Economic Optimism & Other Illusions

Habitual Swimmers at the Pond are aware of my contention that Paul Krugman, ace economics columnist for the stately New York Times, is occasionally displaced by his Doppelganger, a guy who's not too bright and uses Krugman's byline.  Recently, I'm fairly sure the DG was in residence when Krugman wrote that the public debt was less important than people usually think because "it's basically money we owe ourselves."  I appreciate that the man won the Nobel Prize, but unless he means by "public debt" only that part of the national debt which the U.S. Treasury owes to the various trust funds (e.g., Social Security) which have been systematically looted in order to run the military industrial complex over the last 30 years or so, then his remark makes absolutely no sense.  At least 50% of the national debt is in the form of Treasury obligations (bills & bonds) of various maturities owed to private U.S. citizens and foreign citizens, banks and sovereign wealth funds.  It's just - well, stupid to say anything else.  And we're talking over $5 trillion, and of that amount over half is owed to foreigners.  That is not money "owed to ourselves;" it is very real debt, and the obligation exists against a backdrop of the Obama Administration's determination to invest in a recovery plan which will cost, initially, at least one trillion dollars.  And because of the many bailouts, TARP projects, promises to shore up the auto industry, etc., the deficit for fiscal year 2009 (which we're currently in) is clearly going to exceed a trillion dollars, by far the largest deficit (by a factor of two) in U.S. history, and almost all of that deficit is going to add to the real debt the country owes to real creditors.  The recovery plan of Obama's first year will clearly result in a deficit for fiscal 2010 at least as large, which means the nationald debt at the end of 2010 will exceed $12 trillion, pushing $13 trillion, and almost all of the new debt will take the "real" form as opposed to the DG's idealized notion of illusory debt.  Thus, we're looking at $8 trillion as the non-owed-to-ourselves part of the national debt, and that's difficult to laugh off the way Herr Krugman does.

I think the Doppelganger may have taken advantage of the twinned Christmas/Hanukkah week to push Paul out of his chair again today: 

Whatever the new administration does, we’re in for months, perhaps even a year, of economic hell. After that, things should get better, as President Obama’s stimulus plan — O.K., I’m told that the politically correct term is now “economic recovery plan” — begins to gain traction. Late next year the economy should begin to stabilize, and I’m fairly optimistic about 2010.

So my question for the Gheist is simply this: why?  What is the basis of the optimism?  Now, to begin with I do not want to stand in solidarity with such negativists as Jim Kunstler, the Clusterf**k Man (linked on this very page), who just never gives the American economy or its valiant people a break.  He's convinced that the generation currently in charge of the United States is simply incapable of any kind of rejuvenation, that we lack a real work ethic, that we're addicted to the Cosmic Free Lunch School of Economics, that we'd rather borrow than earn, that we haven't really done anything to ameliorate our situation or improve our modes of living (such as building a real railroad system or investing in sustainable farms) in generations, that we...okay, look.  Kunstler may not be totally wrong.  I note that yesterday Joe Biden, on "This Week," told cute little Georgie Stephanopolous (who does such an unconvincing job of playing a hard-hitting interrogator) that the economy could "tank" or "collapse" if we don't take drastic action, and that we just can't worry about deficits at this point.

I can see that it will do no good to worry about deficits.  It seems to me we're way past that point; indeed, we have crossed over into a new fiscal frontier, one where the Treasury Department is itself buying U.S. Treasuries to finance bailouts.  Now, perhaps I lack the sophistication of a Nobel Prize-winning economist, but isn't that more or less identical to covering a bad check at your bank by writing a check on the same account and depositing it?

"Legitimacy Dwindles."  That's the title on Clusterf**k's column today.  ("Dwindle" is one of only three common English words that begin with "dw," the other two being "dwarf" and "dwell."  See, Itz?  I read the emails, and Happy Festival of Lights.)  To lay my cards on the table, I really, really hope Krugman is right and Kunstler is wrong, and it's because, really, I think they're both partly spot on.  America is unique, which is why, so far, we've been allowed by the world at large to pretend we have the money which Biden talked about spending.  We don't actually have the money - not at all, not even close.  The problem is that the country which must use this unique resource, fake money, in order to revive the world's economies is the United States, and we are that collection of deadbeats, goof-offs, greed-heads, spoiled in-crowd kids sitting at the same table in the cafeteria, the one reserved for those who insist dining daily on the Cosmic Free Lunch.