Deleveraging, Like Breaking Up, Is Hard to Do


 A pressman inspects the roll out of $20 bills
A pressman inspects the roll out of $20 bills at the U.S. Bureau of Engraving. Photo by PAUL J. RICHARDS/AFP/GettyImages.

By Merle Hazard

It’s time to announce the winner of our song contest.

This past summer, with Paul’s help, I asked you for economic song ideas. The winner of our friendly game is Lynn Dondero, M.D. His suggestion was that I write “Deleveraging is Hard to Do,” to the tune of Neil Sedaka’s 1962 hit, “Breaking Up is Hard to Do.” Congratulations, Dr. Dondero!

The contest asked for surf song ideas. Neil Sedaka, who wrote in the Brill Building in New York, is not surfy. His break-up song was contemporary with early Beach Boys hits, however. I liked Lynn’s deleveraging idea that was based on it enough to invoke some poetic license with regard to genre.

Some things are so serious, you have to joke about them. Deleverage is, at first glance and maybe second, not funny in the least. It is the inverse of the debt bubble that finally started to deflate in 2007 and 2008. During the early and middle aughts, debt in the private sector reached levels that could not be sustained, and as Herbert Stein once put it, anything that can’t go on forever, won’t. There is now an increased desire in the U.S. by households and businesses to pay loans down. This is so even though interest rates are very low. It is hard for the economy to grow, or at least grow robustly, in such an environment.

When the private sector deleverages, the public sector typically runs deficits and “prints” money, to take up some of the slack, and that has been the case in the U.S. Because of governmental intervention, our deleveraging has actually been fairly modest, as they go. McKinsey has put out a good study on the problem, if you want the details. And Paul Krugman recently ran a nice graph showing deleveraging of U.S. households.

Anyway, serious though the problem be, here are my lyrics for “Deleveraging is Hard to Do.” We will just print it, rather than play it, because, sigh, EMI declined to license the melody to me. These lyrics will fit the orignal Sedaka recording, line for line.

Deleveraging is Hard to Do

Lyrics by Merle Hazard, based on an idea by Dr. Lynn Dondero to the tune of “Breaking Up is Hard to Do” by Neil Sedaka and Howard Greenfield; click the link and sing along.

Doo doo doo down, dooby doo down down.
Come-a, come-a down, dooby doo down down.
Should we pay it down? Dooby doo down down.
Deleveraging is hard to do.

Our nation’s debt…is over-size;
Quite a chunk of change to amortize.
Bubble, trouble, witch’s brew,
Deleveraging is hard to do.

If we make cuts…to be austere,
We’ll lose our jobs and it could get severe.
Yet the spending’s why debt grew,
Deleveraging is hard to do.

They say that paying debt down’s hard to do;
Now we know, we know that it’s true.
We need money to spend.
Instead of cutting back, I wish that we could lever up again!

Some say to print…and monetize;
That’s what Paul Krugman and Ken Rogoff advise.
Though inflation could ensue,
Deleveraging is hard to do.

CHORUS: They say that paying debt down’s hard to do.
LEAD: Now we know, we know that it’s true.
CHORUS: “In God,” says money, “We Trust.”
LEAD: Thank Heaven we can issue more, we’ll need it so we don’t go bust!

We’ll likely print…and monetize,
Just as Krugman and Ken Rogoff advise.
With options poor, and choices few,
Deleveraging is hard to do.

Dooby doo down down.
Come-a, come-a down, dooby doo down down.
So hard to pay it down, dooby doo down down.
We’ll never pay it down, dooby doo down down…

The idea of deleverage is essentially the same as the “debt-deflation” that Irving Fisher described in a 1933 paper. Fisher was a Yale professor and an early example of a celebrity economist. He famously discredited himself in 1929 by declaring, optimistically, shortly before the crash, that stocks were on what looked like a “permanently high plateau.”

An afterthought on the music: in 1975, thirteen years after putting out his uptempo, teeny-bopper version of “Breaking Up is Hard to Do,” Neil Sedaka revisited it and released a more mature, wistful, slow-dance version. He was older and wiser, but, I guess, still not over losing his love. If Japan’s experience with deleverage is any indicator — their “lost decade” of the early 1990s has become lost decades, plural — we, too, will be singing the same sad song, with more wisdom and experience, years from now.

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This entry is cross-posted on the Rundown– NewsHour’s blog of news and insight.