This one is a deconstruction of a piece in the Detroit Free Press by a gentleman in the MSM who’s decided to join the Peter G. Peterson/Catfood Commission echo chamber. (My thanks to Sisterkenney for calling it to my attention.)
“Basic math — and logic — says you can’t keep spending almost $2 for every $1 in your pocket. However, neither rules in Washington, where our national government now adopts budgets that authorize spending more than $1 trillion beyond tax collections and has accumulated a debt in excess of $13 trillion, a simply incomprehensible number.”
Comment: True. You are an individual and a user of money that your Government creates. But your Federal Government, unlike your State or local Government or any corporation, or any business or non-profit, isn’t just a user of US Dollars. It is the maker or creator of US Dollars. It creates money whenever it uses Government authority to spend money. The way it creates money is mostly by crediting or marking up the bank accounts of others. When it marks up these accounts it adds to the US Dollar savings in these accounts. Ron is telling you that the US Government has issued $13 Trillion in debt instruments. But what he doesn’t tell you is that this money also is $13 Trillion in Non-Federal Government savings, so that if the Government ever paid back this “debt” by taxing and is so doing doing marking down the bank accounts of others it would also be removing that same $13 Trillion for those non-Government (mostly private) bank accounts.
Is that something we want to happen? Do we really want the Government to remove all the accumulated US Dollar savings since the inception of the Republic from private bank accounts in an effort to repay that national debt? I don’t think so. Think about it. The only issuer of currency in the United States is the US Government, because only it has the authority to make dollars. That national debt is nothing but the net number of dollars created by the Government since the beginning of the United States. If we paid it back dollar for dollar, without issuing new money, which can only happen through Federal spending, we’d have no dollars left. Again is this really something we want for ourselves and our children? Shouldn’t we instead want the Government to spend/create more money, as long as each of us got our fair share?
Yes, I know you’ll ask whether this creating more money won’t cause inflation? Well, the answer to that question, is that it would cause inflation if the Government spent so much that the aggregate demand created, exceeded full employment and the US’s productive capacity. However, 20% of our labor force is either under- or unemployed right now. So more Government spending won’t lead to excessive demand and inflation for awhile. When it does we can always cool demand by raising progressive (“fair) taxes.
Please note, also, that by raising the question of inflation, which is an important question because we want price stability, as well as full employment, we have now raised a different issue than the one raised by Ron. He raised the issue of whether the US Government can continue spending what it’s now spending indefinitely. The answer to that question was “yes,” because our Government is the maker of US Dollars and therefore it can never become insolvent as long as Congress doesn’t order a default by refusing to increase the debt limit, and also refusing to appropriate more funds for programs. But the inflation issue is an entirely different one, and asks whether the Government can keep spending without the consequence of inflation. The answer to that one was “no” it can’t spend whatever it wants to and expect to avoid inflation, but it can spend whatever it has to, to create full employment and help the US use all its productive capacity, and also expect to avoid it.
“Interest payments are running us $200 billion a year, much of which goes to China, holder of $895 billion in Uncle Sam’s IOUs, and Japan, holder of another $785 billion in bonds. We’re even on the hook to Brazil for $164 billion, and to Caribbean banking centers for $148 billion.”
Comment: $200B sounds like a lot, but it’s roughly 5.7% of the Federal Budget, which is, historically, a low figure. Until just two or three years ago we were paying more than that, and during the Reagan, Bush 41, and Clinton Administrations, it was routine for that number to be as high as 13-15% of the Federal Budget.
Also, even though most people don’t know this, the Federal Government, if it wanted to, and if Congress would allow it to, could spend money without issuing debt instruments. It could cease to issue long- and medium-term debt instruments, and then its Government spending, by flooding bank reserves in the non-government sector would drive short-term interest rates down to near zero. We’ve seen this process in Japan where the interest rate is very close to zero, even while the public debt-to-GDP ratio is about 190% which is, roughly three times our own ratio. Of course, if the Federal Government followed such policies, it would over time drive its interest costs down to near zero. This would not be good for wealthy investors and foreign countries who buy our debt instruments, because they would make little or nothing. But, the truth is that we don’t need their money. They really don’t pay for our spending, and there is no good reason to pay them interest on their US Dollar holdings when we can always make more US Dollars by Government spending.
“This can’t go on; it’s a formula for collapse. But what to do about it is a knot of Gordian scale as more and more people depend on government programs, contracts and bailouts. Promises have been made that ought to be kept. And politics figures big time in any decisions about federal spending.”
Comment: This is just plain wrong. Government spending can go on indefinitely as long as we have no inflation. So the issue of the debt and the deficits is a false issue. There is no “gordian knot” because there is no issue. The real issue why is our Government and Congressional officeholders are refusing to eliminate unemployment, re-build our economy, provide enhanced Medicare for All, reconstruct our educational system, and do all the other things they need to be doing, and instead are wasting time on a non-issue? The real gordian knot we have to untie is the one that prevents our political system from working in the interest of the people and keeps it bailing out financial and corporate interests at the expense of regular people. That’s the real issue. The deficit and the debt is just another of “the look over there” issues our leaders use to avoid their own accountability for failing to make the political system work for us.
