Public Debt Tipping Point Studies Ingnore How Exchange Rate Changes May Create A Financial Meltdowns

The public debt may hamper US GDP say studies that estimate debt tipping effects as if there were a single world currency. This means that such studies ignore the likely biggest cause of changes in growth rates, namely damage from exchange rate liquidity shocks because we do not live in the fairyland of a single world currency. The conclusions of these studies are accordingly invalid. They deflect attention from a prime danger, namely an exchange-rate-precipitated global meltdown. These studies are misleading in other respects too. Their estimates of growth determinants implicitly or explicitly conflate the differential growth effects of government expenditures and with those of government debt. They fail to allow for the increase in wastefulness of private production. This is despite the fact that over the last 40 years, there have been private activities, including key segments of the financial and the pharmaceutical industries, whose expansion has damaged overall health and growth. The upshot is misdirected policy analysis and advice. Policy should instead be directed to adequate employment-generating fiscal stimulus in a global downturn, to averting further damage from exchange rate liquidity shock by creating a single world money and to ensuring that for profit activities in the pharmaceutical and financial industries are adequately regulated, and where this is infeasible, shut down and replaced with fiscally stimulated productive activities.