Category: Eliminate federal debt

-The debt ceiling illusion

An alternative to popular faith

      Sometime in October, the federal debt will touch the legal ceiling of $12.1 trillion, and Congress will decide whether or not to raise it. Surely, the debt ceiling law is among the nation’s silliest.
      Visualize this: All year, you recklessly spend more than you earn, and at the end of the year you announce that you will not pay your bills because you are frugal.        That’s Congress.
      Congress authorizes federal spending and federal taxing. So Congress already has control over the federal debt. It is Congress that has created the $12 trillion debt. Now, Congress will decide whether to pay for what Congress has authorized.
If Congress doesn’t increase the debt, several bad things could happen. The U.S. could default on its debts, thereby removing forever the trust other nations and our own citizens have in our money. Borrowing would become much more difficult and the world would begin to dump its T-securities – a financial calamity. Would Congress be that stupid? Well, it’s Congress.
      Or, the recovery from this recession could end, and we could plunge into a depression of unprecedented magnitude. Would Congress be that stupid? Well, it’s Congress.
      Or, the Treasury could implement some accounting tricks like redeeming government employee retirement funds, now invested in T-securities. Or the Treasury could stop paying interest on government trust funds. Both actions are internal devices without substance, merely delaying the inevitable, as does the vote on the debt ceiling.
      No responsible person, who cares about America, would vote against raising the debt ceiling, but we’re talking about Congress, a group that often embraces style over substance. The debt ceiling has two results. First, it is a shameful admission by members of Congress they know or care little about the bills they vote for, and focus on the individual, pork-barrel amendments they can sneak in. Generally, Congress is a “You-vote-for-mine-and-I’ll-vote-for-yours” club.
      Second, the debt ceiling gives members of Congress political cover — the ability to vote for spending for their constituencies, while voting against spending as a whole, thus to demonstrate how frugal and disciplined they are.
      There should not be a debt ceiling. If Congress wishes to be frugal, it should do so when authorizing, not when paying, its debts. Any Congressperson who speaks against raising the debt ceiling is a phony. Or is that statement a tautology?

Oh, and by the way. Limiting the creation of debt limits economic growth, but that is a subject discussed in many posts on this blog.

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

-Do you believe President Obama is gay ??


An alternative to popular faith

       If a reporter were to come to his editor with a proposed article titled, “President Obama is gay,” the editor would demand supporting evidence, before that article ever saw daylight.
      However, if the same reporter submitted an article titled, “Federal deficit is too high,” history says the editor would ask for no supporting evidence, nor would the article contain any. The media merely assume, as a matter of faith, that revenue neutrality is more prudent than deficits.

      Economics is rare, perhaps unique, among sciences, most of which demand evidence for their hypotheses. Only in economics can intuition and popular faith obviate facts or even the desire for facts. Thus, I have had editors, columnists and reporters tell me it is “obvious” that large deficits are unsustainable, crowd out lending funds, lead to recessions, depressions, inflations and hyper-inflations. When I ask for evidence to support these views, I seldom hear from them again, probably because they feel scientific evidence is unnecessary in a science, but more importantly, they don’t have any.
      Even the Concord Coalition, an organization that for seventeen years, has collected vast amounts of money to preach for federal deficit reduction, unashamedly offers no evidence to support its views. Check its website, http://www.concordcoalition.org, or write to them and you will see they neither offer, nor have, evidence.
      Because our leaders parrot the economic beliefs promoted by the media, lack of evidence has contributed heavily to the government actions that yield repeated recessions. Until the media learn to ask, “What is your evidence?” we will continue to suffer periodic, economic traumas. These traumas may seem inevitable and unavoidable, but in reality they are caused by beliefs lacking evidence.
      If you don’t believe President Obama is gay, unless you see solid evidence, don’t believe the federal deficit is too high, unless you see solid evidence.

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

-The government is our landlord

An alternative to popular faith


       Representative Earl Pomeroy, a North Dakota Democrat, famously told AIG employees: “Give us our money back.” He had no idea what he was talking about.
       Imagine that you rent an apartment in a large building. Every month, each tenant sends the landlord rent. One month, the landlord decides to give one of the tenants a gift of $50. Did the landlord give that tenant your money or did he give his own money?
       Imagine that the tenant spends the $50 on something you consider to be wasteful. Should you, a fellow tenant, tell that tenant, “Give us our money back”?
       Imagine that instead of giving the tenant $50, the landlord lends the tenant $50. Some time later, the tenant repays the landlord the $50 plus another $10 in interest. Have you made a profit?
       Now imagine that the rent the landlord collects does not cover his expenditures, so each year he runs a deficit. But he is fabulously wealthy, so he never has problems paying his debts. Do you owe the landlord’s creditors or does the landlord owe his creditors? Are your grandchildren liable for the debts or is he?
       Seems pretty silly, doesn’t it? Yet exactly that kind of thinking permeates the discussions of our economy.
       In essence, the federal government is our landlord, to whom we pay “rent” (taxes). The rent does not cover the government’s expenditures, but the government is so wealthy, it never has problems paying its debts.
       When the government gives out stimulus money, it does not give our money (aka “taxpayers’ money). It gives government money, which it creates out of thin air. When the government lends money to a taxpayer, and the taxpayer subsequently repays, plus interest, we taxpayers do not make a profit. Only the government makes a profit. We don’t owe the landlord’s creditors, nor do our grandchildren.
       Our “landlord,” with help from the media and politicians, has created the myth that when he takes a loss, we taxpayers and our grandchildren are liable, when he raises our rent or cuts services to reduce his losses, we benefit, and when he makes a profit, we should believe it actually is our profit. Nonsense.
       This is a message to anyone who agrees with Rep. Pomeroy and the media, and who believes our landlord spends our money, not his, and we and our grandchildren owe his debts, and when he makes a profit, that’s money in our pocket: I have some costume jewelry I’d like to sell you.

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

–When China will pass the U.S. as the world’s dominant economy


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. 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