How to Save the Global Economy: Write Off the World's Debt

The best way to restart global growth is with debt. We need both more and less of it. Bear with me here.

We need less debt now: Developed-world debt is holding the recovery back. Individuals are cutting what they owe as fast as they can, especially in the United States and Europe, and governments aren't picking up the difference. After briefly loading up on debt -- in part because of stimulus, but now mostly because of bailing out broken banking systems -- they now have the deleveraging bug, too.

Cash diverted to paying off bills must come from somewhere, however, and that somewhere is consumption. With the United States and Europe together accounting for half of global GDP and with consumption making up 70 percent of U.S. GDP, we have a math problem: No matter what innovations are introduced, no matter what entrepreneurial ideas are tried, there aren't enough customers for the United States to export its way out of the self-imposed austerity that comes with deleveraging. Consumer demand is the most precious product in economic life, and the United States, normally demand's biggest provider, is rationing its supply. A deleveraging U.S. consumer is not reconcilable with a speedy global economic recovery. Read more.....