Keynes vs. Hayek Rap - AKA It's All About the Debt

The above rap video is one of the best and most entertaining summaries I've ever seen comparing Keynesian economics to Austrian economics. Currently, the U.S. Federal Government is following Keynesian economics - particularly, we are engaged in hefty fiscal spending which is driving up the U.S. Debt outstanding, and the Federal Reserve is engaged in unprecedented monetary stimulus in the form of an extremely low federal funds rate target (e.g. 0 to .25%) PLUS the direct purchase of U.S. Treasuries and Agency Debt.

Despite the above intervention in the economy by the government and Federal Reserve, unemployment remains high, any "so-called" economic recovery is tepid at best, and total liabilities of the U.S. government, including the Public Debt and Medicare, Social Security, etc continue to sky higher to unsustainable and unservicable levels. Plus, the U.S. banking sector remains completely immobilized, seized up by bad loans and commercial real estate that continues to deteriorate. One only needs to look to Japan to question whether or not Keynesian actions have done anything to pull that great industrial nation out of the protracted deflation and anemic growth it has suffered for the past 20 years on the whole.

In essence, it is my Austrian argument that there is simply too much debt (especially as a ratio to U.S. GDP) in the system, and that trying to transfer some of that debt off of the private household/banking balance sheets onto liabilities of the Federal Government will ultimately fail, postponing and deepening as opposed to preventing the inevitable Depression. I would argue that a better approach from the onset would have been to clear the debt out of the system first, forcing massive bankruptcies, nationalizing key "to big to fail" banks/financial institutions while obliterating bank shareholders and giving their bondholders pennies on the dollar. This would have certainly resulted in even higher unemployment and plenty of short term pain for all sorts of individuals and businesses, but it would have wiped out the debt that those same individuals and businesses have no hope of servicing. Then, as the private debt was being cleared out of the system, I would have borrowed 5 to 6 trillion (through U.S. Treasury issuance) for the direct support/aid of families affected by the job losses via housing and food support, created a mini-U.S. focused New Marshall Plan, PLUS backstopped the FDIC so that depositors were made whole despite the widespread banking failures. Then, the nationalized banks and private banks who had strong enough balance sheets to survive the fallout could start lending again and private industry could resume, unchained from its debt shackles.

Anyway, that's my point ... what's yours?