Is Monetizing the Federal Debt a Cure or a Cancer?

Posted by Michael A. Kamperman on June 5, 2009

My Letter to the Editor in the June 5, 2009 WSJ:

http://online.wsj.com/article/SB124416582412987641.html

Regarding Mary Anastasia O’Grady’s “The Weekend Interview with Richard Fisher: Don’t Monetize the Debt” (May 23): Texas went through a debt-induced, asset bubble-popping in the late 1980s and lived to tell about it. But that happened because Texas had vibrant businesses that had growing customer bases outside of Texas. Also, people flocked to Texas from California and New York to scoop up cheap real estate. Texas received a lifeline of growing trade and out-of-state investors that wasn’t available to the U.S. in the 1930s. I know this because I was a banker in Texas in the 1980s and witnessed nine of the 10 largest banks go out of business. Similarly, Japan has received a lifeline of global trade from growing economies in the U.S. and China that wasn’t available to the U.S. in the 1930s, either.

Mr. Fisher, where is our lifeline going to come from? The German and Japanese economies are in worse shape than ours is. Mexico is in a serious depression. We cannot export our way out of this crisis, and massive amounts of foreign money will not be coming to our shores to snap up bargains. Other countries have bargains in their own backyards. In short, the only way out of this crisis is to monetize the debt. We need massive quantitative easing, and we need it now.

If we don’t monetize the debt, the federal government will have to reduce spending. If that happens, we could see asset prices in aggregate fall below the amount of the total outstanding private-sector debt. At that point our economy will not enter a phase of “creative destruction”; it will simply enter a phase of destruction.

Michael A. Kamperman
Waco, Texas