Yves here. I was too distracted to take on Bernanke, the man who told us subprime was contained in May 2007, try his hand at economic forecasting yet again, this time on the side of deficit hawks. So I am glad to see Bill Black do the heavy lifting.
By William K. Black, Associate Professor of Economics and Law at the University of Missouri-Kansas City and author of The Best Way to Rob a Bank is to Own One. Originally published at New Economic Perspectives
Ben Bernanke recently gave a speechpredicting that President Trump’s deficits will cause the economy to “go off a cliff in 2020.” Many Democratic Party politicians, of course, will rush to embrace the criticism and prove that they are the true party of fiscal responsibility. They can then get back to pushing for increased taxation and cuts to the safety net “to save it” from collapse – and feeling virtuous. These Democrats will glory in their supposed virtue and gravitas as they oppose ‘excessive’ stimulus, cut the safety net to ‘save it,’ oh-so-judiciously cut funding for social programs, and push for higher taxes. They know this is bad politics, but that adds to their faith that the more bitter the medicine the greater the curative properties. Faith-based federal deficit phobia, however, is terrible economics and terrible politics.
Bernanke is one of the worst of the anti-regulators most culpable for creating the criminogenic environment that created the three great epidemics of “control fraud” that drove the financial crisis and the Great Recession. The Democrats’ cast their eagerness to join in the Bernanke chorus as realpolitik – the enemy of my enemy is my ally. It is common that the enemy of your enemy is peddling terrible ideas that will harm the public.
Myth Number One: ‘Full Employment’ is the Worst Possible Time for Fiscal Stimulus
Bernanke is peddling multiple, harmful financial myths about federal budget deficits that were falsified decades ago – and then falsified again five years ago. The first myth is the base myth – that running a federal deficit when the Nation is not in or recovering from a recession is harmful and irresponsible. Bernanke does not discuss the implications of the fact that the United States has a freely-floating sovereign currency and borrows in that currency. Bernanke is apoplectic that Trump is using fiscal stimulus “at the very worst moment” – “full employment.”
The overwhelming majority of economists, including Paul Krugman, share Bernanke’s core myth. It is important to understand that while it is a myth, it is paradoxically sometimes nearly true. It is a myth because it is the wrong concept. Modern monetary theory (MMT) does not predict that a Nation with a sovereign currency’s fiscal deficits are economically irrelevant or inherently desirable. MMT focuses on real constraints, such as shortages in important resources needed for innovation and growth. MMT cautions that such resource shortages can produce inflation and that substantial inflation is harmful to the overall economy and individuals. Very low levels of inflation that have characterized the last two decades have often been too low according to central bank ‘targets’. Even small levels of negative inflation (deflation) can cause serious harm by discouraging consumption, which prolongs and deepens a recession.
“Full employment” sounds like a real resource constraint. Labor is a resource to conventional economists. Edmund Burke, drawing on Adam Smith, insisted that labor was a “commodity.” (To us, labor is far more than a “resource” and never a “commodity” – workers are human beings.) Conventional economists want us to treat “full employment” as a constraint. Neoclassical economists seek to present “full employment” as such a severe resource constraint that we should not aim to achieve full employment because it will supposedly cause large wage increases that will produce substantial inflation. I am describing the mythical Phillips curve that purports to describe the inherent tradeoff between reducing unemployment and increasing inflation.
Conservative economists view unemployment as a minor problem and often begin warning about the supposed risk of severe inflation when unemployment falls to around five percent. Five percent unemployment leaves over ten million Americans who desire full time employment unemployed, underemployed, or withdrawn from the labor force because they are discouraged from seeking work or can only find work at wages that pay them less than the child care and transportation costs they would have to bear if they worked outside the home.
For roughly the last eight years, dramatically decreasing unemployment has led to inflation rates so low that they do not even meet the Fed’s ‘target’ rate for inflation. Wages continue to stagnate or increase well below the rate of productivity increases. ‘Full employment’ has proven to be an illusory concept rather than a hard resource constraint.
The term has no precise meaning, even to economists. The definition of unemployment is unsuccessfully seeking employment. This means that people who have withdrawn from the labor force, whether because they are discouraged about their job prospects or ill, are not classified as unemployed. Our ‘unemployed’ statistics classify the underemployed as ‘employed.’ What all of this means is that “full employment” is rarely a hard resource limit and that approaching supposed ‘full employment’ often produces minimal inflation and weak wage growth.
