Who's Afraid of the Big Bad Debt?

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Warren Mosler

Not Warren Mosler, bond trader, racecar dabbler, Senatorial candidate and recent author of The Seven Deadly Innocent Frauds.

Ronald Reagan, maestro of the homespun quip, famously said that if he found a pile of manure in the barn, “there must be a pony in there somewhere.” In the debate over the country’s supposedly looming debt crisis, Reagan’s earthy expression seems apt.

On the one hand, the country can’t ignore its large and growing manure piles: the budget deficit, trade deficit and national debt. Woe R Us. But every debt is also an asset, and every government outlay is money in someone’s pocket. So, in discussions about debt and entitlement spending, I wonder, where are the ‘ponies’? Where are the assets?    

Turns out, there’s a herd of them. Obviously, when the government mails out Social Security checks or Medicare reimbursements or orders a fleet of stealth aircraft, the money doesn’t go to Mars. It cycles through the economy (until or unless the government collects it as a tax). More to the point, the Chinese probably don’t see their hoard of T-bonds as a shaky pyramid of worthless debt. They call it savings.

I’m not claiming that all is right with the financial world. Not at all. But when I read about our fiscal crisis I feel that I’m only getting half the story. It just doesn’t add up. So I’ve been looking for the other half of the equation. That’s when I discovered the writings of Warren Mosler.    

At 61, Mosler has been a banker, bond trader, racecar builder (see photo below), and Senate candidate in Connecticut (he ran in 2010 as a “populist Tea Party independent”). He now lives in and blogs from St. Croix (Paul Krugman is a neighbor). Last year he wrote a little book called “The Seven Deadly Innocent Frauds.” In it, he claims that our most cherished concepts about money are wrong.

Read more articles by Kerry Pechter