The Washington Post simply cannot let go on its deficit obsession. The day after a new GDP report indicates that the unemployment rate will remain near double-digit levels long into the future, the Post's lead editorial warns people that something really bad could happen ten years out if we don't deal with the deficit. As is their way, the Post never discusses the situation honestly. It begins by telling readers that:
"increasingly, 'the public' [in "publicly held debt] means foreign governments and investors."
Why does it matter that foreigners hold government debt? Why would anyone care? There is an issue about foreign ownership of U.S. assets, which means that future income on these assets will flow abroad rather than to people in the United States, but this is as much or more of an issue of foreigners holding private assets like U.S. stocks and bonds. Furthermore, foreigner's acquisition of U.S. assets is tied to the trade deficit and the value of the dollar. If the Post is upset about foreigners holding too many U.S. assets than it should be editorializing for a reduction in the value of the dollar. Hasn't anyone on its editorial board taken econ 101?
The Post fails to mention the two factors that are driving its deficit/debt horror story. First is the debt that is being accumulated simply due to the downturn. I guess since they don't seem to have access to government data at the Post's editorial board they don't know about the high level of unemployment and the severe recession driving up deficits. The prospect of these deficits creating a high interest burden for future generations can be largely eliminated if the Federal Reserve Board just bought and held the bonds used to finance this deficit.
If that seems implausible, there is a good example of exactly this being done on a small island nation called "Japan." Over the last 15 years, Japan's central bank has bought up an amount of government debt that is almost equal to Japan's GDP. As a result, Japan's interest burden is less than 2.0 percent of GDP (@ $290 billion a year in the U.S.) even though its ratio of debt to GDP is close to 220 percent. In spite of this massive intervention by the central bank, Japan continues to be plagued by deflation, not inflation.
The other factor driving the deficit projections is the projected explosion of U.S. health care costs. If the U.S. faced the same per person health care costs as people in other wealthy countries we would be looking at surpluses, not deficits. However, the Post -- as a bastion of deficit chicken hawkism -- doesn't like to talk about health care reforms that would threaten the interests of the pharmaceutical industry, insurance industry and other powerful groups. They just want to cut programs like Social Security and Medicare that benefit ordinary workers.
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