To the Editor:
Not to worry about no more treasury bills, bonds, or notes. If we don't restore deficit spending by tax cuts and/or spending increases the market will do it for us, just like 1990, through rising unemployment compensation and falling income tax collections as we slip into recession.
As a matter of accounting, a federal surplus removes an equal amount of income and savings, forcing individuals and business to borrow to spend and fall into a recession when we can borrow no more. Deficit spending adds to our savings, providing the equity base to grow.
The combination of Reagan era tax cuts and spending hikes resulted in the mid '80's deficits that spurred growth. The late '80's tax increases led to the recession of '90. With recession the deficit went up to nearly $300 billion (5% of GDP) by '92, providing the equity base for the latest expansion. With the recent record surplus, savings has gone record negative and consumer debt record positive. This coming recession should again push the deficit up to 5% of GDP ($500 billion) and flood the market with fresh Treasury debt.
Warren Mosler