Tag: Committee for a Responsible Federal Budget

–Federal Debt: A “ticking time bomb”

An alternative to popular faith

Popular faith holds that the federal debt is a ticking “time bomb,” ready to explode into inflation and high interest rates, and destroy our economy. Here are a few references, beginning 70 years ago. Note that the language remains the same, down through the years — repeated predictions of a disaster that never seems to come.

Even with the end of the gold standard in 1971, arguably the most significant economic event since the Great Depression, the debt-hawk language never changes — as though 1971 were a non-event.

Sept 26, 1940, New York Times: Deficit Financing is Hit by Hanes: ” . . . unless an end is put to deficit financing, to profligate spending and to indifference as to the nature and extent of governmental borrowing, the nation will surely take the road to dictatorship, Robert M. Hanes, president of the American Bankers Association asserted today. He said, “insolvency is the time-bomb which can eventually destroy the American system . . . the Federal debt . . . threatens the solvency of the entire economy.”

Feb 11, 1960, New York Times: Mueller Assails Rise in Spending: The enormous cost of various Federal programs is a time bomb, threatening the country’s fiscal future, Secretary of Commerce, Frederick H. Mueller warned here today “. . . the accrued liability is a ticking time bomb. Some day someone will have to pay.”

Oct 4, 1983 Evening Independent – The United States and the developed world face a “ticking time bomb” because of the huge foreign debt involving loans to Third World nations

Oct 26, 1983, David Ibata: “ . . . home-building officials called for a commission to propose ways to trim the $200 billion federal deficit. The deficit is a ‘ticking time bomb‘ that probably will explode in the third quarter of 1984,’ said Fred Napolitano, former president of the National Association of Home Builders.

Feb 21, 1984, James Warren: “‘We now hear from them (the Reagan administration) that deficits don’t cause high interest rates and inflation,’ AFL-CIO President Lane Kirkland said. ‘If that’s the case, we’ve suddenly discovered the horn of plenty and should stop worrying and keep borrowing and spending. But I don’t believe it. It’s a time bomb ticking away.”

January 12, 1985, Lexington Herald-Leader (KY):The federal deficit is “a ticking time bomb, and it’s about to blow up,” U.S. Sen. Mitch McConnell, a Louisville Republican, said yesterday.

Feb 17, 1985, Los Angeles Times: We labeled the deficit a `ticking time bomb‘ that threatens to permanently undermine the strength and vitality of the American economy.”

Jan 5, 1987, Richmond Times – Dispatch – Richmond, VA: 100TH CONGRESS FACING U.S. DEFICIT ‘TIME BOMB‘

November 28, 1987, The Dallas Morning News: THE TICKING TIME BOMB OF LONG-TERM HEALTH CARE COSTS A fiscal time bomb is slowly ticking that, if not defused, could explode into a financial crisis within the next few years for the federal government and our nation’s elderly. The ticking bomb is the growing cost of long-term care.

October 23, 1989, FORTUNE Magazine: A TIME BOMB FOR U.S. TAXPAYERS The government guarantees millions of mortgages, bonds, deposits, and student loans. These liabilities, now twice the national debt, are growing fast.

May 1, 1992, The Pantagraph – Bloomington, Illinois: I have seen where politicians in Washington have expressed little or no concern about this ticking time bomb they have helped to create, that being the enormous federal budget deficit, approaching $4 trillion and growing now at an annual rate of $400 billion per year.

October 28, 1992: Ross Perot: “Our great nation is sitting right on top of a ticking time bomb. We have a national debt of $4 trillion. Seventy-five percent of this debt is due and payable in the next five years. This is a bomb that’s set to go off and devastate our economy and destroy thousands of jobs.

Dec 3, 1995, Kansas City Star: Deficit is sapping America’s strength. Concerned citizens. . . regard the national debt as a ticking time bomb poised to explode with devastating consequences at some future date.

April 14, 2003: Porter Stansberry, for the Daily Reckoning: The baby boomers are heading into retirement with no savings and no productive companies to support them in old age. Generation debt is a ticking time bomb…with about ten years left on the clock.

