Danger of Global Recession After 30 Years of Neoliberal Counterrevolution – Flassbeck (3/3)

The Real News Network has just published the final part in its three part series.  This last segment is Danger of Global Recession After 30 Years of Neoliberal Counterrevolution – Flassbeck (3/3).

As I write this the US stock market has been open for 14 minutes, but I have not looked at its results yet.  Going by what happened yesterday, if this segment of the interview had been released a few days ago (probably shortly after it was conducted), it would have sounded remarkably prophetic.

Anyway, now for the obligatory excerpt from the interview.

FLASSBECK: There’s only one tool available then, and that would be fiscal policy, that would be deficit spending, no doubt about it, despite all the ideological barriers we have in many countries to use that instrument. There is nothing else available. What can you do? Will you fiddle around with structural measures, so-called structural measures or reforms or labor market flexibility or all this nonsense? That will not work anymore. You need then a very strong instrument. And the only instrument that is available is–call it New Deal or deficit spending–is spending money by the government.

And there are many needs all over the place–ecological needs, infrastructure needs, education needs. So we have to stop at a certain point this phobia on debt.  …

A commenter on YouTube about this video, wrote that he had a hard time understanding what Flassbeck was saying.  The commenter thought that real prices were rising.  I replied with the words below:

“real prices are rising”, NOT.  The problem now is fear of deflation, that prices will fall.  If you don’t have firm grasp of what is actually happening, it is no wonder you cannot understand the proposed solutions.

The US government debt is totally fictitious.  A country that is sovereign in its own currency cannot be in debt in its own currency.  Our government has gone out of it way to make it look like we are in debt for reasons that are not about economics.  If the government did not sell Treasury securities that pay interest, then the holders of that “debt” would be left with only one alternative.  They would have to leave their holdings of US money as not interest accruing reserves with the fed.  So the US Gov’t is actually doing them a favor by paying them interest to change their reserve holdings into “debt” holdings.

I think the term phobia is absolutely the right term for fear of something that does not exist.

You need to read up on Modern Money Theory.  Google it.  Also known as MMT.


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