Tag: government borrowing

–Less debt . . . oh, wait. More debt.

An alternative to popular faith

The 6/30/10 editorial in the Chicago Tribune, titled, “Enough debt, already,” had me confused. At first I thought they meant private debt. After all, consumers now deal with mortgages they can’t handle and credit cards charging 20% or more interest. And business profits, or lack thereof, won’t support much more debt without increased consumer buying. Consumers and businesses are going bankrupt in droves, so at this stage of the recession, “Enough debt, already” seems like good advice for the private sector.

But no, that is not what the Tribune meant. They wanted less federal debt and more private debt. The federal government has the unlimited ability to pay any debt of any size. It is a government that neither needs nor uses tax money to pay its debts. Yet the editors say, “. . . the U.S. has gone way, way down the path toward unsustainable debt . . .”

Will the government be unable to service its debts? No, that cannot happen. So, what makes federal debt “unsustainable”? The Tribune editors never say. However they call for more lending to business, despite the fact that growing business debt can be unsustainable. To make matters worse, the Tribune cheers the restriction on unemployment checks to those people who would have used those checks to buy things from businesses, thereby stimulating business. (“Unemployment checks extending up to 99 weeks instead of the usual 26 add more indebtedness.”)

The editors correctly say, “The U.S. economy is hungry for credit,” not realizing this means the U.S. economy is hungry for money, and federal deficit spending is the government’s method for adding money to the economy. The editors lament, “Washington already has bequeathed to our descendants a nation debt of $13 trillion,” – an untrue statement – and simultaneously wants to bequeath to our descendants added business debt. (Who do they think pays for business debt?)

To summarize: The Tribune editors oppose debt creation by the one entity that can afford unlimited debt service, but advocate more debt for the over-extended private sector. They support looser lending standards, so that less qualified businesses can go deeper into debt. They oppose increasing regulations on lenders, the same lenders whose unsupervised, profligate lending triggered the recession. They favor the end to federal stimulus plans, which would add the money they say the economy needs. And they hope the economy will recover — somehow.

Clearly, economics is not the Tribune editors’ forte.

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

No nation can tax itself into prosperity

–What the Wall Street Journal editors want

An alternative to popular faith

Today (6/26/10), in an editorial titled, “The Keynesian Dead End,” the Wall Street Journal editors said, “. . .$1 in (federal) spending has to come from somewhere, which means in taxes or borrowing from productive parts of the private economy.”

Wrong, wrong and wrong. Federal spending relies neither on taxes nor on borrowing. For today’s monetarily sovereign nations, federal spending neither is constrained nor facilitated by any form of income, either from taxes or borrowing. Federal spending is accommodated by the simple device of crediting bank accounts, which the government can do endlessly. If taxes and borrowing were reduced to $0, this would not affect by even one penny, the federal government’s ability to spend.

Further, “. . . borrowing from the productive parts of the private economy” implies that T-bill purchases somehow remove money from the private economy. In fact, T-bill purchases merely are an exchange of money within the private economy. When you buy a T-bill, your checking account at your local bank is debited and your savings account at the Federal Reserve Bank is credited. (Yes, by virtue of your T-bill purchase, you have a savings account at the Fed.)

No money is lost. It merely is moved from your checking to your savings account. Actually, money is gained, because when the T-bill matures, the money will be moved back to your checking account, plus interest.

The Journal editors also said, “Now the political and fiscal bills are coming due even as the U.S. and European economies are merely muddling along,” as a prelude to several references equating the U.S. with the EU. The editors do not know something so basic as the difference between monetarily sovereign nations and nations not monetarily sovereign. Without this knowledge, any understanding of economics is impossible.

The WSJ editors claim to favor lower taxes, less spending and lower deficits. At various times, the editors also have preached in favor of a stronger army, better schools, federal supervision of banks and other financial firms, better roads, defense of our borders, defense against terrorism, safer food, better retirement, better unemployment insurance, police, health care, rescue from hurricanes, oil spills and other disasters, more jobs, a better environment and a long list of other benefits. (One is reminded of the confused Tea Party platform).

The WSJ editors are like the person who says, I want to eat more, exercise less and lose weight. Let’s be clear. Under the current system, if you cut taxes you increase the deficit, unless you cut spending even more, which means you can’t have the stronger army, better roads et al. Of course, there is one solution, which the editors don’t even consider. If you eliminate borrowing, you can cut taxes without increasing the deficit. Without borrowing, there is no debt or deficit, and as we’ve shown many times previously, government spending does not require government income.