October 1, 2004, Bradenton Herald: A NATION AT RISK: TWIN DEFICIT A TICKING TIME BOMB: Lawmakers approved Bush’s request without cutting federal spending by a penny, thereby fattening the country’s projected record deficit of $422 billion by another $145 billion next year.

May 31, 2005, Providence Journal, Defusing the Medicare time bomb, Some lawmakers see the Medicare drug benefit for what it is: a ticking time bomb, set to wreak havoc on the budget and shoot future tax rates sky-high.

April 5, 2006, NewsMax.com, “We have to worry about the deficit . . . when we combine it with the trade deficit we have a real ticking time bomb in our economy,” said Mrs. Clinton.

Dec 3, 2007, USA Today: US debt: $30,000 per American. WASHINGTON (AP): Like a ticking time bomb, the national debt is an explosion waiting to happen.

*September 24, 2010, Email from the Reason Alert: ” . . . the time bomb that’s ticking under the federal budget like a Guy Fawkes’ powder keg.”

*July 7, 2011, Washington Post, Lori Montgomery: ” . . . defuse the biggest budgetary time bombs that are set to explode as the cost of health care rises and the nation’s population ages.

[*Added subsequently]

And on and on and on. You get the idea. That time bomb has been on the verge of explosion at least since 1940. Even today, the media, the politicians and sensationalist economists refer to the debt as a ticking time bomb. Please look at the following graph and see if you can find any relationship between deficit spending vs inflation and/or interest rates.

This graph shows there is no predictable relationship between federal deficits vs. inflation and or interest rates.

If the debt is a time bomb, it surely has the slowest fuse in history. The pundits have been wrong, wrong, wrong, all these years. We should understand federal deficits, even large federal deficits, have not caused inflation or any other negative economic effect, and the debt is not a ticking time bomb? It’s an economic necessity. Let us turn away from faith and start to rely on facts.

The faith healers* are killing our economy by restricting money growth. See: The damage done by deficit cuts.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

*Faith is belief without evidence. Science is belief from evidence.

-How to eliminate federal debt and save the economy

An alternative to popular faith

Here is the solution to the federal debt problem — a solution that involves neither increased taxes nor reduced spending.

The federal debt is caused by deficit spending. Taxpayers do not pay for deficit spending, which by definition is spending above tax receipts. Yet taxpayers find the debt worrisome for two reasons: They incorrectly believe someday, they or their grandchildren will have to pay it, and they incorrectly believe large federal deficits cause inflation.

Those concerns affect efforts to improve our health care system, crumbling infrastructure, bad schools, excessive taxes, bankrupt states, Social Security funding, poverty, joblessness and homelessness, Internet service, NASA funding, military funding, disease research and repeated recessions. The solutions require deficit spending, which debt fear prevents.

Currently the government obtains money for deficit spending by borrowing. It borrows by creating T-securities (T-bills, notes and bonds), then selling them. These T-securities are created in unlimited quantities out of thin air. This method, though still used, actually became obsolete in 1971, when President Nixon took us off the last vestiges of the gold standard. Before then, T-securities were collateralized in part by gold, which limited their issuance. Today, they are collateralized solely by the “full faith and credit” of the federal government, a resource the government has in unlimited supply.

Just as the government now creates T-securities out of thin air, it as easily and prudently could create money directly – also out of thin air and also backed only by full faith and credit.

Ending the creation and sale of T-securities would end the creation of debt. No longer would we suffer over deficits, fears that nations might refuse to lend to us and fears our path is “unsustainable.” Rather than “deficit spending” the process would be called “money-creation,” and what now is called “debt,” would more properly be called “Net Money Created.”

By eliminating debt, we would eliminate taxpayers’ concerns they or their grandchildren would pay it. Further, because the federal government now controls not only the supply, but the demand for U.S. money (via interest rates), large federal deficits have not caused inflation. See chart, below:

Deficits vs. inflation
Since we went off the gold standard, there has been no relationship between deficits and inflation.

