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View Diary: Bankruptcy Is Not An Option (41 comments)

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  •  This is what happens when you apply microeconomic (2+ / 0-)
    Recommended by:
    SingerInTheChoir, Pris from LA

    ...thinking to macroeconomic problems.

    Microeconomically is a wonderful way to think when you're running a household of a small business, but when you want to run a country/economy the size of the US, you need to think macroeconomically. And that means more than just altering a prefix.

    To a macroeconomist, one person's debt, for example, is another person's asset. My company may issue a bond to raise money -- that's increasing debt which, if left unchecked, could be bad for my company -- but that bond is grandpa's retirement income -- that's an asset which, if the bond gets paid as promised, is good for grandpa.

    In other words, when thinking macroeconomically, debt is neither good nor bad, as long as the debt is used to generate a profit beyond the value of "the debt plus interest".

    If the federal government arranges to pay the debts of the states, then as long as the states use that money to generate economic activity greater than the value of the debt, the state-generated debt thus owed by the federal government will get repaid over a reasonable period of time by taxes generated by that increased economic activity.

    In other words, keeping states solvent enough to build their local microeconomies will pay off macroeconomically for the country.

    Consider me a Tea Party Democrat, but it's not my "country" I want back:
    The Corporations stole the People's party -- I want my party back!

    by Jimdotz on Sun Jan 23, 2011 at 07:33:06 AM PST

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