Would a National Debt Relief Program Save the Economy?

National debt relief programLeave it to economists to come up with a plan for reviving our economy that is so crazy it just might work.  Several economists recently have suggested that what America needs is a nation-wide debt forgiveness program.

A Reuters article today quotes L. Randall Wray, a professor of economics at the University of Missouri-Kansas City, as saying:

“We’ve put this off for too long… We need debt relief and jobs and until we get these two things, I think recovery is impossible.”

He’s not the only one pushing for a large-scale solution that would help many debt-ridden Americans simultaneously ease their burden so they could contribute to the economy once again.  According to the Reuters article,

What some are envisioning is a negotiated process in which cash-strapped homeowners get real mortgage relief, even if it means forcing banks to incur severe write-downs and bond investors to absorb haircuts, or losses, in some of the securities sold by those institutions.

Wray and other economists who support this idea say such an unprecedented step is necessary because of the so-called “debt trap” we’re currently stuck in.  The term debt trap refers to the idea that that we need substantial economic growth to spur job creation and long-term investment but on an individual level we’re too far in debt to spend the money necessary to grow the economy.  It’s a Catch-22 of sorts.

Hence, the national debt-relief idea.

It remains to be seen whether the proposal will gain any serious traction.  But at least some experts are ready to consider creative solutions that would help the many Americans struggling with debt and boost economic growth.

Image credit: respres

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