In summary, federal deficit spending is good for the economy, always good, endlessly good (up to the point of inflation). Private and local government spending/borrowing also is good, but not endlessly. Unlike the federal government, the private and local-government sectors eventually reach a point where debt is unaffordable and unsustainable.To prevent recessions, the government continuously must provide stimulus spending, then provide added stimulus spending to offset the periodic reduction of money creation by the private sector.These data call into question the popular belief that encouraging bank lending stimulates the economy. While short-term effects may be positive, long-term bank lending seems to lead to recessions, as servicing loans becomes ever more onerous for the monetarily non-sovereign sectors. In contrast, Federal deficit spending easily is serviced by the government, and therefore is preferable to private borrowing as a stimulus.
Mitchell demonstrates how this is true using the evidence of charts. Take a look.
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I first came across this idea at Arthurian Economics - A Look at the Debt Problem (3)
See also a discussion here -Relative to NGDP
Roger Mitchell rightly points to the cyclical or destabilising characteristics of commercial bank created money. One solution to this problem is to ban fractional reserve banking, i.e. allow just full reserve banking, an idea I agree with. Detailed proposals along these lines have been made to the UK’s Independent Banking Commission. See:
http://www.positivemoney.org.uk/wp-content/uploads/2010/11/NEF-Southampton-Positive-Money-ICB-Submission.pdf
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