Finally, the WSJ editors said, “The Reagan and Clinton-Gingrich booms were fostered by a policy environment for most of that era of lower taxes, spending restraint and sound money.” Spending restraint?? Have the editors forgotten how Reagan began the largest debt growth in post WWII history, and how Clinton’s surplus introduced the 2001 recession?

I should commend the WSJ editors for one statement: “ . . . much of the U.S. stimulus went for transfer payments such as Medicaid and unemployment insurance . . . “ True, and a perfect reason why taxes ostensibly “for” Medicaid and unemployment insurance should be eliminated. Federal taxes do not pay for federal spending.

The balance of the editorial contained the usual fulmination about the size of the federal debt and deficits, with also, as usual, no facts showing how debt and deficits harm the economy. They end their editorial this way: “With the economy in recession in 2008 and 2009, we argued that some stimulus was justified and an increase in the deficit was understandable and inevitable.”

So, to summarize the WSJ position: Deficits were justified when times were bad; they are not justified when times are good. Today, times are bad and deficits are not justified.

Do you wonder why our politicians are confused?

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

No nation can tax itself into prosperity

–More debt-hawk injuries to America

An alternative to popular faith

Here is yet another example of many such instances (See: DAMAGES) showing the continuing damage debt-hawks cause America and our poorest citizens:
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By Greg Hitt and Sara Murray, WASHINGTON, 6/25/10: “Spooked by concern about deficits, the Senate shelved a spending bill that included an extension of unemployment benefits, suddenly cutting off a federal cash spigot opened by President Barack Obama when he took office 18 months ago.

“The collapse of the wide-ranging legislation means that a total of 1.3 million unemployed Americans will have lost their assistance by the end of this week. It will also leave a number of states with large budget holes they had expected to full with federal cash to help with Medicaid costs.”
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What is the evidence large federal deficits harm America? There is none. Yet, based solely on mystical faith and unsupported belief, the debt hawks have managed to punish millions of our poorest Americans.

The debt-hawks have heads of stone. They have hearts of stone, too.

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

No nation can tax itself into prosperity

–How the debt hawks will destroy the U.K.

An alternative to popular faith

Cameron Warns Britons of ‘Decades’ of Austerity
By SARAH LYALL, Published: June 7, 2010

LONDON — Prime Minister David Cameron said Monday that Britain’s financial situation was “even worse than we thought” and that the country would have to make savage spending cuts to bring its swelling deficit under control.

Stern and grim-faced in a speech in Milton Keynes, just north of London, Mr. Cameron said, “How we deal with these things will affect our economy, our society — indeed our whole way of life. The decisions we make will affect every single person in our country,” he said. “And the effects of those decisions will stay with us for years, perhaps decades, to come.”
[…]
Dave Prentis, the general secretary of Unison, a union that represents many public service workers, nonetheless told the Press Association news agency that Mr. Cameron’s speech was “a chilling attack on the public sector, public sector workers, the poor, the sick and the vulnerable, and a warning that their way of life will change.”
[…]
“Nothing illustrates better the total irresponsibility of the last government’s approach than the fact that they kept ratcheting up unaffordable government spending even when the economy was shrinking,” Cameron said.
[…]
As a cautionary tale, he mentioned Greece, where profligate spending led to a huge budget deficit and eventually a downgrading on financial markets.

While Britain’s economic position is stronger than that of Greece, he said, “Greece stands as a warning of what happens to countries that lose their credibility, or whose governments pretend that difficult decisions can be avoided.”

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The U.K. was smart not to lose control over their money. They remain monetarily sovereign. Unlike the euro-using nations, the U.K. can create their money at will. But suddenly, they have forgotten why they didn’t switch to the euro.

Now, the debt hawks have the U.K. preparing for “decades of austerity” (aka, decades of poverty), as they falsely compare themselves to Greece. Wake up, U.K. You aren’t like Greece and you don’t need to choose poverty.

Mr. Cameron said, “. . . if you start with a large structural deficit, ramping up spending even further is likely to undermine confidence and investment, not encourage it.” This is as false a statement as it’s possible to make. I challenge Mr. Cameron to explain how government spending, which is the way government adds money to the economy, can reduce investment or economic growth. It simply is total nonsense.

It’s difficult to imagine why an otherwise intelligent people intentionally will subject themselves to decades of misery based on a foolish belief that not only is unproven, but factually has been proven wrong on many levels. While some of the same ignorance exists in the U.S., we only can pray it does not reach the extreme levels of utter stupidity it apparently has reached in the U.K.

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

No nation can tax itself into prosperity