Today, in lieu of a cartoon today, let’s take a look at an article that belongs in The Onion, or the back page of the Sunday Funnies.

The only problem is the author is dead serious. Please consider In Defense of Deficits

In Defense of Deficits

There are two ways to get the increase in total spending that we call “economic growth.” One way is for government to spend. The other is for banks to lend. Leaving aside short-term adjustments like increased net exports or financial innovation, that’s basically all there is.

Governments and banks are the two entities with the power to create something from nothing. If total spending power is to grow, one or the other of these two great financial motors–public deficits or private loans–has to be in action.

When Obama says, even offhand, that the United States is “out of money,” he’s talking nonsense–dangerous nonsense. One wonders if he believes it.

Nor is public debt a burden on future generations. It does not have to be repaid, and in practice it will never be repaid. Personal debts are generally settled during the lifetime of the debtor or at death, because one person cannot easily encumber another. But public debt does not ever have to be repaid. Governments do not die–except in war or revolution, and when that happens, their debts are generally moot anyway.

So the public debt simply increases from one year to the next. In the entire history of the United States it has done so, with budget deficits and increased public debt on all but about six very short occasions–with each surplus followed by a recession. Far from being a burden, these debts are the foundation of economic growth. Bonds owed by the government yield net income to the private sector, unlike all purely private debts, which merely transfer income from one part of the private sector to another.

Those statements are by James K. Galbraith, a senior scholar at the Levy Economics Institute.

My short response is that governments cannot create wealth they can only steal it. Banks and the Fed cannot create wealth because money is not wealth, real production is. Printing of money is theft, not creation of something of something from nothing. Inflation redistributes profits from the poor and middle class to those with first access to money, the already wealthy. Inflation hollows out cities and creates slums like Detroit. Carried to extreme, the result is Zimbabwe.

Like perpetual motion proposals, James K. Galbraith’s article does not really deserve a response, only laughter and ridicule. His article would be hilarious if it was written as a spoof in the onion.

Unfortunately, Galbraith is serious. Even sadder, belief in something for nothing is commonplace.

Indeed, the housing bubble, the credit bubble, and this crisis in general were all caused because banks, the government, and the Fed believe in something for nothing.

Mike “Mish” Shedlock
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