The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.
David A. Stockman, a former Republican representative from Michigan, was President Reagan’s director of the Office of Management and Budget from 1981 to 1985. He wrote an OpEd column for the New York Times that is so wrong as to be a parody.
Here are a few excerpts:
It is obvious that the nation’s desperate fiscal condition requires higher taxes on the middle class, not just the richest 2 percent.
I guess he thinks our “desperate fiscal condition” is the federal deficit, or is it federal debt. He doesn’t say which. (They are completely different, not even functionally related.) Somehow, I thought our real problems are unemployment and slow per capita GDP growth, both of which would be exacerbated by Stockman’s call for higher taxes on the middle and upper classes.
Likewise, entitlement reform requires means-testing the giant Social Security and Medicare programs, not merely squeezing the far smaller safety net in areas like Medicaid and food stamps.
“Means testing” is a euphemism for another unnecessary federal tax. The federal government could and should support Social Security and Medicare. And did you notice the “. . . not merely squeezing . . . Medicaid and food stamps.”? Not merely? So it’s O.K. to squeeze the poor, so long as the middle class is squeezed, too?
A quasi-bankrupt nation saddled with rampant casino capitalism on Wall Street and a disemboweled, offshored economy on Main Street requires practical and equitable ways to pay its bills.
“Quasi-bankrupt”? “Rampant casino capitalism”? “Disemboweled, offshored economy”? You always can tell a guy is full of crap when he uses that kind of wild language. What is “quasi-bankrupt”? No one knows. The federal government isn’t, and never can be, bankrupt. So does that make it “quasi”? Or is he talking about the public, many of whom are really, not quasi, bankrupt, in part because the David Stockman’s of the world do not understand Monetary Sovereignty, thus making the federal government deficit reluctant.
And “casino capitalism”? It’s a cute phrase, but specifically, what does that mean? Too much lending? And here I thought one of our problems was too little lending.
Ingratiating himself with the neo-cons, Mr. Ryan has put the $700 billion defense and security budget off limits; and caving to pusillanimous Republican politicians, he also exempts $17 trillion of Social Security and Medicare spending over the next decade. What is left, then, is $7 trillion in baseline spending for Medicaid and the social safety net — to which Mr. Ryan applies a meat cleaver, reducing outlays by $1.5 trillion, or 20 percent.
Trapped between the religion of low taxes and the reality of huge deficits, the Ryan plan appears to be an attack on the poor in order to coddle the rich. To the Democrats’ invitation to class war, the Republicans have seemingly sent an R.S.V.P.
Absolutely true. That’s what deficit reduction nonsense does. See, it’s like this. Deficits are absolutely necessary for economic growth. So when you try to reduce deficits you always wind up doing something really stupid.
. . . Such fiscal jabberwocky ignores the fact that we have experienced a recession every five years or so for the last six decades . .
Right. And all but one of them has been introduced by reductions in federal deficit growth – the reductions Mr. Stockman recommends.
. . . for decades now, the central banks of the world have been giving policymakers a false signal that sovereign debt is cheap and limitless. Functioning like monetary roach motels, central banks have become a place where Treasury bonds go in but never come out — thereby causing bond prices to be far higher and interest yields much lower than would obtain in a market that wasn’t rigged.
Monetarily Sovereign debt is very cheap (it costs nothing) and it is limitless. Nobody knows what “Treasury bonds go in but never come out” means, but he loves his “roach motel” analogy. Interest yields are exactly what the Fed makes them to be.
Indeed, the Fed and currency-pegging central banks in East Asia and the Persian Gulf have absorbed nearly all of Uncle Sam’s multitrillion-dollar spree of debt issuance. Moreover, about $4.6 trillion, or more than half of all debt held by the public, is now sequestered in central banks — paid for with printing-press money.
The government could stop issuing debt tomorrow, and this would have zero affect on the government’s ability to spend. He, of all people, should know that. Further, “printing press money” is money. What other kind of money is there, David?
Even central banks cannot defy the canons of sound finance indefinitely, however. Japan will buy less Treasury paper as it turns inward to recover from the wrath of nature. Likewise, China will drastically curtail its currency pegging and related Treasury bond purchases in order to suppress the rip-roaring imported inflation and speculative bubbles now engulfing its domestic economy. And unless the Fed wants to ruin the value of the dollar, it will need to keep its promise to get out of the bond-buying business, too, when its second round of quantitative easing ends in June.
We don’t need to sell Treasuries to Japan, China or anyone else. The Fed can protect the value of the dollar simply by raising interest rates.
Ominously, the biggest and baddest of these real investors, the quarter-trillion-dollar Pimco Total Return Fund, has already thrown down the gauntlet by selling Uncle Sam’s paper short.
All that means is Pimco expects interest rates to rise, which will reduce the price of existing Treasuries. Ho hum, This is ominous?? Since rates essentially are zero now, there is nowhere to go but up.
In the real world, however, the global bond market is already rumbling — and around the corner, a fiscal conflagration surely lies.
“Fiscal conflagration.” Believe it or not, this blog post cut out most of his extravagant language. It went on and on, with each colorful phase adding to the assurance he is clueless. Anyway, he ends with the typical debt-hawk non-prediction, prediction: “Around the corner.” You may add this to “soon,” “one day,” “someday,” “eventually” “ticking time bomb,” “unsustainable,” “over time,” “children and grandchildren” and all the other indefinite prophesies.
Perhaps most amazing, is that so many famous pundits all write the same, apocalyptic drivel, over and over again, and the media keep printing it. How many times can the preachers predict the same end of the world, before the congregations figure out these guys are charlatans?
Rodger Malcolm Mitchell
No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetarily Sovereign, and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.
Remember that the next time you’re tempted to ask a dopey teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it screwed up the economy.”