Myth Number Two: Substantial Debts Cause Economies to ‘Fall Off the Cliff’
The second myth is that when the national debt to GDP ratio approaches 90 percent economic growth rates tend to collapse – to fall off the cliff. This is the myth that Carmen Reinhart and Kenneth Rogoff spread in their initial 2010 paper and subsequent book. Reinhart and Rogoff preached their myth for the explicit policy purpose of discouraging the use of fiscal stimulus to speed the global recovery from the Great Recession. They claimed that increased fiscal stimulus would push many economies back into recession. Scholars at the University of Massachusetts at Amherst exposed this myth as the product of Reinhart and Rogoff’s data entry errors and biased coding.
Prior to this exposure, however, the British Labor Party’s chief economic minister and then Prime Minister relied on the Reinhart and Rogoff myth to abandon stimulus in favor of a self-destructive policy of austerity that ruined the UK’s economic recovery and crushed the Labor Party politically. Given the infamous nature of Reinhart and Rogoff’s failures that discredited their ‘fall off the cliff’ claim, it is bizarre that Bernanke would roll out the same myth in a speech in mid-2018. Reinhart and Rogoff failed to distinguish between nations with a sovereign currency and nations lacking such a currency.
Myth Number Three: Deficits Remove Essential ‘Fiscal Space’
The Huffington Post journalist that wrote about Bernanke’s speech wrote these sentences as if they were an indisputable fact rather than the third Bernanke myth about the dangers of deficits.
Stimulus packages are used when the economy is flagging. When the economy does slump in the future, there may be few reserves to spend to get it going again.
Neoclassical economists spread this myth. They usually refer to it as “fiscal space.” The ‘logic’ is the same as that presented by the journalist – current fiscal stimulus will cause us to have inadequate “reserves to spend to get it going again” when we face the next recession. It is hard to respond to this myth because it is so vague and logically incoherent. The word “reserves” illustrates the incoherence of the myth.
‘Reserves’ make sense for a firm, a household, a nation without a sovereign currency, or a nation with a sovereign currency that tries to maintain a fixed currency value or borrows significantly in a foreign currency. In each of those cases, creditors can make demands for repayment that the borrower cannot meet without having the ability to raise huge amounts of funds in a currency they do not control. The same reasons creditors are demanding repayment can also make it prohibitively expensive or impossible to borrow new funds in the non-sovereign currencies in which their debts are denominated. In these circumstances, it can make sense to limit liquidity risk by maintaining ‘reserves’ in those non-sovereign currencies. If a debtor uses these reserves to stave off a liquidity crisis, and the debtor does not restore those reserves, the household, firm, or nation can lack the reserves to prevent a future liquidity crisis.
Bernanke knows, however, that none of this discussion of reserves makes any sense in the context that Bernanke was discussing – the United States. We have a sovereign currency. It floats. We borrow in U.S. dollars. We can make all the dollars we want. It makes no sense for the U.S. to hold ‘reserves’ of any currency. We need never lack necessary currency stocks. We need never lack ‘fiscal space.’
We can create a self-inflicted disaster through imposing statutory limits on debt issuance and then choosing to run deficits through debt issuances. These periodic ‘debt crises,’ are artificially created by virtue of those pointless debt limits. We can, and do, increase the money supply directly through key strokes on Treasury or Federal Reserve computers without selling U.S. government notes and bonds.
Bernanke’s myths increase the likelihood that we will adopt self-inflicted fiscal pathologies – and delude ourselves into believing that pathologies made us safer. Today, Democrats are more susceptible than Republicans to that delusion. Democratic politicians will soon work, in ‘bipartisan’ bliss, to push three terrible policies. They will ‘save’ Social Security by cutting it. They will return us to fiscal ‘responsibility’ by cutting programs for the poor and increasing taxes for the wealthy and middle classes in order to ‘balance the budget.’ Most of the media will treat those multiple monetary myths as gospel and treat politicians that champion these three perverse fiscal policies as exhibiting courage and the hallmark of responsibility.
Trump’s deficits may prove too large and produce serious inflation, but that is far from certain. Democrats should criticize Trump’s budget and tax cuts for the proper reasons – Republicans designed them to enrich the wealthy and harm many non-wealthy Americans.
