Rebirth of Reason

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Saturday, June 6, 2015 - 5:54pmSanction this postReply

This is all fine and dandy until interest rates rise.


Then what?

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Post 1

Saturday, June 6, 2015 - 8:22pmSanction this postReply

Good old Stan (the author of that article) took his advanced degree in Public Policy at that bastion of free enterprise: U.C. Berkley.  That must be where he acquired his very progressive view of economics and learned to say things like, "Rebuilding the American middle-class requires strong unions."


It is peculiar that he is a regular contributor for Forbes... which I'd never thought of as a rag comfortable with Progressive propoganda.


Want an idea of who Stan really is?

He isn't listing in his on-line bio that he was, at least for a while, a spokesperson for Al Jazeera.... Oh well, details.  Stan has also been a long-time contributor to "Campaign for America's future"  (CAF) a very far left organization that bills itself as "...the strategy center for the progressive movement" whose board of directors include the self-admitted communist revolutionary Van Jones.  

In the article, Stan Collender says, "The U.S. deficit and debt are largely emotional rather than substantive issues."   Luke is right when he warns about what happens when interest rates go up.  That's when it will get really emotional.   But those who object to massive federal debt might be called "Debt-Deniers" - really!  That's Stan's name for people who are opposed to our large federal debt. Go figure!


One of the budgetary advantages of the strongly progressive activists is that borrowing more than our nation can pay back gives them money now to fund their welfare/regulatory state and buy votes, while putting a juicy debt-collapse crisis in the future which they can co-opt to make a major move towards transforming the nation.  Win-win for the socialist.


Another big advantage to arguing that debt isn't the issue, is that it clouds the real issue: Not debt, but the ratio between government spending and money in private hands.  When money is in the hands of the private market place it generates profits and generates productive activities, where money in the hands of government elite is just consumption of our seed corn by those who didn't grow it while building more and more barrier to productivity.  (Isn't it amazing that when Obama and other progressives say, "You didn''t build it" they are really talking about themselves and those they want to distribute the money to?)   That ratio of money between the productive and the anti-productive will determine if the economies are self-sustaining or they collapse.  But people who just focus on the debt and on the phoney progressive defense of debt will miss this critical issue.

Post 2

Sunday, June 7, 2015 - 4:47amSanction this postReply

Damn, that was a fine analysis, Steve ... thanks!


Have the owners of Forbes completely lost their minds?

Post 3

Sunday, June 7, 2015 - 10:25amSanction this postReply

Thanks, Luke.


As to Forbes.... I just don't know.  I do know that when we see major cultural changes that operate on a generational basis, that period of twenty to thirty years seems like it would produce a change that didn't feel rapid.  From our individual human perspective, it seems that a change occurring over twenty to thirty years should feel gradual.


But it doesn't work that way.  Instead it is like there is nothing much changing in the culture from the birth of the new generation and all through their schooling, and even through the early years of their career.  Then the changes start to feel like they come all at once.  The new generation, with their learned and accepted progressive politics (acquired at the finest universities), are stepping into the positions of influence in their careers - e.g., becoming syndicated columnists, TV's talking-heads, editors.  (Of course it isn't as sharp of a cultural change as that would suggest but only because progressive values aren't accepted by every student, or to the same degree, and because the line between one generation and the next aren't that crisp.)


The lack of honesty and rationality in progressive thinking made it impossible to compete head-on with Capitalism, so they stealthily entered the educational system and got about a 20 year head-start in this war of ideas.  This is what I think has been the greatest advantage of the progressives - this entering of their ideas and their ways of arguing into the new generation.  The next greatest advantage is the dishonesty - the willingness to lie on the basis of "the end justifies the mean."  As Objectivists we know that a lie may give a great advantage in the beginning, but that once it is discovered it will be a still greater disadvantage.  So these two primary strategies (use lies and smuggle them into the culture via the education of the young), rely on the passing of time - and to thwart them will also take time.  (The third leg of the progressive stategy seems to be: Cast the set of lies in the form of moral fundamentals in a way that makes them generate strong emotions - i.e., make progressivism into a religion.)


Post 4

Tuesday, June 9, 2015 - 3:18pmSanction this postReply

The national debt is all in US dollars and the Federal government can create dollars at will. The debt should not be reduced de jure by actually retiring it. It can be reduced de facto through mild inflation--or worse--but there's no necessity for that. A problem may arise when the ratio of debt to GDP gets completely out of whack like it has in Japan.


Reducing the debt by retiring it means taking money out of the economy with taxes. This will create recessionary presures.


All future obligations of the Federal government in excess of tax income can be taken care of merely by creating more money. It's too simple to assume that would result in price inflation. It would meet some definitions of inflation such as mere increase in the money supply or increase in money supply more than concomitant with GDP growth or what-have-you.


Countries with trade surplus with the US absorb US dollars so there goes a lot of pressure for US domestic price inflation. I mention this simply to show how easy only one complicating factor can substantially mess up seeming common sense when talking about inflation-deflation.


