An alternative to popular faith

      When China passes the U.S. as the world’s dominant economy, you can blame the economists, who parrot the popular faith that federal debts are unsustainable and cause recessions, inflations, high taxes and harmful high interest rates. No evidence supports these intuitive beliefs.
      Contrary to popular faith:

      –Fact: We do not need other nations to buy our debt. We do not even need to create debt. Just as the U.S. government has the unlimited ability to create T-securities and sell them (aka “borrow”), the government has the unlimited ability to create money, thus the unlimited ability to “sustain” any size debt.
      –Fact: There is no historical relationship between deficits and inflation (See the blog: “Do deficits really cause inflation,” below). Data indicates inflation is more closely related to energy costs, specifically to oil, than to any other factor.
      –Fact: In only 15 years, from 1979 through 1994, taxes were cut and the federal debt grew an astounding 500%. This massive, unprecedented money printing did not cause inflation or high taxes. Instead, we entered a long period of economic growth, low taxes and moderate interest rates. Repeating that 500% debt growth would yield a $72 trillion debt in 2024 and an average deficit of $4 trillion — and if history is a judge, the same economic growth, the same low taxes and the same moderate interest rates.
      –Fact: All six depressions in U.S. history immediately followed years of federal surpluses. Every recovery coincided with increases in debt growth.
      –Fact: All nine recessions in the past 50 years immediately followed reductions in federal debt growth. Every recovery coincided with increases in debt growth, such as we are seeing, today.
      –Fact: There is no historical relationship between high interest rates and slow economic growth. Similarly, low interest rates have not stimulated growth.
      –Fact: There is no historical relationship between deficits and tax rates. Without tax increases, there is no mechanism for our grandchildren to pay for deficits.

      The factually unsupported fear of federal deficits in the U.S., when compared with the lack of such fear in China, is why we will fail and they will succeed.

Rodger Malcolm Mitchell
For more information, see http://www.rodgermitchell.com