Category Archives: Economy

UPDATE II: A Capsizing Debt

Debt, Economy, Federal Reserve Bank, Inflation, libertarianism, Republicans

“The United States is facing a crushing burden of debt – a debt that will soon surpass the size of the entire U.S. economy and ultimately capsize it if left on its present course. This is not the future of a proud and prosperous nation. It is the future of a nation in decline.” Republikeynesians have come a long way; this is their description of the debt crisis in “Path to Prosperity: Restoring America’s Promise” (PDF)—the House Republicans’ 2012 budget proposal, authored by the House budget committee’s chair, Paul Ryan (R-WI). And although the role of the Federal Reserve Bank in monetizing the debt is finessed—this is still more than we’ve come to expect from the GOP:

“The lenders who buy much of the federal government’s debt have noticed the disconnect between the government’s perilous fiscal situation and the low rates of interest it is paying on the bonds that constitute the government’s debts. Some have even decided to purge their portfolios of U.S. debt, and others are advising their clients to do the same.

“Through its interventions into the economy, the Federal Reserve has recently become the largest buyer of government debt in the country, and these purchases have helped keep interest rates low. But the Fed is scheduled to stop making these purchases this summer. Congress must show the market that it has a credible plan for getting the national debt under control, in order to ease concerns over the government’s creditworthiness and stave off an interest-rate spike.

… nearly every fiscal expert and advisor in Washington has warned that a major debt crisis is inevitable if the U.S. government remains on its current unsustainable path. The government’s failure to prevent this completely preventable crisis would rank among history’s most infamous episodes of political malpractice. …”

Of course, the actual steps proposed to ward off stagflation and hyperinflation are not nearly as drastic as they ought to be.

MORE.

UPDATE I (April 6): Vox Day, on Sean Hannity’s radio show, warns of “The Return Of The Great Depression.” A good reality check is my interview with Day, my WND colleague, “Great Depression 2.0’: An Interview with Vox Day.”

Mr. Hannity seemed eager to pick Vox’s brain about prudent investments during a depression. Asset protection, says Vox, is essential, over and above a focus on returns: metal and companies with a real business model; companies that also provide real services.

Listen to the interview. Notice the alarm in Sean Hannity’s voice. Austrian economists such as Vox Day have not wavered in the “apocalyptic” predictions they’ve been making. This column was warning in 2003, if not earlier, of the consequences of endless debt, credit expansion, and the dangers of hyperinflation. As did I explain to those who bothered to listen that production, not credit-fueled consumption, was whence came wealth.

UPDATE II: To Myron, below: Your cynicism alert and my point are not mutually exclusive. The GOP has come a long way, thanks to the Tea Party, in accurately describing the coming, and calamitous, effects of the debt. We both agree that it’s too little too late.

Obamanomics: Me, My Minions & YOUR Money

Barack Obama, Debt, Economy, Government, Political Economy, Reason, Taxation, The State

“Obama: U.S. economy cannot afford [a government] shutdown.” Unless the government continues “making key investments in things like education, infrastructure [and] innovation,” we won’t “win the future.” [Transcripts]

This dyed-in-the-wool statist needs the aid of Lego or some sort of pop-up children’s model to figure out that dolling out unemployment benefits, state aid, and government jobs programs, all necessitate the seizure of private wealth through taxing, borrowing, and printing paper.

That cannot create wealth! The fact that some individuals will get wealthy or be “helped” leaves out the unseen; the overall poverty and misery he, his minions and their schemes create.

There is no big secret about “creating” jobs. Government can’t do it. Unless it sucks more capital and credit out of the private economy, it has only the capacity to consume wealth, not create it.

Here’s a simple, crude model for Obama the statist. Play with it with the First Girls. Recommend it to your Fabian friends, Mr. president:

Put 10 blocks in box A. Take 5 blocks out of box A and place them in box B. The owner of box A is 5 blocks poorer, the owner of box B is 5 blocks richer. Total number of blocks: still 10. Total blocks added (or wealth created): 0.

Come on BO, you can do it.

The best BO can do is take a hike; go on a 4-year vacation; walk the plank; just GET OUT OF THE WAY!

Interest Rates Mess With Time Preference Rates

Debt, Economy, Federal Reserve Bank

While crediting the “Fed’s interest-rate policies, together with other measures,” for having “helped avert a much deeper economic slump,” the War Street Journal is prepared to admit (here) that artificially keeping interest rates so low doesn’t “just hurt retirees. [It] also penalizes people of any age hoping to build up funds for the future, and discourage rainy-day savings that could make U.S. consumers more resilient to job losses and other financial jolts.”

Dah. Austrian economists have warned all along that the Fed’s policies will see the dollar drop like a stone, assets continue to devalue, and saving and retirement become near impossible. Prices will soar, and the currency will eventually collapse (hyperinflation).

“Americans who have done everything right, have worked hard, saved their money and stayed out of debt are the ones being punished by low interest rates.”

Time preference rates are the degree to which different people discount the future in favor of immediate gratification. In a credit-fueled, consumption-based economic culture, those who want it all now come out on top. The saver, investor or producer is not the type of economic actor that such a fiscal culture cultivates and rewards.

Migrant Remittances Dwarf Foreign Aid

Economy, Foreign Aid, Taxation, Welfare

Governments are good at talking-up the “charitable” nature of their wealth transfers, especially when budget cuts loom (the kind that threaten bloated bureaucracies). U.S. government aid, however, doesn’t come close to private American charitable donations in any given year (link). Private foreign aid greatly exceeds U.S. government aid. And the former, unlike the latter, can be channeled to recipients the donor – not government – favors. The depth and the consistency of America’s voluntary giving obviate the need for political pelf, i.e. foreign aid.

No devotee of Sir Peter Bauer, author of “Dissent on Development” and the foremost authority on foreign aid, takes seriously the warning (here) that the GOP’s meager proposed budget cuts “would cause the deaths of at least 70,000 children around the world who rely on American funding, according to the government agency in charge of foreign aid.”

Here is another interesting figure that further puts in perspective the $15 billion or so of foreign aid stolen from American taxpayers:

According to the “Atlas of Human Migration,” published in 2011, thanks to the opportunities created (indubitably, by and large, in developed nations), the remittances “sent back home by migrants in 2007 was an impressive $250 billion, putting the $103 billion sent in development aid, in the same year, to shame.” (TLS March 4, 2011)