I can now add in a myriad of other dynamic and changeable economic factors and continue this post for many times its present length, but the point is there is no value to be created by reducing the national debt, only the dis-value of deflationary recession or even depression. The entire central banking economic model is what it is--basically debt as money--and most of the world's economy hangs on it and to replace it with another without knowing precisely what you--the economic dictator of the world--are doing is only going to be a disaster and I'd bet the ranch it would be a diasaster anyway. That kind of re-education calls first for a calamity. What's the biggest economic macro-threat to the world right now? The strong US dollar and its relative scarcity. There's a lot of debt abroad denominated in dollars but only this country can manufacture them (with  the possible exception of North Korea). That's the debt that has to be repaid or actually defaulted on, just like any personal credit card debt or mortgage debt or student loan debt.


Don't think in terms of reducing US national debt except by growing the GDP relative to it. Think in terms of reducing government size and functions. Deregulate. Get rid of your own personal indebitedness. Increase your own income and prosperity. If you're concerned about inflation don't own gold--gold is insurance against catastrophe, own it for that--own a low cost mutual fund that tracks the S & P 500 from Vanguard. Then you won't own dollars, you'll own those shares instead.



This is my first post in a year. I'm moderated. That goes back nearly a decade. Old stuff. Nothing to do with me being obnoxious, I think, but I don't remember the actual details.  If I'm continued to be moderated, I won't be back again for another long while.

Post 5

Tuesday, June 9, 2015 - 5:55pmSanction this postReply

Reducing the debt by retiring it means taking money out of the economy with taxes. This will create recessionary presures.

Reducing the debt by retiring it does mean taking money out of the economy with taxes.  But if the taxes are taken out of a much, much larger private economy - one that is booming from a massive decrease in regulations, and a much, much smaller size of government it won't be recessionary.  Lifting the regulations and reducing the cost of government will make a much bigger (i.e., profitable) private sector. At the same time, the tax rate can be reduced especially for business and result in a larger overall tax revenue (Laffer Curve).


If this is the apporach taken to reducing the debt by cutting spending and reducing regulations it won't reduce the money that is in the private economy and then there will be no recessionary pressure.

All future obligations of the Federal government in excess of tax income can be taken care of merely by creating more money.

There is a point where the psychological demand for money, when it is being printed, grows far less than its actual supply. This is a tipping point that can not be predicted and when it arrives it can't be turned around, it can't be stopped, and people have to use wheelbarrows to cart enough paper money to buy a chicken.


You ask ANY country that has suffered a run-away inflation and they will tell you that nothing is worse - not depression, not a total credit collapse, and not even losing a major war.  It destroys the ability to have specialization or to store value for any future time, or to have contracts. It destroys the ability to have a free economy. And, from what I've read about the past instances of run-away inflation throughout history, it destroys the civilization itself. No large organization or structure can exist when its employees find they have to go out and root-hog or die - to scrabble about and scratch up a way to feed the family on a daily basis.

Countries with trade surplus with the US absorb US dollars...

Countries that sell their products to us are finding the dollars they receive rapidly growing worth less and they will start demanding something else. It will be a choice forced upon them, and we will be forced to give them something that isn't dropping in value even though it costs us more.


And right now, there is an agreement underway to blend in the Chinese Yuan and to diminish the dollars in that basket of currencies that make up SDRs (Special Drawing Rights, issued by the IMF).  When the use of the dollar ceases to be the international currency - the worlds reserve currency - it will cause a sudden and disasterous decline in the worth of the dollar for everyone and our prices here could jump by 15% to 30% in a few weeks.  There is also the moral question of expecting to give what amounts to something similar to counterfit money, or monopoly money in exchange for real goods.

... the point is there is no value to be created by reducing the national debt, only the dis-value of deflationary recession or even depression.

Interest rates are being held very, very low - articially low - by the fed.  But they can't get away that for too much longer. (Interest rates are the price of using money - and what the fed is trying to do is engage in price controls - it won't work for that much longer and the unintended consequences will be awful.... and they are already bad.)


When interest rates finally rise, even to a historically normal 5% or 6% the results (when the national debt is 18 TRILLION) will be disasterous.  I've already pointed out that the debt CAN be paid off while actually energizing the economy.  And the only way to avoid a depression, or a massive credit collapse leading to a depression, or a run-away inflation that ends in a major depression is to get rid of the debt, stop inflating the currency and MASSIVELY decreasing the size of government and reducing taxes and regulations. There are no other paths out of this terrible mess that will work.

Don't think in terms of reducing US national debt except by growing the GDP relative to it. Think in terms of reducing government size and functions. Deregulate.

Yes! Exactly. I couldn't agree more.

Post 6

Tuesday, June 9, 2015 - 6:54pmSanction this postReply

Good to see you here Brant.  Really good posts by both you and Steve! (Hope you are off moderation!)

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