Economist: There is no debt crisis. (source)
Gerald Epstein is codirector of the Political Economy Research Institute (PERI) and Professor of Economics. He received his Ph.D. in economics from Princeton University. He has published widely on a variety of progressive economic policy issues, especially in the areas of central banking and international finance, and is the editor or co-editor of six volumes.
JESSICA DESVARIEUX, TRNN PRODUCER: Welcome to The Real News Network. I’m Jessica Desvarieux in Baltimore.
Congress has until Thursday to raise the debt ceiling, the legal limit on what the country can borrow. Gerald Epstein is codirector of the Political Economy Research Institute. And he’s here to discuss with us what exactly all of that means.
So, Gerry, how are you?
GERALD EPSTEIN, CODIRECTOR, PERI: I’m good.
DESVARIEUX: So let’s get right into it. What is your analysis of this whole debt-ceiling debacle?
EPSTEIN: Well, debacle is the right word. This debt ceiling debacle really is a sign that the United States government is in disarray, which we have known. But it’s more of a sign to the world that the whole regime that was started after the Second World War, in which the United States was the dominant power and the economy was based on the U.S. dollar as the key and the safe and the central currency, that whole system is now falling apart, and the debt ceiling debacle more than anything else really signals the beginning of the end for that system.
DESVARIEUX: Okay. And this whole notion of hitting a debt limit sort of reinforces the idea that the U.S. has a national debt crisis. Do you think the U.S. deficit and debt are at all at crisis levels?
EPSTEIN: No, not at all. The debt ceiling is an odd legal rule that was set up in the 1920s to try to give Congress some say over borrowing. But in fact it’s redundant because the United States Congress and the president make decisions about spending, and by making decisions about spending they’re also make decisions about how to finance it. And if their budget requires borrowing, then that’s implicit in the decisions made by the Congress. So it’s completely redundant and adds a political complication to the whole structure that we now are living with.
DESVARIEUX: But you do have those that say that long-term debt is not really in the interests of the country. I know, you know, you cannot compare the United States Treasury to the way a household operates, but at the same time, in the long term we shouldn’t really be accumulating more and more debt. What set of policies do you think would most effectively lower the nation’s debt?
EPSTEIN: Well, one really has to look at this more carefully and see that debt is not really the issue, because after all, debt is just one side of the balance sheet. There’s the liabilities. That’s the debt. But there’s also the assets that you get for the debt.
The big problem for the United States is not the amount of debt that it owes, but it’s the way that it’s been investing in social assets–in education, in infrastructure, in all the things that can make the economy develop properly. There hasn’t been enough investment in green technology and so forth. So we really should be focusing on the investments in the real economy, in the infrastructure and the education. And oftentimes those kinds of investments, they pay for themselves in terms of more and more revenue. But as the economy grows, the amount of debt relative to the GNP goes down anyway. And I think most economists, including at the Congressional Budget Office and elsewhere, realize that this whole debt is a secondary issue. So what is the issue? The issue, from the perspective of the Congress, financed by big billionaires, the right-wingers that are financed by big billionaires like the Koch brothers and others, their goal is to completely dismantle those aspects of the government that threaten them, and that includes threaten them with higher taxation, threaten them with environmental regulations, carbon taxes, etc. They want to paralyze the government so it’s not able to impose those kinds of things. And this debt ceiling fight has gotten out of control. They can’t necessarily control the system, and it’s led to a very dangerous impasse.
DESVARIEUX: Okay. And let’s just say that we make it to Thursday and we don’t have anything passed which raises the debt ceiling. What do you see transpiring? And what will happen to the U.S. Treasury and the economy in your predictions?
EPSTEIN: Well, as we’re already starting to see, there are starting to be cracks in the global financial system, because, as I said before, the U.S. dollar and U.S. Treasury securities and government debt are really the foundation for the global financial system. And interest rates are starting to go up on debt that’s coming due, U.S. government debt that’s coming due at the end of the month and the beginning of November. And built on this debt as a result of the kind of globalized casino economy that we have is a whole pyramid structure of other debts and bets and claims and counterclaims held by banks and pension funds and governments. So what we’re going to start to see is, little by little, an increase in the interest rates based on that debt. We’re going to start to see selling more of that debt and other debts. We’re going to start to see financial institutions that are in trouble. All of that is going to get worse and worse as investors begin to realize they might have to make an exit for the door.
And part of the problem is that it’s time to end the world economy’s dependence on the dollar as the central currency. We need a globalized currency like the special drawing right the IMF has created or something like that so that we can reduce the dependence of the world economy on these crazy political battles here in the United States.
DESVARIEUX: Yeah. We’ll be certainly tracking this crazy political battle here on The Real News.
Thank you so much for joining us Gerry.
EPSTEIN: Thank you.
DESVARIEUX: And thank you for joining us on The Real News.
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