A new spike in the national debt from the stimulus and bank rescue calls for fresh ideas.
To jolt the economy and end a recession born out of too much homeowner debt, Congress and the US Treasury this week plan to take on at least $1.1 trillion in new national debt. This "good" debt will be thrown at "bad" debt, in Keynesian logic. It's not really a Ponzi scheme. But that's true only if it works.
At the very least, the expected stimulus of some $827 billion and a new bank rescue of $350 billion will serve as a safety net to keep jobless Americans and the economy from sinking further. Some $50-$100 billion, for instance, is expected to go for mortgage relief.
But it is a leap of faith, even among Keynesian economists, that throwing money into a debt-ridden economy will thaw frozen credit markets and revive the kind of entrepreneurial risk-taking that creates jobs. Meanwhile, it takes little faith to see the debt costs of that leap.
This year, the federal deficit in spending, as a percentage of the gross domestic product, will be the highest since World War II. The total federal obligations for future spending is $56 trillion, or $483,000 per household. Much of that debt commitment is for Medicare. At the same time, Americans still owe about $14 trillion on mortgages, credit cards, and car loans – more than the US economy produces each year.
As lender of last resort, the federal government can live with a large "debt overhang" when others who live beyond their means cannot. It can rely on taxpayers, the dollar printing press, and, for now, foreign countries willing to buy US Treasuries. But this latest spike in national debt should finally force Americans to accept that they and their government must lick a chronic addiction to debt.