More evidence the US is not going to hell in a handbasket

If you’re worried about the US going the way of Greece anytime soon, don’t be.

For a start, the US is really not drowning in debt any more than it already was:

Note the little red bit on the right. That's the whole point.

Of course it’s true that the US government has ramped up borrowing recently, and like the UK it is on track to keep borrowing more for the foreseeable, too.

But this borrowing – and US net debt in general – is underwritten by the fact that America is a very rich country with spectacular private sector wealth.

What’s more, the private sector has been deleveraging rapidly during the credit crunch, whether through choice or through abandoning mortgages and so on.

In such circumstances, Keynesian economics says the Government should take on more debt to avoid the fire going out completely. As the private sector recovers its animal spirits, Government spending and debts can be reduced again.

Now, it’s true the US government – and even more so the UK government – went into the recession already spending more than it should have been. This is why our governments have had to borrow so heavily to maintain public spending during the recession.

But that was a debate we should have been having in 2007, not in 2009.

I recently had an enjoyable ding-dong on Monevator about the state of the US economy, so head over there if you want more.

(Source: Business Insider)

Tagged as: government debt, public spending, US