Good Debt Vs. Bad Debt

Arguments focused on the size of the U.S. public debt will get us no place, unless we address the failed economic theories and policies that have mired us in all four of the major varieties of bad debt. To get out of this mess, we need policies that favor productive investment over speculation, living wages and quality public services over consumer debt, public investment in education, research and infrastructure over war and tax breaks for the rich, and domestic production over outsourcing and imports.


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Stimulus Duds And Bailout Blanks

There is no “silver bullet,” no magic solution that will turn back the clock to an era of abundant resources and easy growth. For now, all that governments can do is buy time through further deficit spending—ideally, using that time to build infrastructure that will continue to function in the coming era of reduced flows of energy and resources. Meanwhile, we must all find ways to come out from under a burden of debt that will otherwise crush us. The inherent contradiction within this prescription is obvious but unavoidable.
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Cash-Strapped States Seeking A Way To Declare Bankruptcy

As they confront massive debts and diminished revenue, some state officials are trying to determine whether they could take a drastic and illegal step: declaring bankruptcy, the New York Times reports. Such a move, though currently out of the question, might free states from some of their most burdensome debt and allow them to rebuild their crippled finances.

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The Limits To Debt

Realistically, we are unlikely to see a general debt jubilee in coming years; what we will see instead are defaults and bankruptcies that accomplish essentially the same thing—the destruction of debt. Which, in an economy like ours, effectively means a destruction of wealth and claims upon wealth. Debt will have to be written off in enormous amounts—by the trillions of dollars. Over the short term, government will attempt to stanch this flood of debt-shedding in the household, corporate, and financial sectors by taking on more debt of its own—but eventually it simply won’t be able to keep up, given the inherent limits on government borrowing discussed above.
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Rising Oil Prices And Municipal Bond Defaults

“Municipal” bonds include bonds issued by states, as well as bonds issued by cities and by many types of smaller entities, such as hospitals and toll roads. To date, everyone has assumed that there is not much risk of default, and even if there is, someone else will handle it. But if one looks at the long term oil situation, and the problems states and cities are having already, it is pretty clear that the debt default problem is likely to get worse over time, and there is really no one set up to handle the default risk.

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