An alternative to popular faith
Just when I thought the Chicago Tribune was starting to get it, they ruined everything. For years, the Tribune has told its readers the federal deficits and debt are unsustainable, that China and the other nations would refuse to lend to us, that the government would be unable to service its debts and that federal taxes needed to be increased or spending reduced.
And because the federal debt is unsustainable, the government is not able to support Medicare, Social Security, Medicaid and universal health care without significant tax increases or benefit cuts.
Then I saw this in the March 30, 2010 editorial titled, “Debt Dangers”:“But the U.S. is not about to run out of money, even if it keeps overspending. Why not? First it can appropriate more of its citizens earnings through the tax system. Second and most important, it can print money to pay its bills.”
Wow, is the staid, old Tribune finally starting to understand? Do they realize the government can support Medicare, Social Security, Medicaid and universal health care, even if taxes are reduced? Do they understand we don’t need China and the other nations to lend to us, because we can create money without borrowing?
Sadly we were not to be so fortunate, for a few sentences later, the editorial said, “The danger is that (the government) would create money to make those debts payable, a course that would lead to much higher inflation.”
Never mind that today, following the most massive deficits in our history, the government’s chief worry is deflation, not inflation. Never mind that for the past forty years, there has been zero relationship between deficits and inflation, and in fact, the largest deficits have corresponded with inflation reductions. (See the graph, below).
And never mind that deficits repeatedly have proved stimulative, while reduced deficits are depressive. Intuition and popular faith trump facts every time.
Then the Tribune editors compounded the crime by stating, “The economy would also suffer as businesses and households scrambled to cope with the disruptive effects of soaring prices. It would suffer again if and when the government decided to curb inflation by driving up interest rates — a step that virtually guarantees a sharp downturn.”
Never mind that high interest rates have not slowed GDP, nor have low rates stimulated, which is why the Fed’s twenty rate cuts failed to prevent or cure the recession. (See the next graph. If high interest rates slowed GDP, the peaks of the blue line would have to correspond with the troughs of the red line.)
But at least, the Tribune has taken the first step, and perhaps we never again shall see that ridiculous sentence, “The federal debt is unsustainable.”
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
“Debt” is only ‘sustainable’ as long as it is legally enforceable. And if we consider that the “debt designers” ultimately want control, they will make sure that it continues as effectively as possible!
You may find it interesting how the development of US budgets has differed from that of the UK.
See http://bit.ly/ceURM3 and
http://bit.ly/aJg7no
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Thank you Sabine,
What “control” is wanted, that does not already exist, and specifically who are the “debt designers.”
Also, you may wish to summarize for our readers, what message you feel the two web pages send.
One page said, “[. . . ] indebtedness of the government to investors is increasing and ongoing – at the cost of the taxpayer and, of course the value of the currency.”
The only cost to taxpayers is taxes, which do not need to be increased, for the reasons expressed by the Tribune. Further, despite record setting deficits and zero interest, deflation is the primary concern.
Rodger Malcolm Mitchell
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Control over national states, Malcolm.
The ‘debt designers’ are the central bankers who issue all sorts of sovereign bond papers.
The message of the US budgets, for me, is:
1) a lot of money went into WWI and WWII
2) until the crisis hit, there was generally hardly no budget deficit
3) the crisis shows later than it was perceived.
The message of the UK budget is:
1) a remarkable change of trend WRT the deficit, precisely at the time of the crisis.
The cost to the taxpayer is the loss of purchasing power of their currency and the dwindling budgets for public services.
At least IMHO.
http://publicdebts.org.uk
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Sabine, I’m not much into conspiracy theory. Though there are plenty of conspiracies in the world, I believe we imagine far more than there are.
Whenever you’re about to write, talk or think about “federal deficits,” substitute the words, “money created,” and see whether your opinions change.
Rodger Malcolm Mitchell
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