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He’s saying this at the AEI. Maybe that’s why he’s being a hawk otherwise he’ll lose his AEI friends. Man’s getting old, he needs friends :P
Thanks for that bit of context. Or is it that the AEI pays the best for someone of stature to say what they want said, and Bernanke is only too willing to oblige?
The Democrats are unaware of the Republicans game plan.
Donald has upped military spending and cut taxes on the rich.
This has been the plan since Reagan; when the Democrats get in there is no money to spend and the Republicans will suddenly turn into deficit hawks.
Unaware, or just don’t care? I’m not sure for either option.
https://www.commondreams.org/views/2009/01/26/two-santa-clauses-or-how-republican-party-has-conned-america-thirty-years
I live in a progressive caucus zone, and my house rep and state senators do know and really are horrified. They just feel powerless.
Today’s Fake Democrats support that game plan. Fake-Democrat President Obama conspired with Boehner and McConnell to make the Bush tax cuts permanent, precisely and exactly to increase debt and deficit enough over time to extort compliance with his Catfood Commission Plan to reduce Social Security.
If the Fake Democrats regain some more power within Federal Government, they will announce “no further tax cuts” while carefully conspiring to leave the Trump cuts in place . . . all in furtherance of the Clinton-Obama Catfood Plan against Social Security ( and everything that Social Security stands for).
That’s why it is so important to exterminate the Fake Democrats from public and political life and visibility. A “Real Democrat” minority of ” Real Democrats” would really oppose the Clintobamapublican agenda for real. But having even a single Fake Democrat among the Real Democrats is like having ” just a little cholera” in the water supply. With cholera, as with Fake Democrats, a little is enough.
That’s like saying the shill is unaware of the game the dealer is playing on the mark.
The fact that Bernanke is mouthing the same old lies, is stunning.
Here is a man who said, “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.” And now he says deficits will drive the economy “off a cliff.”
And now he’s preaching the old deficit myth. Truly disgusting.
The U.S. debt rose from $40 Billion in 1940 to $15 Trillion in 2017, a gigantic 37,500% increase, and today we have low inflation and no shortage of federal spending funds. Bernanke’s reputation is deservedly in the toilet.
While we’re telescoping 77 years of history into a sentence, let’s note in passing that the CPI increased from 14 in 1940 to 246 by the end of 2017 — a 17.5-fold increase which more accurately sums up the period than cherry-picking a single data point near the end of the series.
Speaking of cherry-picking, how does the cpi compare to wages for the same period?
Let’s cherry pick costs of health care and higher education while we’re at it.
Right, and the purchasing power of those wages.
The war time inflation left the GIs coming home effectively much richer than when they left and their purchasing power outgrew inflation until the 70s stagflation was used to blame labor for OPEC, blow back from US oil and monetary policy in the Middle East.
Hoarding money is no license to wealth, but the post Nixon political order has made it that using inflation as its excuse.
‘MMT focuses on real constraints, such as shortages in important resources needed for innovation and growth.‘ — Bill Black
Actually it has no math to do this. ‘Focuses’ is just a nice euphemism for old-school rhetorical economics, as in “what I’m planning to assert in my new paper this summer.” Meanwhile, we have economic stats — 3.8% unemployment; 2.8% y-o-y CPI; prices paid index of 79.5 in the ISM purchasing managers index — which indicate that real constraints already are biting like a pit bull on a mail carrier’s pant leg.
Black goes on to visit revisit a 5-year-old academic kerfuffle over Reinhart and Rogoff’s data entry error in the seminal Growth in a Time of Debt. But academia’s moved on. Maziarz’s 2017 deep dive into the math showed that the acknowledged spreadsheet error accounted for but 0.3% of the 2.3% growth gap between low and high debt economies.
Differences in the weighting scheme used by RR and their critics HAP were far more influential. Yet, said Maziarz, neither of the two averaging schemes is clearly methodologically superior — meaning that RR’s results have not been definitively falsified. Thankfully, the grim 2020s will give us enough dreadful new data to resolve this debate for good, if we don’t end up burning the books to stay warm.
One senses that the dramatic 2029 NC meetup — when the results will be in for the Haygood wager that debt-choked Japan, Italy and US can’t grow even a feeble 2 percent from 2019 to 2028 — should be held at UMKC, with the free beer flowing like a river. Gaze upon this chart, ye mighty, and despair:
Amazing how often people try to present graphs where all trends change when you cross the line marked “forecast”. That’s a favourite trick of the IEA. Thanks for the comic relief.
