Recently I wrote about the economic theory behind the Wizard of Oz and was a tad surprised at a few of the responses from liberal economists. It seems that some believe that there is nothing wrong with governement budget deficits or national debt as a whole. That belief springs from an assumption that government debt results in real goods and services provided for the people, and with a justifiable increase in taxes on the wealthy and a proper understanding and utilization of the money supply (i.e. the printing of paper money by the Federal Reserve), the country will be in good shape economically. However, I believe the liberal view of economics is built on a corrupt premise. When the medium of exchange (money) is not tied to a precious metal, then the supply of money increases in proportion to the whims, appetites, and desires of the people who control the money supply. If liberals run the government, then the Federal Reserve will spend billions, if not trillions, on social or economic programs with no comprehension of the boomerang effect of inflation caused by the increase in the money supply. I realize that economic theory is something that the average American has little or no understanding of, mainly because most of us live on the premise that if a bank keeps our money on deposit (banks) then our money is actually in that bank. That's not the way it works. Fractional reserve banking is what runs western governments and the fractions having been getting smaller over the years and the reserves held have turned from gold and silver deposits to paper dollars. The Federal Reserve oversees fractional banking and it is through their actions that the money supply increases to allow government expenditures, deficit spending, and gigantic national debt.Something else that is not understood very well by the average American is the number which measures our national debt--the number trillion. Our national debt is $15,000,000,000,000 (trillion) dollars and growing (watch it grow 5 billion dollars a day on this debt clock). Remember, our country's debt is not the same thing as our annual deficit. A deficit is what the government spends compared to what the government takes in through revenue (taxes) each year. President Obama recently stated that our annual deficits will be over $1,000,000,000,000 (trillion) dollars per year well into the future. That means our annual debt will increase exponentially in the years to come because not only are we NOT paying off past debt, we are rapidly adding to our cumulative debt through deficit spending. If interest rates increase, and they will when too much money is printed, then the amount of our debt will skyrocket through the added interest. Most Americans yawn and say, "Ho hum. So what?" I think the reason for such apathy is because Americans do not understand the number trillion; that number is beyond the comprehension of most. Allow me to help you understand how much a trillion really is.
In Measurements of Time
If a trillion is measured in units of seconds, then one million seconds is eleven and a half days from now. One billion seconds is thirty-two years from now. How big is a trillion? One trillion seconds is 32,000 years from now. Ask me where I will be in eleven days and I can give you a rational answer (in Arizona at the OU Bowl Game). Ask me where I will be 32 years from now and I will have little clue, but I know I'll be turning 82 years old if I'm still alive. Ask me what I will be doing 32,000 years from now and I will think you are either a theologian wishing to discuss heaven or a village idiot.
In Measurements of Space and Travel
Suppose you had a stack of dollar bills and placed them end to end. One million dollars would stretch just under one hundred miles. If you got in your car and traveled that distance averaging 60 miles an hour, it would take you an hour and a half to finish the million dollar stretch. One billion dollars stretched out end-to-end would reach ninety-seven thousand miles. If you got in your car and traveled an average of 60 miles an hour without stopping, it would take you about six months to reach the end of that billion dollar stretch. One trillion dollars stretched end-to-end reaches ninety-seven million miles high which is four million more miles than the distance from the earth to the sun. If you got in your car and traveled 60 miles an hour without stopping it would take you 185 years to travel the distance required to reach the end of the trillion dollar stretch.
In Measurements of Christmas
Suppose you were at Bethlehem for the birth of Jesus and God celebrated by giving you a supply of money and telling you to spend a million dollars a day, but that when your supply ran out you would die. How long would you live if you had a million, a billion, or a trillion dollars in your supply of money? Well, if the supply of money was one million dollars, you would be dead before Jesus was a day old. If your money supply was one billion dollars, at the rate of spending of one million dollars a day, you would die when Jesus was three years old. But if your money supply was a trillion dollars, and you spent a million dollars a day, you would still be living in 2011 and have about another seven hundred years to live.
