It's in reply to an editorial by Paul Krugman in the NY Times:
The key thing to bear in mind is that for the world as a whole, spending equals income. If one group of people — those with excessive debts — is forced to cut spending to pay down its debts, one of two things must happen: either someone else must spend more, or world income will fall.
Krugman's being disingenuous. He says that globally, spending equals income, and if you don't spend, others don't get income; and that people with high debt levels stop spending, which is a Bad Thing(tm).
However, where does the borrowed money come from? Either from "quantitative easing", which means it really does come from nowhere, or from capital markets, which is money that was saved and invested (i.e. not spent) by others.
Spending your way out of a recession is a short-term fix. Long-term, the world needs fiscal responsibility (not necessarily austerity, but responsibility), so that people do save money and put it into banks and treasury bills, so that the capital markets do have liquid cash to lend to businesses.
(The severity of the financial crisis was not due to a lot of lost money - it was due to the financial institutions' unwillingness to extend credit to businesses, even ones in good fiscal shape. Global business does not work on cash up front, it works on promises backed by banks, and when banks stop supporting the promises, the entire machinery seizes up. That was the main problem - the billion-dollar losses only impacted the banks' employees and shareholders.)
In this crisis, quantitative easing kinda-sorta did the job it was supposed to, in the short term. But its usefulness is limited to emergency relief. If you keep pumping liquidity into capital markets via quantitative easing, you just get hyperinflation.
Krugman says that government should pump money into the economy, if the private sector is too scared to spend. That's fine, but where does the money come from? Either from quantitative easing, which has been stretched to the limits already (because that's what the US and the Eurozone have been doing), or from capital markets. Where do capital markets get the money? Either from quantitative easing, or from private sector savings.
Krugman's advice for the US is to spend on public works, driving up internal consumption. That's money that will never be compensated by liquidity gathered from outside the US economy. (Germany pumped money into its economy briefly, before switching to austerity; and it actually managed to stimulate industrial production and export growth. The tax revenue from that, the influx of liquid cash into the German economy, will probably outweigh the money spent on the stimulus.)
Krugman advocates debt relief for homeowners, saying that it will do less damage to the economy than mass foreclosures. He's technically right, but the argument doesn't reflect the big picture: without great damage, there will be no change in behavior, and without a change in behavior, the mistakes that led to the global crisis will simply be repeated.
You can blame the greedy and unethical investment bankers all you want - and don't get me wrong, they are complete bastards and deserve every last morsel of hatred they are getting - but all of their evil schemes would never have worked if it was not for the greed and short-sightedness of the everyday consumer, who wants a McMansion and a BMW and a 60-inch plasma TV, and ignores the fact that he can't actually afford any of it. Politicians won't say it, for obvious reasons, but the underlying cause of the financial crisis is not the greedy lenders - it's the greedy borrowers.
The failure of the financial oversight mechanisms to prevent the bubble is so apparent because the mechanisms themselves are so obviously necessary: nobody ever actually expected the lenders to not be greedy. It was always assumed that their greed will expand to fill any available volume. That greed can be checked by two means: government regulation, and the common sense of the borrowers. Yes, government regulation failed. That is no excuse for borrowers to escape responsibility for their own common sense.
Back to Krugman's arguments. For capital markets, and by extension the globalized economy as a whole, to be efficient and healthy in the long term, there needs to be a supply of genuine assets, genuine liquidity. Any kind of deficit spending must be covered by money borrowed from people (or companies) who saved it. People who have actual asset-equivalent that is not being used right now, and can be given to someone else to use for a time.
These savings only appear when the private sector spends less than it earns. It's a crucial and irreplaceable component of a healthy financial system. It's not about morality, mr. Krugman - it's about mechanics.