Good grief. The position and slope of those lines are just a bit inexplicable absent the desire for propaganda, aren’t they?
Does ” Maziarz’s 2017 deep dive”, distinguish between issuer and users? Please re-read, ” Reinhart and Rogoff failed to distinguish between nations with a sovereign currency and nations lacking such a currency.”
Reinhart and Rogoff weren’t doing analysis. They were doing propaganda. They were selling statistics as truth, instead of coincidence.
Quite
Growth rates are correlated to aggregate demand. If the bottom 90% has no spare case, demand drops.
Broke Customers = No Growth.
What you believe a cause appears to me to me an effect, and vice versa. Austerity, low wages, drives demand down, not sovereign debt numbers.
Charles P. Pierce’s First Law of Economics: “Fk the deficit. People got no jobs. People got no money.”
Nothing says “optimism” better than a hockey stick chart.
Uh-huh. The labor force participation rate being back down to where it was at the very beginning of women entering the workforce is just the result of all those happy, prosperous American workers choosing to retire and a virtuous return to the traditional values of motherhood and wifedom in American women.
I don’t care how much you’re donating to NC. Spreading this blatant bad faith agnotology can’t be worth it.
I can look up the stock prices of Amazon et al. on my own.
Thanks for that chart Jim. Best laugh that I had this morning. Am reminded of a cartoon I saw as a teenager where two scientists were looking at a big, long blackboard full of scientific formula and notations except in the middle where it was written ‘Then a Miracle Occurs’. One scientist was saying to the other: “I think that your third step needs more work!”
Full employment? Much of it is based on poor employment: poorly paid, few or no benefits, little security, and either long, sometimes unpaid hours or too few to live on. Alternatives to working with aspiring monopolists have been torched. It assumes people who have to work two and three jobs are fully employed. It assumes gig economy jobs – many of them mocking the notion of self-employment – contribute to full employment.
Today’s “full employment” is not yesterday’s. Many an Amazon warehouse employee or bike messenger, driver of the vehicle formerly known as a taxi, and contract worker would leave their jobs in a heart beat for a meaningfully better one. That’s not a constraint. It is an opportunity.
Disappointing, but since it is coming from Bernanke (and not “I found an error in my model” Greenspan, who recently said the sky is falling so buy gold, etc.), I think there is method in his madness as he speaks to the AEI: keeping consumer prices up. If consumer prices fall the recession will spiral down into a depression. Of course Bernanke can’t come right out and say it. Remember FDR’s frustration trying to get the factories up and running again and they simply refused to waste their time because they would quickly create a surplus (of shoes) and lose money. The old Philips Curve 6% solution was a good buffer for holding prices steady, if nothing else. Now the Fed is turning of the QE spigot and the economy will be expected to begin to “function”. And the old myths are still ruling our behavior. The Fed has tweaked the unemployment stats to an absurdity that no one believes. Why? I think it is because we need a real unemployment rate of 15-20% just to offset the deep recession we are in – and all to control prices. It’s completely illogical. The old 6% solution wasn’t as devastating as the new and improved 20% solution. And in an attempt to tie the theory all up with an old-fashioned bow and ribbon the talk is reverting to balancing our big fiscal deficits. Because it’s capitalism – and we are trying to believe it works this way. I’m sure Bernanke knows full well he gave an awful, ridiculous speech.
Just look at the Fred’s Civilian employment ratio. It’s the same as it was in 1985.
FRED civilian population ratio
It’s a large percentage down From the peak in 1999.
And fewer women were in the workforce then…
So Ben Bernanke starts warning about deficits. This sounds like a call to arms for ‘balanced’ budgets and austerity so straight away I ask myself just who this warning benefits. My guess is the same people that helped bring on this crisis. If you ever want proof that the media is not worthy of reading, just reflect on the fact that they still pay attention to the words of people like Bernanke and Rogoff and treat them with respect when in fact they should be keel-hauled for the damage that they have done.