Now, multiply all the above illustrations by 15 and you will begin to grasp the incomprehensible size of our national debt. Within three years the national debt will be above 20 trillion dollars and climbing rapidly. Some day we Americans will wake up to the fact that the house of cards being built by our government will dramatically collapse. Our nation's fiscal irresponsibility is probably the best reason for why no human being should ever put their trust in governments, countries, political leaders, or earthly things. At some point, they all are destined to fail.
31 comments:
Interesting description I ran across last week.
Food for thought..... This puts it into a much better perspective and is
the same for many countries in Europe ...
Why the U.S. was downgraded:
* U.S. Tax revenue: $2,170,000,000,000
* Fed budget: $3,820,000,000,000
* New debt: $ 1,650,000,000,000
* National debt: $14,271,000,000,000
* Recent budget cuts: $ 38,500,000,000
Let's now remove 8 zeros and pretend it's a household budget:
* Annual family income: $21,700
* Money the family spent: $38,200
* New debt on the credit card: $16,500
* Outstanding balance on the credit card: $142,710
* Total budget cuts: $385
Ugh.
That's ugly Garen.
Wadem
Very glad to see you continuing to raise these issues. Recently, a friend and I were discussing this. We noted that light travels 186,000 miles per second and travels just under 6 trillion miles in a year (one light year). Two and a half years to go 15 trillion miles. Now, equate that to spending per second, and you get a very frightening idea of just how much our government is spending and how fast! The speed of light is a natural constant, but there is nothing natural about this kind of spending.
Other problems I have with liberal economists is that they often appear to have no idea where wealth comes from or what it really is and how it is created. Many of them actually believe in a zero sum game as if it were a fixed resource and you only get more of it by taking it from someone else. That may be true to a degree in very corrupt economies, societies and governments (and yes, we do now appear to have a very corrupt situation), but it practices a number of things that true Austrian economics, free markets and genuine capitalism abhors and even overcomes. They tout these "alternative" methods (such as crony capitalism) as the real deal as a straw man to attack capitalism, when ironically, these are the results of their own actions that departed from a true and honest system.
Another problem is that they believe governments produce wealth. Governments only tax and redistribute wealth. They also think primarily of the public sector, not the private sector. So, yes, when you cut spending, you reduce government jobs. When you increase unemployment benefits, you increase bureaucratic jobs. But they ignore the fact that these jobs are paid for by the PRODUCERS to support the TAXERS (redistributers, not producers).
Your readers might find the following books useful in understanding more of the differences:
"The Way the World Works: How Economies Fail and Succeed" by Jude Wanniski
and
"The Road to Serfdom" by Friedrich Hayek.
And of course, ther is much more available at www.mises.org, the premier site for Austrian economics.
I have a number of links and excerpts with some of my own thoughts at rixshep.amplify.com on this and a host of other topics
In Him,
Rick Shepherd
Oh, come on Wade, a trillion ain't that much. In 1/8 of a cup of water there are a trillion TIMES a trillion water molecules. Every hour minutes you inhale and exhale roughly a trillion TIMES a trillion oxygen molecules.
Thank the Lord for water and oxygen.
Good stuff Rick!
Wade
Bill,
Smiling.
Mr. Martens,
Your illustration is perfect!
What gets me is that there are some liberal economists (Keynesian as opposed to Austrian, by the way), who defend these numbers and still claim it works that way. If you ask them if they run their family budget that way, they of course say they don't. They claim that the "laws" of finance and economics are not the same for governments as for private families.
I guess the laws of physics don't apply the same for them either, and water flows uphill!
Rick Shepherd
There was nothing 'conservative' about massive tax cuts for the rich that spread out over ten years. Money had to be borrowed for those tax cuts.
It was.
Where are the jobs?
The 'income disparity' between the 'middle'? class and the rich is enormous. One third of the country is in poverty. So there was and is NO 'trickle-down'.
A few points:
“If interest rates increase, and they will when too much money is printed”
The federal reserve controls interest rates. And why would the Fed raise interest rates if there is no inflation? So if we see a rise in interest rates, there will be inflation, the economy will devalue the dollar a bit, and this would be a good thing. It would mean that the economy was in good shape, producing well with low unemployment. Our debt-to-GDP ratio would decline.
