It's The Debt, Stupid!

Two recent pieces I've encountered on the foreclosure crisis (this and this) are worth a read.  They both, however, miss two things:  the ultimate source of our crisis, and a sad political irony in the way our political leaders have responded to it.

The ultimate source is debt--not just government debt, but private-sector debt carried by individuals as well as businesses.  For the past thirty years, instead of practicing thrift and acquiring capital with which to build new wealth, we've simply borrowed wealth and hoped that the means to pay for it would show up (disclosure:  I'm far from an exception to this rule).  All of us, to varying degrees, are guilty of this. And that is way all of us are failing to gain any kind of economic traction as we try to get back on our financial feet.  Everyone is crippled by debt, and no one has any true capital to build new wealth.

Presidents Bush and Obama, and members of both parties in Congress, meanwhile, have focused on transferring money borrowed by the government to bail out Wall Street, thus preventing the operation of capitalism's most moral principals:  failure has consequences that must be born by the failed capitalists.  Government exists to serve the people, not the economy, and true wealth is built not by the financial elite creating and manipulating debt, but by hard-working people actually doing things that benefit others directly.  Frankly, it would have been better to take all of the aid for the financial sector, divide it by the number of American households, and cut each household a check.  It would have benefited the economy much more.  (I am talking about programs like TARP, not the stimulus package, which did much more good that it is generally credited for doing, and in fact was a form of the type of aid I am suggesting here.)

What would be best?  Personally, I'd like to see a worldwide conference of leading economic powers to draft an international agreement for debt forgiveness (public and private).  Why don't all of us just admit that we can never really repay any of this, and just give one another a fresh start?  After all, this concept is even Biblical (the jubilee year).  And, like the Biblical version, all nations could restrict the use of this approach to once every seven years, so that it would not become an easy-way-out for spendthrift nations and their equally spendthrift peoples.

Have a better idea?  I'd like to hear it.  But don't pretend that private debt, as well as the public kind, isn't the 800-pound gorilla we need to get off all of our backs.