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Paul Krugman Says “Debt is Good”: Worldwide Markets Crash

Nobel Prize winner Paul Krugman took to the editorial pages of the New York Times to ridicule Rand Paul for declaring American fiscal policy has been irresponsible, since “The last time the United States was debt free was 1835.” But with the world facing another debt crisis, the Dow Jones Industrial Average ridiculed Krugman by plunging -531 points.

Krugman in an editorial titled “Debt is Good,” makes the comment that since 1835, the “U.S. economy has, on the whole, done pretty well these past 180 years, suggesting that having the government owe the private sector money might not be all that bad a thing. The British government, by the way, has been in debt for more than three centuries, an era spanning the Industrial Revolution, victory over Napoleon, and more.”

Krugman is absolutely right that the British economy has not collapsed in three centuries, but the size of their economy did drop from number one to number nine, behind such basket cases as Russia, Brazil and Indonesia.

Krugman knows the reason the US had no debt in 1835 is the First Bank of the United States from 1791 to 1811 and the Second Bank of the United States were both closed.  The American public believed national banks created inflation that made money for “special interests” in New York, referred to as the “money trusts”; while impoverishing citizens in the rest of the nation, according the Federal Reserve Bank of Philadelphia.

There was no national bank for the next 80 years and Krugman might have added regarding the period, “U.S. economy has, on the whole, done pretty well.” In fact, by 1890, the USA surpassed Britain for first place in worldwide manufacturing output.

The United States Federal Reserve was established as the third bank of the United States in 1913. In the 122 years before the Federal Reserve, inflation averaged 0.22 percent and the US dollar lost 24.7 percent of its value. In the 100 years with the Federal Reserve from 1913 to 2013, inflation averaged 3.35 percent and the dollar lost 96.3 percent of its value.

When President Barack Obama came into office there was about $10 trillion in US debt and spending was about $3.0 trillion. When he leaves office, spending will be $4 trillion and the debt will be about $20 trillion. Krugman calls this a success, since “issuing debt is a way to pay for useful things, and we should do more of that when the price is right.”

But Krugman now argues, “The United States suffers from obvious deficiencies in roads, rails, water systems” because of an unprecedented decline in public construction spending.

Perhaps Krugman forgot that President Obama passed an $800 billion-plus stimulus package to fund thousands of projects nationwide that his Administration called “shovel-ready-jobs” to build all of those “roads, rails, water systems.”

Krugman says of Senator Paul Rand and the tens of millions of American citizens demanding government should live within its revenue; “The ironic thing is that these foolish policies, and all the human suffering they created, were sold with appeals to prudence and fiscal responsibility.”

During the Obama Administration’s first six years in office, the US government ran up $8 trillion in debt. The federal government’s “emergency” deficit-spending spree gave credibility for governments around the world to dispense with that “prudence and fiscal responsibility” thing.  Total government debt since 2007 rose from $33 trillion to $58 trillion and is now unsustainably high in some countries, according to McKinsey & Company.

With a potential worldwide government debt crisis swirling on the same day Krugman published ‘Debt is God’, the Dow Jones Industrial Average led all eight major markets down on Friday with a 530.94 points, or -3.1%, crash. Krugman seems to have not made any comment about markets in his New York Times editorial or on his blog.

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