My pet peeve is with Kenneth Rogoff as he was actually caught fudging the data to make austerity seem like a great idea. I think that it was a bunch of students who, when they had a chance to look at the raw data, found how it had been done. The trouble was that by then governments had the justification they needed to impose austerity. Rogoff’s name still pops up from time to time and usually in connection with some pretty bad stuff. Mark Blyth wrote a book called “Austerity: The History of a Dangerous Idea” which demolishes this idea and I would dearly love to see a debate between Blyth and Rogoff. During the global crash, instead of going for austerity, the Australian government went the other way and seriously dodged a bullet here. If the other party had been in power, it would have all been austerity because TINA.
I see in this article that it talks about “Full employment” but what does that even mean? How can that have any substance when so many Americans have withdrawn from the workforce altogether? Any figures with this would always be suspect. And as for labor being a “commodity” or a “resource”. I would dispute this. How about describing labor for what it actually is – an investment. Look, all this talk of there not being enough money to do everything is bogus. Want an example? I understand that to get rid of homelessness in America that it would take about $20 billion. We are told that it cannot be afforded. Yet a coupla months ago Congress increased the US defense budget by an extra $60 billion which the Pentagon did not even expect and which both sides passed without a debate. It is all about what your priorities are.
Didn’t Rogoff confess that his data turned out not to support his thesis, and then quietly step into the background for a while, while maintaining that he was right, just didn’t have the data he needed?
I’m not sure that Rogoff ever admitted that he was wrong. He fudged his admissions as well as his loopy Excel charts. Two good stories on this episode at-
https://www.bbc.com/news/magazine-22223190
https://theconversation.com/the-reinhart-rogoff-error-or-how-not-to-excel-at-economics-13646
These were never mistakes that Rogoff & Reinhart made but deliberate exercises in allowing governments to have justifications in using austerity as a policy like the UK did – at terrible cost.
Yes..
You’ll know that the US really can’t afford stuff when it mothballs a couple of carrier battle groups.
In the UK, despite dire warnings of a crisis arising from the deficit, we’ve still been able to cut taxes for the well-off, and corporation tax, and raise the tax threshold (an interestingly insidious move). Yes a relatively small call to abolish tuition fees is immediately deemed ‘unaffordable’, and huge efforts are made to save tiny sums on benefits for the disabled.
We have a culture of corruption among the Democratic and Republican party politicians. They are “owned” by Wall Street and financial institutions. As for “austerity measures” on programs, do we even have historical examples showing a benefit to citizens in general? When did austerity measures by the government improve the lives of the majority of its citizens?
We also have a culture of corruption among the wealthy in this country. The middle class and working poor may see stagnating or lower wages, but money continues to funnel upward to the very wealthy. The only thing they have to fear is a real war by citizens against the wealthy.
The richest man in the world, Jeff Bezos, CEO of Amazon, fought hard through Amazon against a measure passed unanimously by the Seattle city council last month which levied a $275-per-employee ANNUAL tax on companies with at least $20 million in gross annual revenue in order to help the homeless. $275 per employee/year was just too much for Jeff Bezos to help the homeless. After all, he (along with other wealthy Seattle CEO’s) can get on private planes and other modes of transportation and just ignore the homeless.
P.S. Yesterday, the “Democratic” Seattle city council voted 7-2 to repeal the $275 per employee/year tax to aid the homeless. Jeff Bezos and the other wealthy Seattle CEO’s can go about their lives once again without considering the homeless in the community.
#Jellies Have Moar Spine
Come on Seattle city council .. stand down, and be herd !
so you really believe any of that money is going to help the homeless? They need to either build housing as much as they can or I don’t believe it.
Hey, that’s me! And yeah, there are a whole lot of us out there. And a lot of us are naturally nerdy types who decided to use our post-childbearing free time around the 2008 crisis to figure out if there were any economists out there who actually knew what the heck was going on with the global economy.
The feeling I got when I discovered’s a little Harper’s article called “The New Road to Serfdom” was a bit like how I felt watching the total solar eclipse last year when the stars came out mid-day. “This is real“.
Gopsay economic policies as financially engineered from the centers of currency power are meant to keep labor desperate.
The Democratic Party as owned by the Clinton Unit has adopted some kind of mealy mouth stance so bereft of the opposite goal that without gender or identity to talk about there is nothing but more lies adding up to an inescapable and fated desperation.
If it were not that my goal is to found a nation of airports I would not have been forced to study economics and financial engineering.