“When the medium of exchange (money) is not tied to a precious metal, then the supply of money increases in proportion to the whims, appetites, and desires of the people who control the money supply”
We are forgetting Baum’s lesson. If the government cannot print enough money, it causes deflation and hurts the working and middle classes. So the government will, hopefully, find a way to print enough money. So even if money is tied to a metal (which has no real inherent value except human faith), the government will just offer to exchange less and less of this metal for paper money if they need to print more money. Or they’ll expand into another metal, etc. Fiat currency is much more flexible and effective at doing what “metal currency” would seek to do anyway (if policy makers were smart).
As to federal spending, can you imagine the shape our country would be in if the federal government had not propped up state and local governments over the last few years through deficit spending, which I suppose is what the “conservative” view is thought to be here (that we shouldn’t have done that)? We are already seeing terrible things - towns dying, police officers and teachers being laid off, etc. And when you consider the high unemployment rate, we must realize that we are living, as a nation, BELOW our means, not above it. We could be producing and investing more in the future. But since too little money is in the right hands, we are stuck in a recession. If the government had implemented austerity measures when the recession hit, we would be in faaaar worse shape.
The “trillions” argument is relative and matters little. Our amount of debt has been in the trillions for a long time and it has affected inflation very little. A more relevant measure of the federal debt is debt-to-GDP ratio - and we are below our historic high in that department.
And, perhaps more importantly, we are at a fraction of what Japan’s debt-to-GDP ratio is. So they must have huge inflation right? No. They are fighting deflation. Look at our inflation rates. Look at the 3 and 4 year averages in order to eliminate any temporary up or down ticks in commodity prices. It’s very low and it will be low for a while. The three year averages are below 2%.
The public debt level doesn’t matter much. It’s an inert hoard unless it’s spent. Heck, half the reason we have such a huge budget deficit is because other country’s want our dollars as their reserve currency. China sells us products, trading them for dollars, so that they can simply hold them. An inert hoard. Dollars are the US's biggest export.
People talk of paying off our debt, but China is free to exchange their bonds for dollars at any time. Then the money would sit as cash instead of bonds. Nothing changes unless the dollars are spent, and wouldn’t that be a great thing for our economy? Huge stimulus!
Our federal debt is only really repaid if the dollars are exchanged for goods and services. If they are spent. And if too much is spent, then inflation can kick in, and then the government can respond by raising interest rates or taxes.
Also, it is a false analogy to compare the federal government to a household, for one simple reason. A household needs an income to spend. Every single cent the federal government spends is created out of nothing. Taxes are not a revenue source, but rather a way to reduce demand and prevent inflation - it offsets government spending which is the introduction of new dollars into the economy.
all the best to everyone, Steven
Christian,
"There was nothing 'conservative' about massive tax cuts for the rich that spread out over ten years. Money had to be borrowed for those tax cuts.
It was."
The ironic thing is that, if one thinks in terms of the aggregate economy, the money the rich gained from the tax cuts was simply invested in government bonds. So yes, instead of being destroyed through taxation, the money is sitting in bonds and used as an argument against "too much public debt."
Steven,
The Federal Reserve does not control rates when U.S. government bonds are on the auction block and nobody buys. The rates HAVE to increase when China, Canada and other stronger countries stay away from buying U.S. debt. The rates rise in order to entice more buyers. That day of increased rates is coming.
Wade,
A person or country or organization that holds dollars has two choices. To sit on the dollars and get no return, or to buy government bonds and get a return.
A bank won't get too far if it turns down free money.
And if no one bought bonds, it would simply drive up liquidity amounts in banks and put downward pressure on interbank lending rates.
And, even if interest rates went higher to sell bonds, which is not going to happen unless complete irrationality takes over in the minds of businesspeople, then what would that mean?
Nothing really. More money paid into bonds that sit around and do nothing.
Sigh. As Reagan said about liberals in general, so much of what they know simply isn't true.
Anyone wondering about inflation, spending, etc., PLEASE read at least chapter 1 and chapter 7 of the book at this link:
http://mises.org/books/inflationcrisis.pdf
Getting late. More later.
