No One Cares About the National Debt, Right?

Writing an article about the national debt is ridiculous. Nobody will read it, fewer will understand it. And those who do will have a knee-jerk reaction to it. It matters or it doesn’t matter.

For going on 40 years, doomsaying fiscal hawks have warned that piling up the national debt will lead to runaway inflation — Venezuela on steroids. But so far, the warnings have not become reality. And after running up a national debt that exceeds the gross domestic product for the first time since World War II, and routinely running trillion-dollar government deficits, all the doom and gloom predicted for overspending has failed to come to pass.

But John Cochrane, an economist at Stanford University’s Hoover Institution, makes the point that the debt doves must be right 100 percent of the time while the hawks fear being right only once.

Reason:

As a fiscal hawk, Cochrane acknowledges that his doomsaying has been wrong for the past decade, but he says that doesn’t mean he’s wrong now.

“I live in California. We live on earthquake faults.” Cochrane says. “We haven’t had a major earthquake, a magnitude nine, for about a hundred years.” It would be foolish to consider someone a doomsayer for preparing for an earthquake in California, he says, despite the fact that major earthquakes aren’t a common occurrence.

“That’s the nature of the danger that faces us. It’s not a slow predictable thing,” says Cochrane. “It is the danger of a crisis breaking out. So I’m happy to be wrong for a while, but that doesn’t mean that the earthquake fault is not under us and growing bigger as we speak.”

The libertarian economist Murray Rothbard once wrote that when economists started telling politicians that it was the “government’s moral and scientific duty to spend, spend, and spend,” they went from being the “grouches at the picnic” to in-house yes-men.

[Jason Furman, who chaired the Council of Economic Advisers under President Obama] says that unlike advocates of Modern Monetary Theory, which posits that near-unlimited government money creation and spending are possible without dire consequences, he recognizes that there are limits. But he believes we are using the wrong metric to gauge the magnitude of the problem.

Indeed, Furman believes that rather than actual numbers — $22 trillion in debt climbing to 202 percent of GDP by 2050 — we should be looking at “stabilizing” the debt.

“The question is where do you want to stabilize the debt,” says Furman. “People used to think it should be 30 percent of GDP. Is that what we need to do in order to be safe? I think if you’re asking that question without looking at interest rates, then you’re in danger of a very incomplete answer.”

Most people acknowledge that there are limits but they envision slow, steady warnings. That you’ll see the problem coming and you’ll have plenty of time to fix things,” says Cochrane. “And I looked through history and I noticed that when things go wrong, they go wrong in a big crisis.”

What kind of “crisis”? We had a credit meltdown in 2007-2008 that nearly crashed the entire world economy. Now we’re dealing with the pandemic recession that is also worldwide and may be the tipping point for some countries. Just what would it take to set off a round of hyperinflation in the U.S.?

It should make us all uneasy that our current fiscal situation is totally dependent on much of the world staying relatively stable. History shows us that’s folly. With the entire planet connected, we’re even more vulnerable to disruptions than in the past.

For now, wishful thinking rules in Washington.

Rick Moran, PJMedia

It Is Time to Remove the Debt Barrier to Economic Growth

Out of habit, American economists worry about federal debt. But federal debt can be redeemed by the Federal Reserve printing the money with which to retire the bonds. The debt problem rests with individuals, companies, and state and local governments. They have no printing press.

We have explained that the indebtedness of the population means there is little discretionary income with which to drive the economy. The offshoring of middle class jobs lowered incomes, and after paying debt service—mortgage interest, car payments, credit card interest, student loan debt—Americans’ pockets are empty.

This situation has been worsened by Covid lockdowns. In the US the federal government has sent out a few Covid payments to help keep people’s heads above water as they face expenses without income. The financial press refers to these Covid checks as “fiscal stimulus,” but there is no stimulus. The Covid checks do not come close to replacing the missing wages, salaries and business profits from lockdowns.

Corporations have indebted themselves and impaired their capitalization by borrowing money with which to repurchase their stock. This has built up their debt in the face of stagnant or declining consumer discretionary income.

