FedUpUSA

Uh, Truth From The UK?

Hmmm….. did someone replace the fried brain of a few people over in Britain?

In a stark warning ahead of next month’s Budget, the Chancellor said there was   little the Coalition could do to stimulate the economy.

Mr Osborne made it clear that due to the parlous state of the public finances   the best hope for economic growth was to encourage businesses to flourish   and hire more workers.

“The British Government has run out of money because all the money was spent   in the good years,” the Chancellor said. “The money and the investment and   the jobs need to come from the private sector.”

Uh, wait a second…. Britain is a currency issuer as well.  This means it can “print”, just as can the US (by borrowing more and more from people.)

Someone, it appears, has figured out that this doesn’t work because “printing” (e.g. borrowing more and then possibly QEing it) simply acts as a tax upon the poeople, and therefore is exactly identical in terms of its effect on the economy as doing what no politician wants to say out loud — raising taxes.

See, it’s simple folks when you start looking at the world (and its component parts) as a balance sheet.

Let’s assume you have $10,000 a year in income.  The government taxes 20% of that, so now you have $8,000.

Let us now assume that the government “prints” a 10% deficit — that is, it borrows (whether it QEs or not) 10% of GDP.

What happens?

The denominator in the number of units of currency that circulates in the economy, which must be definition be exactly equal to GDP, is increased by 10%.  This means that every unit of currency buys 10% less.

The “ugly” is that this is called “inflation” but it isn’t necessarily in prices, because (1) it’s temporary (borrowing has to be repaid) and (2) much worse, the interest due on that debt comes out when the debt is paid back too!

In other words what everyone looks for is changes in price level.  But you don’t care about the price level — you care about what goods and services you can buy with your income.  The impact of deficit spending can show up in a whole host of ways — it can depress wages or it can increase prices, to name just two.

Both are exactly the same from your perspective and both are exactly identical in the impact on your life as if the government raised your taxes.  And make no mistake — it is the government that caused all of these effects, and as such not only is the effect the same as a tax increase the responsible party is the same too!

This morning Buffett is again on CNBC prattling on about “raise taxes on the very rich” and similar.  The problem is that raising taxes on the very rich, as I have repeatedly pointed out, will do exactly nothing because the rich simply don’t have enough money.  He also said “cut the budget” but then, just now, also said we had to maintain spending for schools and medical care for those who got the “short straws.”

Buffett is well-aware that it is not possible to do all of these things.  We have made promises we cannot keep — period.  We have promised people neonatal-to-grave medical care irrespective of the personal culpability related to their medical condition.  We have promised an attempt at equality of outcome in the educational system rather than equality of opportunity — an impossibility that bears primary responsibility for the ridiculous ramp in educational cost.  We have willfully and intentionally ignored the facts of geometric progression found in union pay and pension scales along with government entitlements, all of which are impossible to maintain.  And we have offshored an insane amount of our manufacturing in search of “cheaper” for us and “more profit” for our corporations without regard to the fact that someone has to buy those goods you produce and without the money to do so the so-called “profits” are ethereal as they can be maintained only so long as your debt-fueled Ponzi lasts.

But Buffett continues to advocate this crap, as he has continually since the collapse of 2008 began while CNBS continues to hand him a microphone and refuses to call him on the flat-out impossibility of what he is advocating.

In short, there’s no indication that truth means a damn thing here, despite the glimmer of truth appearing in the UK’s government and recognition that there is no such thing as a Unicorn, and what’s coming out of the back end of that thing are not candies.

Will we wake up here in the United States?

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