Friday, April 29, 2011

deficits don't matter?


Video - George W. Bush and Dick Cheney both declared that deficits don't matter.

Globalresearch | “Deficit terrorists” are gutting governments and forcing the privatization of public assets, all in the name of “deficit reduction.” But deficits aren’t actually a bad thing. In today’s monetary scheme, in which most money comes from debt, debt and deficits are actually necessary to have a stable money supply. The public debt is the people’s money.

Former Vice President Dick Cheney famously said, "Deficits don't matter." A staunch Republican, he was arguing against raising taxes on the rich; but today Republicans seem to have forgotten this maxim. They are bent on stripping social programs, privatizing public assets, and gutting unions, all in the name of "deficit reduction."

Worse, Standard & Poor’s has now taken up the hatchet. Some bloggers are calling it blackmail. This private, for-profit rating agency, with a dubious track record of its own, is dictating government policy, threatening to downgrade the government’s long-held triple AAA credit rating if Congress fails to deal with its deficit in sufficiently draconian fashion. The threat is a real one, as we’ve seen with the devastating effects of downgrades in Greece, Ireland and other struggling countries. Lowered credit ratings force up interest rates and cripple national budgets.

The biggest threat to the dollar’s credit rating, however, may be the game of chicken being played with the federal debt ceiling. Nearly 70 percent of Americans are said to be in favor of a freeze on May 16, when the ceiling is due to be raised; and Tea Party-oriented politicians could go along with this scheme to please their constituents.

If they get what they wish for, the party could be over for the whole economy. The Chinese are dumping U.S. Treasuries, and the Fed is backing off from its “quantitative easing” program, in which it has been buying federal securities with money simply created on its books. When the Fed buys Treasuries, the government gets the money nearly interest-free, since the Fed rebates its profits to the government after deducting its costs. When the Chinese and the Fed quit buying Treasuries, interest rates are liable to shoot up; and with a frozen debt ceiling, the government would have to default, since any interest increase on a $14 trillion debt would be a major expenditure. Today the Treasury is paying a very low .25% on securities of 9 months or less, and interest on the whole debt is about 3% (a total of $414 billion on a debt of $14 trillion in 2010). Greece is paying 4.5% on its debt, and Venezuela is paying 18% -- six times the 3% we’re paying on ours. Interest at 18% would add $2 trillion to our tax bill. That would mean paying three times what we’re paying now in personal income taxes (projected to be a total of $956 billion in 2011), just to cover the interest.

There are other alternatives. Congress could cut the military budget -- but it probably won’t, since this option is never even discussed. It could raise taxes on the rich, but that probably won’t happen either. A third option is to slash government services. But which services? How about social security? Do you really want to see Grandma panhandling? Congress can’t agree on a budget for good reason: there is no good place to cut.

Fortunately, there is a more satisfactory solution. We can sit back, relax, and concede that Cheney was right. Deficits aren’t necessarily a bad thing! They don’t matter, so long as they are at very low interest rates; and they can be kept at these very low rates either by maintaining our triple A credit rating or by borrowing from the Fed essentially interest-free.

3 comments:

umbrarchist said...

Damn I should have voted Republican.

I thought whoever wanted to be president behind GWB was really dumb. Since GWB wrecked the country I should have voted so it could crash down on Republicans.

But the reason it is so bad is decades of Republican and Democratic stupidity.

Lynch the economists. 7 billion people on the planet and they can't do algebra.

Useless lying morons!
.

CNu said...

Nah brah..., you voted right.

That crashing sound you hear off in the distance is an inevitability.

However,

Installing the Hon.Bro.Preznit got us an appreciable postponement of showtime!!!

2016 is 1933 in Weimar America...

Uglyblackjohn said...

But deficits DON'T matter as long as money has no real value.