“You can participate Saturday
"So earlier this year, President Barack Obama set up a commission to come up with a course of action — to be considered after the November elections. And as part of that process, this Saturday there will be an unprecedented national discussion of the situation in which thousands of Americans will be asked to help set priorities for spending, cutting and taxing. The results will be shared with Obama’s National Commission on Fiscal Responsibility and Reform, of which U.S. Rep. Dave Camp, a Midland Republican, is a member.”
Comment: The purpose of this meeting seems to be to build support for either raising taxes or cutting expenditures. But what is not being discussed is whether or not running deficits or having the national debt or the public debt-to-GDP rise to higher levels is in itself a problem that must be met with a long-term strategy to either balance the budget or at least reduce the debt-to-GDP ratio. Instead it’s being assumed that: “of course, this is a crisis that we must handle, and also that the growth of these numbers is out of control.” The alternative question is: Why is this a problem? And what if these numbers continue to go up, why should we worry about that at all, rather than the problems named earlier? To put this another way: ‘What if we ignored deficit considerations entirely and just focused on what Government ought to be spending to end the recession, secure full employment, and meet our other problems, then what would be the consequences of this and why would it be bad for us?”
“The 19 group sessions will run 11:30 a.m.-5 p.m. One will be held in Detroit, at Wayne State University’s McGregor Conference Center, with a mix-and-match group of about 85 invited participants reflecting the area’s economic, geographic and social diversity. But AmericaSpeaks, the nonpartisan, nonprofit organization putting the program together, says anyone can get involved in a smaller-scale meeting or participate individually online.”
“You can find out more at USABudgetDiscussion.org or by calling 866-755-6263.
”But really, why would you bother devoting any part of the first Saturday of summer to a conversation about a $13-trillion problem that may take 20 years or more to just get under control?”
Comment: This framing assumes that the $13 Trillion national debt is “a problem.” But is it?
“Well, maybe you’re on the receiving end of some of the government benefits that could be at stake in the debt-bates (that’s a debate about the debt) to come. Or maybe you’re on the brink of being eligible for Social Security or Medicare. Perhaps you’d like to know whether your children or grandchildren can expect any kind of social safety net from their country, or how much the annual budget deficit could be reduced by pulling out of Iraq and Afghanistan.”
Comment: Right, but you’d only be concerned because there’s a group of people considering cuts in benefits or tax increases, or cuts in other expenditures because it thinks that there’s a potential solvency problem for the Federal Government, when there is none.
“Why you should be interested
”Anyone who is concerned about what kind of country we are going to be in the near and long term should be interested. And, since we’re all now in the hole for about $43,000 each on our national debt, maybe you’d like to volunteer to pay off your share.”
Comment: Again, only because you’re starting a national discussion about doing something to solve a fantasy problem of your own making in such a way that it may be very damaging to the nation. Btw, we are not “all now in the hole for about $43,000 each on our national debt. . . ". Rather, the truth is that the savings built-up in the non-Government sector since the inception of the Republic are now $43,000 per person. Unfortunately, however, these savings are not equally distributed. We would be much better off as a nation if they were.
“Seriously, there will be lots of information available and all sorts of options presented in what is promised to be a very neutral way. No agenda beyond trying to learn what the American people want to do about this collective problem.”
Comment: We’ll see if these meetings are really neutral. If, indeed they are, then they should be prepared to entertain and seriously discuss the view that the deficit and the national debt are not problems we ever have to be concerned about as long as we retain sovereignty in our own currency.
"Bringing together thousands of diverse Americans from across the country simultaneously to discuss the nation’s fiscal challenges holds the promise of spurring an even broader national dialogue to help build the urgency and political will necessary to tackle our deficit and debt," said Robert Gallucci, president of the MacArthur Foundation, which is underwriting the national conversation along with the Peterson and Kellogg foundations.”
Comment: And this statement shows the bias of the organizers of this event. They assume there’s a problem and that we have to build a sense of “. . . . urgency and political will necessary to tackle. . . “ it. Why are they wasting their money and everyone’s time on this non-existent problem? Why haven’t they organized a national dialogue about how we might secure full employment, and end the recession and meet all of the rest of our many, many problems in a nation that is de-evolving and de-industrializing, and becoming more and more like a third world nation. That’s what we need to have a national dialogue about.
“This seems to be one case where national decision-makers really do want to know what America thinks because, quite apparently, they don’t have a clue what to do or how to get it done. If they did, wouldn’t they have done it by now?”
Comment: This is bull-puckey. They know every well what they would like to do. The problem is that they need to build support for it. So this “dialogue” is about testing the waters to see if there is space for them to go through their plan to push budgeting reforms through a lame-duck Congress after the election.