Banking and Financial Circuits and the Role of the State
Edited by Louis-Philippe Rochon and Mario Seccareccia
Chapter 14: The monetary conditions for growth: Parguez’s debt stability condition
This chapter discusses a criterion for debt sustainability in a monetary production economy formulated by Alain Parguez in 2010. This states that public debt should grow in line with private debt in order to avoid the accumulation of financial imbalances. In the light of this principle, one of the causes of the current financial crisis is to be sought in an excessive development of private debt with respect to the growth of public debt, for which statistical evidence is presented in the first two sections of the chapter. Simple models presented in this chapter explore some of the economic factors that can explain these results. The last section concludes and draws the policy implications of the analysis. Parguez’s principle for debt stability implies that, contrary to a widely held opinion, the way out of the current crisis must be sought in a reasoned expansion of public debt, in particular ‘good’ public debt, used to generate real wealth and revenues.
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