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The U.S. economy could spiral into a new depression, with the global economy following closely behind if deficit hawks have their way, economist Richard Duncan says.
Author of the new book The New Depression: The Breakdown of the Paper Money Economy and chief economist at Blackhorse Asset Management, he tells BNN if the U.S. takes immediate steps to balance its budget, “that would lead to immediate economic collapse.”
The new depression has been staved off by rising government debt, Duncan says.
“So long as that continues -- these trillion dollar budget deficits -- then we will be on government life support and we won’t collapse,” he says, adding this can continue for five more years.
But he warns that a Japanese-style model of running massive budget deficits for decades is not the solution. The U.S. could do this, he says,“but then go bankrupt in ten or 15 years and ultimately collapse into a new depression."
Duncan says the U.S. economy went from capitalism to “creditism” when its currency was no longer backed by gold. What followed was a rapid explosion of credit that fueled economic growth.
“The problem now is the private sector can’t bear any more debt. And so, if credit now begins to contract, we will spiral into a new depression,” he says.
He suggests coming up with a spending plan for the government to invest trillions over the next ten years in “transformative” technologies: Nanotechnologies, genetic engineering, biotechnology and solar energy.
“We can completely restructure the U.S. economy, establish an unassailable lead in 21st century industries and lock in another American century,” he says.