Rick
I have a real appreciation for the foresight of Byron Dorgan, who WARNED us about what was to come . . .
http://www.youtube.com/watch?v=w2nZbo8SKbg
thing is, he was right . . . we forgot the 'lessons of the past' and we forgot to protect the little guy from the greed of the powerful ones who had 'special information' and used it . . .
now the public has lost faith in what brought us down . . . the collusion of deregulation and the permitted merger of banks with speculation.
I don't think I will live to see our country pull out of this trouble . . . but when and if it does, I hope there are people like Byron Dorgan to help us remember the 'lessons of the past'
The magic of good analysis is to make complex things simple.
Wade, you have done a masterful job here!
The magic of good politics is to disguise a crisis until it eats us up. Our folks inside the beltline have done a more than masterful job on this to the point TERM LIMITS is the simple solution along with reduction of their budgets for Congressional representation.
In the beginning representation was a voluntary act by a stateman/businessman who had done well enough to afford to take off from home and work to represent those sitting back home and trying to cope with the realities of being governed.
The Kingfisher of Amos 'n Andy days put the financial matters equally simple:
"When yo out go exceeds yo in come / yo up keep will be yo down fall!"
"And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale."
Thomas Jefferson in a letter to John Taylor in 1816.
Gene S,
If the federal government's "out go" didn't exceed it's "in come" then there would not be any net financial assets in the private sector. In short, the public sector's debt is the private sector's savings.
For money to exist, free and clear, the government must spend it into existence. The alternative for money creation is banking, which loans money into existence, but of course the money is owed back.
How did dollars get into circulation in the first place? It's an important thing to consider. The federal government doesn't work like a household. It doesn't get money from somewhere else and then spend it. It simply spends, creating money. Any money that is taxed must be spent into existence before it can be taxed.
Wade's fear of inflation is a coherent one, that the government has created too much money by spending more than it has taxed, but fortunately his fear does not match the facts. Inflation is very low in spite of high deficit spending. One reason is because the deficit spending is barely making up for the huge financial hit our economy took during the crisis.
To anyone who thinks that inflation is caused simply by increasing the amount of money in existence, I ask - if the government purchased my car from me for a trillion dollars (created out of nothing, like all federal spending), and I put that money under my mattress, would it lead to inflation? If not, then there is something else at play. And that something is demand - a.k.a. money spent.
Johnny D,
Luckily, our federal debt is no burden on future generations. First, the debt never need be paid back. When a bond matures it can be rolled over into another bond. Secondly, the “debt” is really just financial assets in existence. “Paying back” China really means allowing them to exchange their dollars, or bonds, for goods and services wherever dollars are accepted. And they are free to do that at any time - and it would stimulate our economy.
Wade,
Another way to think about it - if China didn't want to buy our bonds, then they would simply have cash in banks. Then those banks would purchase the bonds in order to get a return.
I believe that I left the comment that led to the creation of this post and therefore felt it necessary to comment, but Mr. Stark has made all my points very eloquently. I would just like to reiterate that using analogies, while sometimes useful, can also be very dangerous. Some things SEEM the same, but are in fact quite different. A household's budget and the federal government's budget are perfect examples of this principle.
By far the most disturbing part is that people who work for us .. whom WE are paying salaries to .. are the ones doing this to us.
Next most disturbing part: people will continue to vote them back into our employment, as long as they promise (or actually do) spend a bunch of that money on THEM.
It just may well be that our own prosperity, an indirect result of our democratic republic's freedom, may yet make such a form of government unworkable, as it fosters ever-increasing greed.
Not among businesses. Among voters.
Steven---
Not sure I agree with your thesis. The ONLY way government gets money is with taxation. In an ideal world that money would be used to help the citizens in proportion to what they have paid.
For many years I have seen taxation used to promote, for example, my investment of up to $50K with an immediate write off for the new equipment.
If your thesis were accurate, then why did we get by without ANY income tax until WWI and then it was supposed to be a "temporary tax" to pay debts from war.
