There are about 200 Million adult American citizens.

Suppose in 2008 the US government just credited every single one of them with $100K and floated $20 Trillion in debt to cover it.  A few questions

  1. Could the US have floated $20T in debt. On one level the US can float as much debt as it wants so long as the Fed is targeting the Fed Funds rate. So the question is: would this lead to hyper-inflation?I don’t know. I doubt it but it depends on how much would have gone to immediate spending versus paying down debt/savings.
  2. Lets say 90% went to savings/paying down debt. Then that’s an immediate fiscal stimulus of $2 Trillion. Not bad and certainly not hyper-inflationary.
  3. Lets say that $18 Trillion went to savings/paying down debt. That is enough to get America of the balance sheet crisis caused by the crisis. We lost about $18 Trillion in wealth, top to bottom.

FRED Graph


Okay now but you would have a huge increase in government debt. Looking at 2008 levels we would have gone to just under 30T in government debt

FRED Graph

Assuming that a huge stimulus and a repair of US balance sheets fixed the recession we would be looking at a GDP of around 17 Trillion today and so a debt-to-GDP of 175%.

However, given the huge income boost that had just come, it would have been feasible to let the Bush tax cuts expire on everyone. That combined with lower public assistance and a larger tax base should have tipped the US towards budget balance.

This means that the Debt-to-GDP ratio would begin falling fairly rapidly. At a rate of about 5% per year.

If we look at the total debt in the year 2030 would we it be higher or lower for having pursued this strategy? Its not clear that we would be higher.

I am not arguing that this would have been workable politically or otherwise, but just as a theoretical exercise it seems interesting.

We might want to ask though: how could we get something from nothing? How could we borrow a bunch of money and still owe less.

The two part answer would be

A) that we are employing resources that were idle

B) We are exploiting the fact that the US government can issue credit at lower cost than the US people collectively, even though the government is the people. Indeed, at lower rates than essentially any individual American.

Interesting stuff.

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