Cancel all debt? I love the idea, but don’t we need debt for the economy to survive? T. Gregory Seattle, WA

Can the economy ‘survive’ without debt. Yes, on some level, but would it ‘thrive’? Probably not.

Good debt is necessary for an economy to grow. Good debt is borrowed money that will pay for itself. You borrow money to learn a useful skill that will allow you to earn enough money to pay back the loan and make more money for yourself. Good debt on a national level is when the country invests in infrastructure that allows for more efficient production. Such things as good roads to get products to market or dams to create electricity can be considered good debt. The debt is paid back from taxes on the increased earnings of the businesses and workers that become more productive because of the infrastructure.

Good debt is not excessive. When you can’t make the payments on your mortgage, you have too much debt. Government debt is excessive when it cannot be met without cutting essential programs or printing so much money that inflation soars.

Bad debt is that which doesn’t pay for itself or is so large as to be dangerously burdensome. Unhappily, there is a lot of bad debt around right now, both personal and public. Personal debt in the US is currently 17.5 trillion of which 1.13 trillion is credit card debt with interest rates a loan shark would be envious of. Much of that is for consumer goods that don’t pay for themselves and depreciate in value.

Nationally, the public debt is over 28 trillion and growing year by year no matter which party is in power. A more accurate measure of what is owed is the Gross National Product (GDP). This measures what is owed compared with how much a country produces. However that too is uncomfortably high at over 100%.

A significant measure of whether there is too much debt is the impact that the interest charges have. Interest costs for 2024 are projected to be about 892 billion dollars. This is nearly what is budgeted for national defense and much larger than many other sectors of government spending. Some of that money goes to China, currently considered a rival for world power.

As you read in Jubilee, not all debt was cancelled and provisions were made to help those with limited resources. But most debt was cancelled and the economy boomed.

Canceling debt does not stop the creation of new debt. Think of debt as ‘new money’ which is needed for a country with a growing population and economy.

Even if the federal government had recurring balanced budgets, the money supply would still increase thanks to bank lending. Banks lend most of the money invested or deposited in them thus making ‘new money’.

To answer your question, yes, debt is needed for an economy to function well. But debt needs to be in the right amount and used for good reasons. That currently is not what is happening.

There are other ways to bring down the debt than what occurs in Jubilee. However each of those methods have major problems of their own. I’m getting questions about alternatives to Jubilee which I will address in my next blog entry.