What taxation amounts to is forcing me to pay money so someone else can decide how to spend it! I'm not sure that is wise nor efficient use of money.
Here is an example from real life: For the last 4 years since the economy went bust I, and other small businessmen like me, have been trying to get by on a 70% reduction of income. The best businesses are making 50% and the worst case if 10%.
Meanwhile, all people on the government tit (school teachers, highway employees, state and federal representatives and workers) are enjoying their same income with a "little raise" they complain about!
Now, if the government were reflecdting the realities of small business, then they would realize that they must get by on a 50-70% reduction of what was happening to taxpayers as of 4 years ago! That, certainly, "ain't so!!!!"
Rome went down by taxing the mess out of its citizens and keeping ther slavew and surfs in their place. The same is true for England. That is the simple reason our ancestors hopped on little wooden ships to make their way to the New World and Land of Oppotunity.
It worked well for almost 200 years, but it's not working now!
The existence of Rome was about 400 years. We are now half way there in time.
I think we have a simple choice: keep our society fair to the middle working class / let the poor who choose not to work when they could starve or work / tax people according to their means.
What the heck is ANYONE going to do after their first million????
Our miliatary jets burn fuel at the cost of $5,000 per flight. The tomahawks we shoot in the Middle East cost $1M+ on each shot and they have "collateral damage" which translates to innocent people killed for nothing and hating their killers even more!
Is your theory beginning to get some reality in my response?????
Hi Gene S,
"The ONLY way government gets money is with taxation"
Where did the money come from that the government is taxing? Remember, we are not talking about wealth in terms of real goods and services (which is created in the public and private sector), we are talking about greenbacks, points on the screen of our bank accounts, etc. Money.
The federal government creates money out of nothing - something Wade's recent posts acknowledge - when it spends. Taxation on the federal level (not on the state level or local level) is not about revenue generation, it's about reducing demand to offset government spending (the creation of new money).
This is absolutely operationally true. Sure, we say the federal government pays for things through taxation, but we also say the sun rises. It's not actually, operationally true.
I'm not sure I understand your point about WWI.
I feel terrible for small businesspeople. But you would be much better off with more federal spending, because all public spending puts money in the pockets of the private sector - your (and my) potential customers.
If we cut public spending at the same time private spending was decreasing, we would have unemployment that dwarfs what we have now. If the government spent less to coincide with the shrinking private sector, our nation would be in serious trouble. Families would be under siege by rampant unemployment. There would be no money anywhere.
The best thing the government can do for small businesses is to fight unemployment.
I understand what you are saying. It boils down to all the rhetoric concerning "tax and spend" is empty!
My observation was along the lines of how goverment seems to be oblivious these days to the reality of their constituents these days. If Congress really wanted to pull in the strings, each representative would refuse to take a check this month as an example that "we join you in the suffering."
When working people aspire to a "govment job" it indicates to me was are becoming too dependent on government to make economic decisions and fund projects better done on a local level by small constractors.
As a small businessman, I am most effected by the failed economy. Even though the hurricane has given much work to tree companies / roofers / construction and renovation businesses, for the last 4 years few have done anything to hire us for fear of spending their reserves.
As Rooselvelt said, "We have nothing to fear but fear itself."
Were it not for extensions of unemployment payments we would be seeing the exact same food kitchens and tent cities of the Great Depression. In both cases, the abuse of banks and their management of our money for their benefit is a prime factor.
The other factor is our own greed to have it all NOW and who cares how high the credit card debt goes. At 18-23% interest rates in a non-inflating economy is nothing but legal robbery of debtors to the point their houses get foreclosed and nasty threat letters are coming each day along with phone calls.
An example: My wife's car got repossessed during the slow season of Nov-March when little tree work has ever been done. We were keeping in touch and had just made a payment when the next day it was gone!
They sold their equity at auction for $8,000 less than was owed and now are harassing us over the balance "according to the contract."
