Archive for July, 2011

Beware of Foolish Lenders!

Thursday, July 28th, 2011

Normally I love Dean Baker at CEPR, because he’s correctly figured out that our problem is horribly wasteful policies, such as the worst-in-class Medicare system.  But I don’t like many of his solutions, and I especially hope he stops writing these articles about the National Debt not being a problem.  I hope D.B. realizes at some point that the U.S. can and does have a really bad debt problem, even though lenders are willing to lend to us at low short-term rates.  Sure, we could borrow more money, but would we be spending it wisely to get out of debt in the future? I don’t see evidence of that.  And borrowing money simply to waste it is NEVER a good idea!

Right now the U.S. government makes the proverbial drunken sailor look like a pillar of rectitude!  After all, the drunken sailor can only spend money he already has — no one will lend to him!

In the case of Uncle Sam, just because the bond market is currently offering Uncle Sam what amounts to a teaser option ARM loan with zero interest for the next 6 months (or 3 for 10 years even), does not mean we should borrow the funds! The relevant timescale is far greater than 10 years, the bulk of our debt burden is on the short end, and the bond market is a fickle creature.  We could be cut off in less than a year — just ask the countries that have gone belly up in the last 100 years!  We shouldn’t borrow without a _really_, _really_ careful re-examination of what we are buying with the added debt, and an assurance that the marginal loan will produce a real improvement in our economy. Congress isn’t doing that, so the people need to force the issue.  We need to raise the price for our future debt servitude!

From another angle:  Just because the bond market is overflowing with rentiers who are desperate for safe “investments”, does not mean the U.S. can afford to borrow more. Federal debt-to-revenue already vastly exceeds sustainable levels, and there’s absolutely no Keynesian cushion for the next recession!! (Which, if we are back to the classic 4-year business cycle, is due in only a few months, given that the last recession started in Q4 of 2007…)

It makes no sense to borrow more funds for imperial wars, for wasteful tax breaks for people who are already very well-off, for wasteful tax policies that stimulate malinvestment in nonproductive assets, for a medical system that is grossly wasteful – the worst in the developed world. Etc. Dean, why should we lend THIS Congress another dime, without structural policy reforms?  What good will it do?

We need a smarter federal spending prioritization. We need better policies — policies that boost job creation without adding to the deficit. We need to encourage all the spare cash sitting on the sidelines to purchase tangible products rather than financial “investments”. Negative real rates ought to do it… and that would also push out some inflation to bring the nominal debt back to a reasonable proportion of the economy.

I’d be a lot more comfortable with this debt ceiling hike if Congress showed even an ounce of financial sense in terms of how to spend the money to fix the nation’s problems! I see no reason to give Congress more money if all it will do is continue to line the pockets of gluttonous special interests.  What we need is federal investments that deliver… sustainable gains.

Blindly borrowing more is just feeding the squid…

How long does it take to fix a budget deficit?

Thursday, July 7th, 2011

America’s leaders need to quit farting around with this “default on the debt” nonsense.  It’s time to fix the deficit already!  And no, failure to raise the debt ceiling does not imply a default on the national debt!

Two years in a row, I ran the handy online simulations of the California budget balancing, and was done in an hour or less each time.  The budget could be balanced.  It required some tough choices but the value of the balanced budget exceeded the costs of those choices.  And the state government eventually did more or less the same thing.

Now it’s Uncle Sam’s turn to go on a fiscal diet. Today we read that a U.S. Representative actually seriously suggested that we void $1.6T in Treasury debt held by the Federal Reserve bank?  And that “Serious Economists” actually gave it consideration???

What have we done to this country???

The fact that we are even having discussions of this sort would have horrified anyone in the country just 5 or 10 years ago.  Go back 20 or 30 years, and the populace would have relegated those responsible for creating the situation to deep everlasting public shame!  How is it that those who blindly created the mess through terrible policies are still in charge?  Perhaps that same blindness is a large part of the reason why they can’t see how to fix it?

There WILL be vast unintended consequences, if we don’t point the ship of state back in a sustainable direction.

If the duly selected “leaders” of this country cannot put their heads together and chart a sustainable fiscal course, the $1.6T at the Fed is irrelevant.  Given the 3-year leadup to the current situation, including the longstanding Icelandic, Irish, Portuguese, Spanish and Greek dramas, the claim that we somehow need more time to put our heads together is rubbish.

Fix the budget now, and we don’t need to risk the consequences of defaulting on the Fed’s asset base.

After 3 years of horrific policy response to an economic crisis resulting from terrible policy, Lady Justice is in tears, and the social contract is deeply in question.  Breaking the Full Faith and Credit of the U.S. Government in ANY fashion, aside from being unconstitutional, will fracture what little remains of that social contract.

The state governments have shown that it’s possible to bring spending in line with revenue, by actually sitting down and prioritizing both spending and revenue options, and making tough choices.  There has been pain but the world has not ended.  If 50 states can do this individually, so can the national government!

The time has come for the Federal Government to take its medicine as well.  We are long overdue to slaughter the sacred cows of both parties.

We don’t NEED two wars, a military-industrial-complex larger than the rest of the world’s combined, a Medicare system that pays out to treat patients who are already terminally ill and which is subject to rampant fraud and abuse, a health-care system that costs twice as much as anyone else’s but doesn’t deliver better outcomes, and a Federal Government that has in so many ways accumulated so much power  that it frequently disregards its own Constitution. I do think we need Social Security, at least the retirement income portion, but it’s time to raise the retirement age again, and we need to give people some notice that those retiring in 10 years might only get 90% of the benefits.

And you know, I don’t think the world would end if overall total tax rates gradually reverted to historically normal levels, provided the deficit was eliminated.  There are a lot of loopholes to be closed, deductions to be phased out, and rates that could be a shade or two higher.It also wouldn’t hurt to go back to the last time the federal budget was balanced, and figure out why it worked then and whether it would work again now.

It is time for shared sacrifices for the greater good.

None of this is hard to do, we just have to decide to JUST DO IT.