Re: Does Debt Matter

[Hyman Blumenstock <hystock@xxxxxxxxx>]

Harry Veeder wrote:
>
> On Wed, 29 Oct 1997, William F. Hummel wrote:
>
> > Per Berglund  wrote
> >
> > >William asked:
> > >> (1)  If debt does matter, what are the negative implications and how do
> > >they develop as a function of increasing debt/GDP ratio?
> > >
> > >Per:
> > >I see both positive and negative implications. The public debt can be too
> > >small and it can be too large -- there is a hump-shaped relation, I think. I
> > >reckon this question is about the zone where the debt is too large, and the
> > >problem with too large a debt is that it will fuel too much aggregate
> > >demand, which will cause inflationary pressures.
> >
> > William:
> > The connection between aggregate demand and size of debt is not
> > at all clear to me.  Also the assumption that increasing
> > aggregate demand will necessarily fuel price inflation needs to
> > be explained.  Why cannot supply grow apace with demand under the
> > assumed conditions?
>
> Let me try this. A "high" national debt/GDP ratio pushes national
> (aggregate) demand ahead of national (aggregate) supply. Inflation is
> a natural consequence of demand exceeding supply. Inflation says, "restrain
> your demands!".
>
> Harry Veeder

Is it not obvious that in view of our high rate of unemployment that the
reverse is true, that Supply has far exceeded Demand, for at least the
last century?  If we indeed had a short Supply, and an unfulfilled
Demand, would that not reduce Unemployment, the reverse of current
conditions?  Is not "inflation" a now deliberately controlled condition
of Price Fixing and arbitrary adjustment by the Federal Reserve?

Hyman