What really happens is a shift from retail banking to government banking. People will use the government UI as a loan in place of the retail banking system which now suffers a higher Fed tax. It is at best a break even. But more likely just adds to the deflationary pressure.
About 70 million people – more than one-third of credit cardholders – said they involuntarily had a credit limit reduced or a credit card account closed altogether in a 60-day period stretching from mid-May to mid-July.
The report is a clear sign that credit card issuers are still closing cards and reducing credit limits on cardholders in huge numbers, months after an April 2020 CompareCards survey showed that nearly 50 million cardholders had a card closed or credit limit reduced in the first month in which the coronavirus pandemic took hold of the country. - CompareCards
Did this chart ever work? No, not really, but for a while it deferred the tax issue for ten years. Now the tax issue cannot be deferred. Remember, the federal government is paying some 2.5% for its money The market rate is .65%, so each increment of debt carried by the Fed means more Fed taxes to cover the residual 2.5% interest rate.
It is pretty obvious in the charts, but Krugman has no other story to tell. My story is that it likely makes little difference either way, I am neutral at this point. We have tipped. As long as Krugman gets clicks he will pursue this line. It is bad theory, and has always been bad theory going back hundreds of years. There has never been a satisfaction of the Lucas criteria, the idea of satisfying the complete sequence of actions.
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