My response is: "You made the decision to repossess and sell for less than owed, so it's your problem and not mine! I was doing my best. You did the internal financing and you did the towing without any prior notice. My credit is gone anyway with 4 years of starvation and it's beyond my control. You got bailed out by my tax dollars. My small business has gotten nothing. I have paid my taxes, but someone else got the bailouts in autos / banks / investment firms---and no one is yet going to jail over that mishandling of tax money kept to make you more powerful and rich! Add to that the unadulterated lies told to investors that you were more solvent than you actually were/are.
It's not only the printing of money, but an essential part of it is that money flows around the system so all people have something.
Gene S,
Amen and amen. I am sorry to hear about your car. Ugh!
And you are absolutely right - the central problem to our economy is one of distribution! The poor/middle class have not made enough money to buy enough products to keep their jobs going for a generation now. Instead of raising incomes, we have provided credit cards and home equity loans to prop up demand.
And it wouldn't have helped for consumers to spend less, for that would have resulted in less jobs and less growth. The problem is that we financed growth on private debt instead of sharing our prosperity. It's no one person's fault - it's a systemic failure.
And the central problem now is still that there is not enough money in the right hands! There is no inflation because to the vast majority of Americans money is scarce, not overly plentiful. Unemployment and financial hardship are so destructive to families. We have to to get our priorities back in order.
But I am an optimist - I think things will get better.
All the best to you this holiday season, Steven
It's Official: US Debt-To-GDP Passes 100%
http://www.zerohedge.com/news/its-official-us-debtgdp-passes-100
David Walker is the Paul Revere of the federal budget, sounding the alarm about galloping deficits long before it was cool to talk about making revenues meet obligations.
The C.P.A. and onetime Comptroller General of the United States has written a book, Comeback America: Turning the Country Around and Restoring Fiscal Responsibility. In it, he assesses the country's precarious financial situation, along with his ideas about how to put Uncle Sam's fiscal house back in order.
Although he usually deals with macro-economics as the president of the Peterson Foundation, we asked him to bring the concepts of the sprawling national debt down to size and tell us what every American should know about federal spending, debt, deficits, and why they matter to you. Here's what he said...
Q. Say America was a person, how much credit card debt would America have?
A. Let's put it this way: Spending last year was about $3.5 trillion. The deficit was $1.42 trillion, which means that revenues were about $2.1 trillion. So $2.1 trillion is equal to their annual income.
The total national debt right now is $12.3 trillion. So we owe five to six times more than we make every year. But that's not the big deal.
In addition to that, there is another $45 trillion to $50 trillion in unfunded obligations that are off the balance sheet, which I think you ought to count. Medicare is the biggest part of it by far, and Social Security is a large part, too. So in reality, we owe between 25 and 30 times what we make every year.
Q. Is that like a balloon payment for a person, looming out there and we know we're going to owe it?
A. It's kind of like the mortgage-related sub-prime crisis, where there were a lot of off-balance-sheet obligations and contingencies that manifested themselves. I draw a lot of analogies between the mortgage-related subprime and the government's finances, in that we want to avoid a super-sub-prime crisis.
Q. For somebody going through their day, gassing up the car, dropping off the kids and going to work, why does the debt matter? How does it affect their lives?
A. We're mortgaging the future of the country, and their children and grandchildren. At the same time, because of the growth of spending, we're reducing the role of investments in our future because the budget on the discretionary side is getting squeezed at a time when America is facing growing competition in a global economy.
Also, there are two kinds of taxes: current taxes and deferred taxes. To the extent that we're not paying our way now, somebody is going to end up having to pay down the road.
Q. When you say our children and grandchildren will pay for it, does that mean they will literally have higher taxes?
A. Much higher. If we don't end up reforming our ways, federal taxes will have to double within the next 20 to 30 years, just to stop the bleeding.
Q. That money would go toward paying for our future obligations?
A. And toward paying interest on the federal debt. In fact within 12 years, without an increase in interest rates, interest on the national debt is expected to be the largest item in the budget. And you get nothing for it.
Q. Who do we owe the money to?
A. Fifty percent is owed to foreign lenders. China is number one, Japan is number two, a block of oil producing nations comes next.
Q. Do you think that affects our foreign policy toward China?
A. Yes, it does. It's already been manifested because one of the reasons American tax payers now guarantee $5 trillion in Fannie Mae and Freddie Mac debt is because the Japanese and the Chinese demanded it.
