Dirk McCoy

Financial Panic Is No Solution to Economic Woes

There are two extreme solutions, credit collapse-bank panic Armageddon, or debt forgiveness-bailout mentality avoidance. Neither is optimal, as they reward those who are most malfeasant while changing the socio-economic contract- you have to pay back what you borrow.

What is the optimal solution? Monetization. This makes it easier to pay back debt, while punishing those who gave out too much credit. The risk is inflation, which will reduce living standards- especially if social security, welfare, and minimum wage entitlements aren't indexed.

But shouldn't this be the fate of those who borrow more than they can repay? And technology, increased global production capacity, and recognition of the fairness of living within one's means (no matter how meager) can mitigate the worst effects of this shift upon the national psyche.