The majority of Democrats have a theoretical concept of the human condition. Many of the most powerful of them live in a world of academia. The majority of them would not have easy good paying jobs were they not working within the Ivory Towers.
They are kinda like poets that way. Even the hardest working poet from the Beat generation, Allen Ginsberg was mostly paid to perform at colleges and universities.
What did it really matter?
Mr. Ginsberg deserved it the time he was punched in the face, not for what he said that got him punched, but for his statement afterwards, “It’s only words.”
The words from the economists who are functioning as financial engineers within our government obviously matter a great deal.
What did Obama learn about the US Treasury at Harvard? How come Bill Clinton made mobster financial engineering, as developed by Meyer Lansky, legal?
No one who has a real reputation that is based on the truth and the integrity of their economic concepts will volunteer now to be the Trump Economic Advisor, so we get Larry Kudlow, Lou Dobbs, Hannity.
I want so badly to destroy the ignorance of the population about the economics that so daily determine our fates.
I have pushed for a Televison Event about Economic Warfare Domestic and Foreign, because those who control what is on the television set control the nation.
My fantasy of a mechanized march on the Treasury to end in speeches by everyone from the great Warren Mosler to Michael Hudson and the rest of the crew centered at the UofK Missouri is at least written down and there on my website.
Long live Yves Smith and the gods of ethics in economic theory, and may Civil Financial engineering triumph over Meyer Lansky Financial engineering.
P.S. Warren Mosler for President of the United States. Can I get a second?
I disagree with the OP, I think it oversimplifies the problems.
My main problem is this:
“Myth Number Three: Deficits Remove Essential ‘Fiscal Space’”
The OP speaks of fiscal space as if it was determined by debt levels. However even if we think that debt levels are not a real constraint, we get to the conclusion that the fiscal deficit (not the debt) should be targeted to some level of employment and inflation.
Let’s say that, once we determine what’s the level of employment and inflation we want, it turns out that the optimal fiscal deficit is 2%.
If the fiscal deficit is a given, then government expenditure are limited to 2% more than government tax receipts.
So if Trump gives a fiscal break to the rich, it still means that he limits the government expenditure for a given optimal fiscal deficit.
If you, like me, think that the government should give more services and redistribute more income, this is still a problem, even accepting MMT.
My second problem is that the OP, and in my opinion MMT theorists in general, conflate the quantity of money assets with the “quantity” of circulating money (nominal GDP).
We can see a capitalist economy as a circular flow of stuff that is produced and consumed, but distict to this there is a stock of wealth, composed by various capital assets, credit assets etc.
The wealth to income ratio is not a constant, and in fact is growing steadily (in some places more than in others) all around the world:
http://wir2018.wid.world/part-3.html
If the wealth to income increases, either the return on wealth (interest rate or profit rate) falls, or the share of income that goes into interest and profits has to rise.
This incidentially is the same concept of Marx’s theory of the “falling rate of profit”, with the difference that Marx attributed this to technical change (the labor value of capital goods increasing relative to the labor value of the output goods), whereas I think that it’s mostly due to financial capital (wealth increasing faster than income, ultimately due to a saving glut/underconsumption problem).
The increase in goverbnment debt do GDP ratios is part of this trend, although in pratice stimulus can actually decrease the debt to GDP ratio by incresing GDP (both because of incresed activity and increased inflation).
This however means that inflation has to wipe out some savings (that in my opinion is a necessarious thing but I suspect many savers would not like it), and it’s not guaranteed that all increases in deficit spending will lead to a fall in the debt to GDP ratio.
The OP skips this problem by sayng that there is no problem crossing the supposed 90% debt to GDP ratio.
I also think that the 90% debt to GDP ratio is BS, for three reasons: that we should count also private wealth/debt in it, that countries that crossed that threshold mostly did it because of falling growth rates (like Italy), so the correlation between high debt to GDP and slow growth is spurious and the causation goes the other way around, and that the idea that there is a specific threshold limit in my opinion is based on nothing.
But this doesn’t mean that an increasing of the wealth to GDP ratio is not a problem: if debt toGDP ratio increases, for example, either the government can to pay lower and lower interest on debt (that will likely lead to bubbles) or an increase of tax receipts will go to pay increasing interests on debt.
So I think that the increasing wealth to income ratio, and the subpart of it that is debt to GDP ratio, should be taken seriously, even if this or other situations the correct choiche might well be that of increasing deficits.