Monday, June 14, 2010

How to make your National Debt vanish.

As Milton Friedman correctly pointed out, a “National Debt free” regime is feasible if not better than more conventional regimes. That being the case, a switch to a debt free regime should not be difficult. And indeed it isn’t. Governments that issue their own currencies and wishing to make the switch (plus those just wanting to substantially reduce their national debts) should proceed as follows.

1. Adopt policies A and/or B below.

A, cease, or substantially reduce the proportion of maturing debt that is rolled over. Instead, just print money and pay off the relevant creditors. B, stop creating, or substantially reduce the amount of debt created in the first place. Instead, obtain the necessary funds from printed money.

A and/or B would almost certainly be too stimulatory and inflationary. This can be countered by a form of national debt repayment (C) which is deflationary: obtaining the funds for repayment from increased taxes and/or reduced government spending.

This gives governments two levers (A and/or B) and C which can be adjusted to bring any rate of national debt repayment desired, plus any stance on the reflation – deflation scale that is desired.

For example, for a faster rate of national debt reduction, apply more of both (A and/or B) and C. And for a more deflationary method of debt reduction, increase the amount of C relative to (A and/or B).

But that is not a message that Goldman Sachs, other banks or the well paid employees in the world’s financial centres want broadcast. They have an interest in seeing governments heavily in debt. They devote millions and will devote further millions to furthering their interests: foisting debt on governments.

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