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We Should Learn to Love the National Debt |
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Dear Reader, |
"We should stop worrying and learn to love the national debt." |
There you have the studied opinion of economists Yeva Nersisyan and L. Randall Wray. |
The former directs economics at Franklin & Marshall College. The latter professes economics at the Levy Economics Institute of Bard College. |
There is no such thing as a free lunch? |
These two evidently believe the free lunch exists… in the form of national debt. |
It is all blessing in their telling. |
The Advantages of Having a Printing Press |
They initiate their assault upon government thrift by reminding us that private debt does not equal public debt: |
The discourse around the national debt likens the government to a private-sector entity that can be forced into default by its creditors. But the U.S. government is not like a family or a business — it cannot default on debt denominated in dollars, since it is the issuer of dollars. |
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Although our government can choose not to pay its bills — by, for instance, refusing to raise the artificially imposed debt ceiling — it technically can never run out of money to pay bondholders. |
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As former Federal Reserve Board Chair Alan Greenspan rightly recognized: "The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default." |
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Just so. It is true, the government of the United States can retire its debts through the printing press — in nominal terms at least. |
Yet it often hands its debtors sawdust. Why? |
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Uncle Sam, Swindler |
The answer reduces to inflation. Says Uncle Samuel: |
"I borrowed $100 from you, good sir? Well, here is your $100 back, as promised. I hereby discharge my fiduciary responsibility to you. I have fulfilled my contractual obligations." |
Comes the bitter reply: |
"But the $100 I loaned you is now only worth $56.39, because of the vicious inflation you caused. You've robbed me blind! You're a no-good crook, that's what you are." |
"Your problem, not my problem," answers the deadbeat. |
That is Uncle Samuel for you. |
He is a cad. He is a bounder. He is a chiseler. |
He is a scoundrel. |
Yet his swinishness represents virtue to these two. |
The Greater the Deficit, the Greater the Savings! |
The free-lunch economists continue: |
The second concern about government debt stems from the belief that government borrowing taps into a limited source of private savings… |
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In reality, when the government spends, it adds to national income and hence to private sector savings. Government deficits equal, dollar for dollar, the net savings of the non-government sector, which includes U.S. businesses and households. |
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This is simple accounting. Thus, government deficits create savings sufficient to buy the debt the government issues. |
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Thus these crackerjacks hold the key to national prosperity — deficit spending! |
The greater the deficit, evidently, the greater the national household savings. |
Imagine the savings rate deriving from $3 trillion deficits, $4 trillion deficits, $5 trillion deficits. |
A $10 trillion deficit would truly have us in clover. |
Consider merely all the government debt those savings could purchase. |
How Can a Parasite Make You Richer? |
Once again the cost-free lunch is on offer. |
What these "economists" fail to inform us is that government lacks all resources. |
It must first pluck every last cent from the private economy, directly or indirectly. |
Imagine a parasite with its fangs sunk into a host. You have just imagined a government's relationship to society. |
This parasite may serve certain useful functions, I may concede if I am in generous humor. |
The host/parasite relationship nonetheless obtains. |
Before government can ladle out one meager dollar… it must first pluck it from private pockets — directly — or indirectly. |
That is, through taxation or borrowing. That is, through taxes or taxes. |
Do not forget, the borrowed dollar must be repaid — with interest into the bargain. And who pays it? |
The answer, at all times and in all places, is the taxpayer. |
These two do not notice him stopping at the cashier stand on his way out the door. |
They only view him munching his lunch. |
How Better Off Are We? |
What benefits has 75 years of free-lunch economics delivered us? |
Mr. Bill Bonner of Bonner Private Research: |
GDP is up from only $300 billion in 1950 to… $28 trillion today — a 90x increase. |
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Does that mean we are 90 times richer? Nope. The population has increased too. To figure out if we're better off, we need to adjust the numbers to per-capita GDP, which show a 40-times increase. Does that mean we are each 40-times richer? |
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Because much of that is based on inflated numbers. Using the Bureau of Labor Statistics' figures… the dollar has lost about 93% of its value since 1950. |
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93%! More: |
Twice As Expensive |
A Ford F-series pickup — the workingman's wheels — cost $1,390 in 1950. Adjusting to official inflation figures suggests a price today of about $17,000. Instead, the cheapest F-150 you are likely to find will be about $40,000. |
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Yes, it is a better truck. Thanks to tech improvements. But new materials and new tools should have made them cheaper to build, too. |
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So rather than rely on BLS figures, let's look at it in terms of gold. US GDP has risen 90 times since 1950. But the price of gold is up 82 times. In other words, in gold terms, US output — including the phony output — has scarcely increased over the last 70 years. |
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And in terms of GDP per person — up 40 times since 1950 — it has actually fallen in half. |
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But it took 33 ounces of gold to buy an F-100 pickup in 1950. Today, it takes only 13 ounces. In other words, the real economy — measured in gold — cut the price of a pickup truck in half. |
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But the fake economy made them twice as expensive. |
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Hence the thumping paradox of free lunch economics. |
Not only must lunch be purchased—free lunch economics makes lunch more expensive. |
And come a certain point, the free lunch is not even affordable. |
Brian Maher |
for Freedom Financial News |
P.S. You'll never guess what Robert Kiyosaki calls the "financial guillotine" hanging over the U.S. economy. He's naming names, showing charts, and mapping out his entire action plan here. |
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