Q. Is there a point at which China could say, 'We've decided to stop lending you money?'
A. What's more likely is that China will say, 'We're not going to lend you money unless you pay us higher interest rates.'"
David Walker interview continued:
Q. What should people expect their elected officials to do if they're acting responsibly and taking care of the country?
A. In the short term the deficits are going to be high because of the recession, because of two wars, because of unemployment, but what we need to deal with is the structural imbalance. Once the economy recovers, once unemployment gets down, and the wars are over, we still have large and looming deficits. That's what threatens the ship of state.
President Obama says he wants to freeze a part of discretionary spending for three years. That's a good first step, but we're going to have to do a lot more than that. He supports pay-as-you-go rules, but there are big loopholes in the pay-as-you-go-rules. Thirdly, he talks about creating a fiscal commission that would make recommendations on tougher budget controls, Social Security, Medicare and tax reforms. We clearly need to do that to engage the American people and to get a vote in Congress in 2011. That's very, very important to maintain the confidence of our foreign lenders...if we lose the confidence of our foreign lenders, we're in deep trouble.
Q. What does trouble look like?
A. That means the dollar will drop dramatically, interest rates will go up, unemployment would go up dramatically and you'll have something much worse than a recession. It would be ugly. The important thing is we can avoid that and that's what the book's about.
Q. I know that you talk to lawmakers and testify in front of their committees, but do you have confidence that people in office get it and will do what's necessary to deal with the situation, even if it's unpopular?
A. Washington is a lagging indicator, but people around the country are starting to get it. The Massachusetts election was an expression of frustration that Washington is out of touch with reality and not working properly, especially in this area. If the people speak up, their leaders will follow
"if we lose the confidence of our foreign lenders, we're in deep trouble."
Our foreign "lenders" can redeem their bonds and sit in cash instead at any time. But they prefer a return on their reserves.
And if they don't want the dollar as a reserve, then they can spend them! What would that do to stimulate our economy and raise tax "revenue"?
China's threats are all posturing. In terms of real good and services, we are winning, because they keep sending us all their real stuff (real products) and they want paper instead.
They know they don't have any control of our finances, and let's hope that our leaders understand that. Why would we beg someone to buy our bonds when it doesn't matter if they do? If China wants all cash ( in other words, they don't want a return), then they can do that. The Fed can own the bonds (it already holds more than China), or if the cash ends up in commercial banks, then they will use the excess reserves to buy bonds.
Taxes will have to increase . . . but our people are going to demand, from the streets if they must, that this time it is done fairly.
'Shared sacrifice' is not only 'just', it is important for the spirit and unity of our country.
This country understood sacrifice in times gone by . . . in WWII, EVERYONE shared the load. It was only later, sometime around the Viet Nam War, that people with influence began to pull away from sharing the sacrifice.
What happened to our country began then . . . a moral decline into the idea that there was a 'privileged class' that had to be given breaks and that they were 'owed' breaks by the rest of the country,
because they were considered 'the job creators'.
But it was all a lie.
Where are the jobs? Ten years of breaks, and where are the jobs to show for it???
I have a great idea: Since the gold standard is gone and our money is all a dream---
Let's just pay our taxes with monopoly money since it is just as empty!!!!
Gene S,
Ironically, if the US government required its taxes to be paid in Monopoly money, it would quickly turn into real money! People would work for it because they would need it!
Of course, this would be terrible because Mattel would be the issuer of currency...... ;)
Cristiane,
I too drank the kool-aid of free market fundamentalism back in the day. The iron lady (Thatcher) and the amiable cowboy (Reagan) were like eastern orthodox icons to me at one time.
When I realized that the market does not correct itself anymore than a locomotive boiler will when its safety valves are welded shut, I jumped ship.
We have no jobs because our manufacturing sector has been systematically looted and sodomized by the very people who talked us into it in the first place. They have no interest in local and sustainable economies, they serve the interests of distant shareholders.
What trickled down is a legacy of rusting idle plants & decaying cities. Yes Cristiane, we were lied to.
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