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Would you believe it!

on Tuesday, 01 March 1960. Posted in Banks

In the Fundy Fisherman of February 16, this year, there appeared an editorial entitled, "Usury Triumphant". In it the writer, Edward C. Krug, discusses the problem of tight money and high interest rates. During the course of the article he had occasion to deal with the attitude towards debt on the part of some topflight (supposedly) economists. We quote Mr. Krug:

"In order to try and come up with a rational solution to the tight and dear money problem, let us start by discussing some aspects of debt. And I hope I will not give you too severe a shock treatment by what I have to say on the subject of debt.

"First, I want to quote Marriner S. Eccles, former top authority of the U. S. Federal Reserve system:

""Debt is the basis for the creation of money... If there were no debt in our money system, there wouldn't be any money. All money is created by debt — either public or private or both... Our money supply expands through debt."

""The importance of debt creation in our economy is confirmed by the following quotations: "By and large, the growth of debit and the growth of our economy have moved hand in hand. I would not like to think of debt as ceasing to grow in our economy — Arthur Burns, former economic advisor to President Eisenhower."

""If economic growth is not to be placed in financial jeopardy — we must have either unbalanced federal budgets or unbalanced private budgets in the decade ahead" - Dr. Paul W. MacCracken, a former member of President Eisenhower's council of economic advisors.

""We should recall that in our kind of economy, the aggregate expansion of output and employment can only occur with an expansion of debt and credit. This necessary expansion may occur in public debts of governments or in the private debt of businesses and households — Dr. Neil H. Jacoby former member of the council of economic advisors to the President."

""It appears that debt creation is one of the keys to our prosperity and anything that interferes with debt creation is a threat to the level of industrial activity." — Howard F. Vultee, Vice President, Marine Midland Corp.

"Debts and obligations of various kinds are but the other side of investment and if we ever tried to liquidate the whole amount of them or even any substantial fraction, we would precipitate a crisis so severe that general economic paralysis would result. When there is contraction of total debt, private and public, we have deflation. We have never had prosperous conditions without an accompanying expansion of debt, either private or public, or both.... It is beyond dispute, I think, that as debt expands or contracts, business activity rises and falls and that national income increases or decreases in relatively greater volume. Thus, from 1929 to 1933, total debts both public and private, contracted by 4 percent. Yet at the same time the national income fell by more than 50 percent. As a result, the private debt structure, even though contracted, was so large in relation to the diminished national income that debts became insupportable. Hence, our entire financial structure collapsed and general economic paralysis resulted." - Marriner S. Eccles, former top authority of the Federal Reserve System of Banking.

"So here we are faced with a rather disturbing situation, namely, the sum total of public and private debt, when once created, cannot be reduced. Moreover it cannot remain stationery. In fact it must steadily increase, if we are to have prosperous times. Our economic system depends almost wholly for its functioning upon the growing indebtedness of individuals, corporations or government units. And the debt, once created, is here to stay becoming a permanent part of economic life. If we try to reduce the debt, we will bring about a "hair curling" depression which could have revolutionary consequences.

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