Stimulate And Plan!

Revised: January 6, 2011.

In an opinion published in the New York Times by Paul Krugman titled Nobody Understands Debt, he says;

Of course, America, with its rabidly antitax conservative movement, may not have a government that is responsible in this sense. But in that case the fault lies not in our debt, but in ourselves.
So yes, debt matters. But right now, other things matter more. We need more, not less, government spending to get us out of our unemployment trap. And the wrongheaded, ill-informed obsession with debt is standing in the way.

I agree we should use debt to stimulate now to reduce unemployment and improve growth. I did this with some reservation that our high dependence on imports would surely dampen the affects of any stimulus. However, as the chart below indicates, imports hovered around 16% of GDP prior to 2008 and this should not cause a significant concern. We do need to focus on a plan to reduce our debt; not immediately but soon.

I understand that most of the debt owed by our government is owed to Americans. This maybe somewhat better than owing it to foreign countries; however it still is an issue. At some point, if our deficit is not brought under control, interest rates will rise significantly and we will choke on debt service. When the heirs of Bill Gates decide to cash in some of their U.S. Treasury holdings the government will have to pay a much higher interest rate and this will exasperate our problems.

The President must fight equally hard to stimulate now and to develop a plan to get our deficit under control in the future. Both are necessary. More:


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