The elimination of T-securities would allow us to create the money to solve our many economic problems and to prevent the negative economic consequences of tax increases or spending decreases.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com/

-New thinking from the New America Foundation


An alternative to popular faith

        Here is the text of an Email I sent to Steve Coll, President and CEO of the New America Foundation (http://newamerica.net/) (Offices in Washington, DC and San Francisco, CA). According to their web site, “The New America Foundation is a nonprofit, nonpartisan public policy institute that invests in new thinkers and new ideas to address the next generation of challenges facing the United States.” They publish 12 “Principles” by which they live.
—————————————————————————————————————————————-

Dear Steve;
        Your principle #10, “Do not perpetuate budget myths” is excellent. In that regard you might wish to reconsider certain statements on your web site:

“In reality, the availability of debt financing is far from unlimited; in fact Japan and China have already begun to slow their purchasing of U.S. debt.”
        A myth. The federal government does not need to sell U.S. debt to Japan, China or to any other country or person. The government creates debt (T-securities) out of thin air, collateralized only by full faith and credit. It just as easily could create money out of thin air, also collateralized by full faith and credit, and eliminate the debt creation and sales step. Debt creation and sales is a relic of the gold-standard days.
See: How to eliminate federal debt, deficits and interest payments

        “While deficits can spur consumption and thus improve the immediate economic situation when there is slack in the economy, they lead to slower growth in living standards over the long run.”        
A myth. Federal deficits are necessary both for short term and long term growth. A growing economy requires a growing supply of money. Where else will the money come from to grow our economy?
See: I believe

        “Moreover, high deficits increase interest payments, which crowd out important tax and spending priorities and leave the budget with far less flexibility than it would otherwise.”        
Partly true, partly a myth. High deficits can increase interest payments. However the conclusion is circular reasoning. Interest payments can “crowd out” spending priorities only if the government is precluded from running deficits. To date, despite massive deficits for the past 30 years, interest payments never have crowded out anything.

        “Lastly, deficits shift the burden of paying for today’s spending to future generations, which may cause over-consumption by present generations at the expense of consumption by future generations.”
A myth: Today’s deficits are paid by future generations only if the future generations decide to run surpluses. When any generation runs a deficit, it’s tax payments do not even cover its current expenses, let alone past expenses. Deficits do not cost taxpayers money. Only surpluses cost taxpayers money.
See: It isn’t taxpayers’ money

        I have suggestions for a 13th and 14th principle:
13. Base all suggestions on supporting data, not on popular faith.
14. To accept new thinkers and new ideas, be prepared to let go of old thinkers with old ideas.”

Rodger Malcolm Mitchell

-Open Letter to Maya MacGuineas, President of CRFB

An alternative to popular faith

        On September 23, 2009, Ms. Maya MacGuineas, President of the Committee for a Responsible Federal Budget, wrote an article titled, “Can Deficits Fix the Economy” (http://crfb.org/blogs/can-deficits-fix-economy). In the article, she agrees on the need for deficit “ . . . spending on public investments . . .” but she expresses concern about the government’s ability to borrow more money. I wrote her the following note:

Ms. MacGuineas,
         In your article, “Can Deficits Fix the Economy,” I’m pleased to see you understand the necessity of federal deficit spending for economic growth. This puts you well ahead of debt hawks like the Concord Coalition, who actually have called for surpluses large enough to eliminate federal debt, demonstrating their misunderstanding of money and its sources.
        Nevertheless, you said, “. . . given how much we have borrowed in the past, there is little room for deficit financing new investments, and I would instead shift our budget by cutting spending on consumption and directing it toward higher levels of public investment. If we had listened to budget scolds in the past, we would have more room on our balance sheet now for government borrowing – unfortunately, we did not.”
         Exactly the same concerns were expressed by many back in 1979, when the debt was less than $800 billion. In the past 30 years, the debt has grown 1,400% and not only does there remain plenty of room on our balance sheets, but the federal government does not need to borrow at all. See the post:
“How to Eliminate All Federal Debt, Deficits and Interest Payments”

        The government borrows by creating T-securities out of thin air, then selling them. The government far more easily could create money out of thin air, and eliminate the borrowing stage. This also would eliminate misguided concerns about our debt and our ability to borrow.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com