John Boehner, the leader of the House Republicans, has promised yet another fight with the White House over the debt ceiling — the limit Congress has placed on the amount the federal government can borrow.
If this sounds familiar, it’s because we suffered through an identical performance last summer. Our analysis of that episode leads to a troubling conclusion: It almost derailed the recovery, and this time could be a lot worse.
Recovery? What recovery?
The US Government has debased your purchasing power by 10% a year for four years running — that is, it has emitted new credit money into the system equal to approximately 10% of the economy for the last four years. If you have a job you’ve managed to gain 7% over the last three years in your wage.
If you don’t see something wrong with this picture you’re not very bright. You’ve lost 33% (compounded) in purchasing power due to monetary debasement by the government over three years’ time but you got 7% back. Unless you went to a different school than I did you’re down 26%, more or less, or one quarter of your purchasing power, over the last three years (and another 8% or so in the 4th!)
Now of course some people have done better, and some worse. But this is the what the average American has seen over the last three years.
Yet Bloomberg publishes OpEds from “Professors” such as Betsey Stevenson who argue that “Republicans are taking the government’s creditworthiness hostage when they threaten not to increase the debt ceiling.”
There is no such thing as the government’s creditworthiness. It’s your money that is being pledged, not theirs — there is no “theirs”!
But refusing to raise the limit wouldn’t free the government of its existing spending obligations. Rather, it would leave the government with no choice but to default on its debts.
The government has no spending “obligations.” Debts are obligations. Entitlements are not. Social, military and other spending is not an “obligation.” Those are political promises and a choice.
Only debt, contractually entered into, is an obligation.
Of course the convenient lie that we have “obligations” is trotted out on this point whenever the debate arises. What’s not talked about is how raising the ceiling is in fact naked shorting the currency and thereby destroying the purchasing power and wealth of every American. It is monetary inflation, and that inflation must show up somewhere.
If there are 10,000 units of production and 10,000 units of currency and credit in the system, and you emit another 1,000 units, every one of the existing 10,000 units is devalued by 10%!
That’s theft and it’s an outrageous fraud to state that this is somehow “good” for the American public or the economy. It most certainly is not.
This is nothing other than a massive tax increase in terms of its impact on the average America. It’s impact is huge — for the average American who pays somewhere around a 20-25% blended Federal Tax rate (including FICA, Medicare and income tax) their effective tax burden has literally doubled over the last three years as a result of deficit spending!
Tax cuts? There have been no tax cuts! There have in fact been massive tax increases imposed on everyone. You, I, everyone. We’ve all had our wealth and income stolen and given to the banksters who gambled in Europe and the United States on bets that soured, and rather than force them to take their losses and perform supervisory functions as required by law so that depositors are not at risk the government regulators refused to act as required by law and now they’re screwing you blind to the tune of more than a trillion dollars a year to prop up these assholes — over $3,000 per person, per year for the last three years has been siphoned off through these policies and given to the likes of Goldman Sachs, Bank of America, Citibank and JP Morgan never mind foreign institutions like Deutsche Bank and Credit Suisse!
There is no solution to this problem to be found down this path; dilution of the consumer’s purchasing power cannot work because the entire premise is that you can “restart” consumer borrowing growth to get leverage expanding again — the precise scam that was in the 1980-2007 timeframe.
How is the consumer going to increase borrowing when you’ve stolen 25% of his purchasing power and intend to steal another 7-10% a year going forward?
He won’t because he can’t. This is the flaw in the scheme and it is exactly the same scheme that was run in Europe and blew up in the face of Greece and now threatens to blow up Spain.
What’s worse is that we’re still playing this game here with pension funds — funds that assume and proclaim the ability to earn 8% in safe forward returns in a world where the ten year risk-free rate (so says the market) is 1.65%. That’s an outrageous and intentional scam; did you notice, incidentally, that the 25% you’ve lost in purchasing power is about the three-year run rate on the difference between the assumed pension return and the actual risk-free return? Guess what — if you have a pension you think you’re going to receive in 5, 10 or 20 years your fund is short the same 25% as you are or it’s exposed to the risk of even greater losses and in fact you’re rather likely to get zero!
The so-called “university professors” and “policy people” who argue a policy path of “more borrowing and continued deficit spending” are traitorous jackasses who deserve to be run out of town on a rail. The firms that employ these people may as well be Bernie Madoff prototypes as their alleged “paths” will end in exactly the same way his “securities deals” did. Universities who hire so-called “professors” that spew this garbage on OpEd pages and allow this sort of mendacious crap to be taught to kids are issuing “degrees” that have the precise value of used toilet paper.
If you bring these people and firms into your life or business you deserve what you get.
We have options in the US today but we won’t have them for long. Right now we are benefiting from people running away from Europe which is about to go prompt critical and into our Treasuries, which leads us to believe we can borrow unlimited amounts of money for 10 years at 1.65%.
That’s a nice thought — but how are you going to pay it back ten years hence? If you’re not, and intend to keep rolling it over, what happens if and when the rollover price is 5% instead of 1.65% — and you can’t make the interest payments at 5%?
This is how Greece went down the drain and it’s what’s facing Spain.
And it is what we will face here if we allow people like Betsey Stevenson to keep putting forward policy pronouncements that fail the fundamentals of 3rd grade arithmetic.