We propose to deal with the debt crisis by forgiving debts as was done in ancient times. Our basic premise is that debts that cannot be paid won’t be. Widespread foreclosures and evictions would further worsen the distribution of income and wealth and further contrain the ability of the economy to grow. Writing debt down to levels that can be serviced would clear the decks tor a real recovery. Income that would be siphoned off in debt service would instead be available to purchase new goods and services.

A few economists muttered that we were overlooking the “moral hazzard” of absolving people of their debts. But leaving the economy stagnated in debt is also a moral hazzard.

Policymakers did not endorse our proposal, but, in effect, policymakers adopted our policy. However, instead of forgiving the debt itself, they forgave payment of the debt service. Individuals and businesses who cannot pay their landlords or lenders cannot be evicted or foreclosed until June. This doesn’t hurt the lenders or banks, because the loans are not in default, and their balance sheet is not impaired. The banks add the unpaid payments to their assets, and their balance sheets remain sound.

When June arrives, the prohibition against eviction and foreclosure will have to be extended as the accrued debt service cannot be paid. Extending the moratorium on foreclosures and evictions will just build up arrears. Is the implication a perpetual moratorium?

The question is: If policymakers are willing to forgive debt service, why not just forgive the debt. The latter is neater and clears the decks for an economic renewal.

The US economy has been financialized. Debt has been built up without a corresponding gain in productive capital investment in order to carry the mounting debt.

In financialized capitalism, the main purpose of bank loans is to refinance existing investments, not to expand productive capacity with which to service the debt. It is not possible to grow out of debt in a financialized economy, because too much income is used for debt service. The way to deal with this problem is to write down debts.

Michael Hudson and Paul Craig Roberts, UNZ Review
NOTE: The views expressed in this article are those of the authors, and do not necessarily represent those of the Artful Dilettante. It is, however, good food for thought. A/D

So Money DOES Grow on Trees After All

“Money doesn’t grow on trees.” Parents used to teach this to their kids — because it’s true, and because they believed it.

There’s no longer a basis for believing it. At least, not if you believe politicians.

Starting last year, and now with more intensity since President Trump and Republicans lost control of the government, government spends trillions upon trillions of dollars. Even the most robust economy could never create the money they’re spending. It’s just debt — and inflation of the currency, via “printing” more money.

They do it as justification for the wreckage they caused via lockdowns and riots — and then take credit for cleaning up.

Even five years ago, it would have been unthinkable for the government to shut down most human activity. The first protest you’d hear is, “What about the economy?”

Today, that’s no longer a problem. The government shuts down most human activity and then pays everyone what they no longer get. Unemployment benefits now pay more than many jobs, particularly entry level jobs, or jobs in the not-so-high-paying food service industries. To the government, that’s just fine. They can provide a guaranteed national income (without calling it that) which makes jobs increasingly irrelevant.

I routinely hear people talking about it now. Particularly younger people, or people with low income. There’s little or no rational anxiety about holding or keeping a job. The question isn’t, “Where will I find work?” Or: “How do I keep my job? Or rise up the ladder?” The question has become: “When is the next stimulus check coming? And how much will it be?” Democrats are firmly, and likely permanently (thanks to election fraud), in charge of the government. They have openly reassured their needy subjects: More checks will be coming. Forever.

It appears that money DOES now grow on trees. Most of our parents were wrong. Since it’s so easy for the government simply to “print” or create (electronically) more and more money, then why not just pay everyone a billion dollars a month, instead of a mere $1400 or $2000 or whatever the next stimulus check will be? On the same premise, it shouldn’t be a problem. And if it IS a problem, morally and economically speaking, then why are we doing it at all?

It’s the greatest con job in all of human history. The government has created a crisis to ensure destruction of the economy. Then the same government that destroyed the economy comes in as the rescuer to provide “emergency” bailouts for an emergency that’s already into year two, with no signs of ending.

Of course, economists do have a few things to say about unlimited government spending. Deficits and a spiraling national debt do matter. And something called inflation — to say nothing of hyperinflation, which totally devalues the currency — might eventually come home to affect everyone except for the one percent elites who rule over our Communist paradise. Everything we know about economics, human nature, and the repeated failures of socialism tell us that disaster will arrive. Including — and especially — toward the ignorant fools who now celebrate their government “freebies”.

Not that we’ll be permitted to talk about it, when it happens.

Michael J. Hurd, Daily Dose of Reason