Since the Great Depression of the 1930s, the government has stepped in and tried to protect people who have been urged to borrow by flocks of unscrupulous debt peddlers. These are snap shots of American economic history that should teach the Republican Conference that government supervision is sometimes needed to protect the public, but the leaders of the Conference seem to be unteachable. Others will remember a classic book written in 1917 (“The Rise of David Levinsky” by Abraham Cahan) that ends with the collapse of a credit-financed New York City real estate boom. They were wiped out when the values of what they had bought on credit collapsed in the 2008-2009 Financial Crisis. ![]() Only a few years ago millions of mechanics, factory workers, waiters, housekeepers, taxi and Uber drivers were gulled by shady debt-peddlers into taking mortgages and loans on homes, cars and the like that they could not afford. Voters ought to be aware from their own recent experiences how these crises work. The acute danger has been deflation (collapsing debt leading to falling prices and wages) not inflation. The borrowers did not default because of inflation caused by government spending, as the anti-government mythology suggests, but because overly aggressive private lending and borrowing repeatedly led to gluts in farm products, railroad capacity, and real estate, and prices eventually fell. Vague shows that crises and depressions have always been the result of banks lending too much and borrowers borrowing too much and then being unable to pay what they owe. Not one of them was caused by government debt, not one. Several of these reduced farmers and working people to penury, the local dole, or a bread line. ![]() It shows that in 200+ years the country has had roughly 10 private debt crises leading to recessions or depressions. “The Paradox of Debt A New Path to Prosperity Without Crises,” is a deeply researched book by former banker Richard Vague that explains debt as a central feature of American history. They seem not to have noticed that excessive private debt, never government debt, has been the cause of all the financial crises and depressions that have hurt ordinary Americans repeatedly through that long history. Incredibly, Speaker Kevin McCarthy (R-Calif.) and House Republicans seem willing to drive the U.S., the guardian of freedom through a debt-financed Civil War, two debt-financed World Wars and 70 years of a debt-supported armed peace, into a potentially disastrous default over the issue of government debt. The government debt ceiling and the important role of government borrowing and debt are misunderstood because many politicians and commentators are blind to American history.
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