC, Wednesday, March 13, 2013.

There are two quite different perspectives in the set of speeches at this conference. Many on our morning panels – Steve Keen, William Greider, and earlier Yves Smith and Robert Kuttner – have warned about the economy being strapped by debt. The debt we are talking about is private-sector debt. But most officials this afternoon focus on government debt and budget deficits as the problem – especially social spending such as Social Security, not bailouts to the banks and Federal Reserve credit to re-inflate prices for real estate, stocks and bonds.

To us this morning, government deficit spending into the economy is the solution. The problem is private debt. And in contrast to Federal Reserve and Treasury bailout policy, we view the problem not as real estate prices too low to cover bank reserves. The problem is the carrying charges on this private debt, and the fact that debt service is eating into personal income – and also business income – to deflate the economy.

There is Mortgage debt that is still leading to foreclosures, evictions, and is depressing the real estate market for most buyers except for all-cash hedge funds.

We have been urging a write-down of mortgage debt in line with the debtor’s ability to pay, or to bring debt service in line with current market prices. The administration has bailed out the banks for their bad loans, but has kept the debts in place for most of the population. Its promise of debt write-downs has been empty.

[dkf]

1. So if there is no ability to pay do you get everything for free?

[daleanime]

14. Check posts #2 and 7.

[dkf]

15. That's no answer.

[daleanime]

16. Considering the vagueness of your 'question'...

I think its fairly direct.

[Fumesucker]

2. If wages had kept pace with productivity since the early 70's we wouldn't have this problem

[xchrom]

4. +1

[dipsydoodle]

5. Without disagreeing that wages should've increased anyway

the actual background to the problem was capital appreciation in house values being monetised.

[Fumesucker]

6. All part and parcel of the same problem, most people have not kept up economically

Evidently I was taking a more general view of the situation than you do.

Some see too much debt, others see too little income, it's a matter of perspective to some extent.

[dipsydoodle]

3. Difficult as it might have been and preposterous as it might sound

when the shit hit the fan back in 2007 EVERYTHING should've been unwound. That would've left private debt registered only in the hands of those who probably never should've borrowed, house market prices as was and the banks carrying the whole can on their antics.

[cantbeserious]

7. From Steve Keen - US Public Debt vs US Private Debt As Percent Of GDP

[socialist_n_TN]

8. Personally, I look at consumer debt as just another potential weapon.......

in the hands of the working class. At the point when we start having serious general strikes and mass demonstrations on a regular basis(IOW a pre-revolutionary situation), then this consumer debt can be the weapon of a "credit repayment strike". We withhold payment on these debts and file for bankruptcy en masse. Swamp the court system, withhold payment, and withhold labor and the capitalist economic structure eventually collapses.

Edited for clarity.

[cantbeserious]

10. Good Strategy Preempted By Fear - Americans Are Too Fearful To Strike En Masse

eom

[socialist_n_TN]

11. Oh yeah it's not time yet.......

but if it keeps going it will happen.

[cantbeserious]

13. Agreed - It Will Happen Provided Conditions Continue to Degenerate

eom

[reformist2]

9. The bank bailout of 2009 should have been given to the people in the form of debt-reduction credits.

That way you bail out the banks *and* the people in one fell swoop. That would have improved everybody's balance sheets, and we'd have a MUCH more vigorous economy today as a result.

[Egalitarian Thug]

12. Just as with the "solutions" proposed today, what they did was just about the worst of all

the possible choices. Preserving the wealth of the very wealthiest is the only goal being pursued by either political.

The people that have consistently been proven correct pointed this out and they were just as consistently ignored.