Posted by: Dirk | July 2, 2009


The HWWI has published a study on government debt. Here is what they say (p.6):

Neben den negativen fiskalischen Implikationen von Staatsschulden entstehen auch wesentliche realwirtschaftliche Folgen. So bedeutet die staatliche Kreditaufnahme, dass weniger Kredite für die Finanzierung von privaten Investitionen zur Verfügung stehen.

Apart from negative fiscal implications of government debt there are also consequences for the real economy. Expanding government debt means that there will be less credit to finance priavte investments.

Repeating a wrong argument doesn’t make it better. These people do not understand saving. There are two ways to save money: invest in government bonds or in private sector IOUs (corporate bonds, stocks, …). If people and banks (which hold their money) do not trust the private sector, the only other opportunity to invest is government bonds. If these are not on offer, people will be hoarding money either directly or the banks will hoard the money for them. This is exactly what is happening now.

On the same page, the authors reveal they do not understand debt either:

Neben den expliziten Staatsschulden belasten auch implizite Staatsschulden durch die Sozialversicherungen zukünftige Generationen. Die impliziten Staatsschulden entstehen, da die derzeitigen Beitragszahler in umlagefinanzierten Sozialversicherungen Ansprüche an zukünftige Zahlungen erwerben, denen keine Einnahmen in erforderlicher Höhe gegenüberstehen.

So, because of entitlements in the future that are not covered by any income there is additional implicit government debt. Of course we have a problem in that there will be fewer workers per retired person in the future. But implicit government debt? How can we understand something as debt today that might or might not develop in the future? This is plain silly. The pension system will be in trouble, but stating the problem clearly is a precondition for solving it. Again, there is complete misunderstanding about how the financial side and the real side of the economy fit together.

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