Monday, November 26, 2012

The Old Lowering The Deficit Sleight Of Hand

There's been a lot of talk lately about the U.S. federal government getting its financial affairs in order.  I wouldn't hold much hope out for that.  I suppose it is good that politicians and pundits are discussing the issue, but it's hard to regard them seriously when they basically only talk about lowering the deficit.

There's certainly nothing wrong with lowering the deficit, but the talk distracts people from the real issue, which is lowering the debt.  The deficit just adds to the debt.  Yammering about lowering the deficit is like someone who has maxed out all her or his credit cards getting a new one, but explaining to you that with this card he or she won't max it out, so things will be better.*  Meanwhile, he or she is still falling further into debt.

The fact that people have to argue about whether or not lowering the deficit is a good idea lets you know that we're still in financial fantasy land where money grows on trees (or at least on the magical computers of the Federal Reserve) and its value remains unaffected by other entities in the world (you know, like people, gold, commercial products, etc, stuff like that).  If we were rational, we'd eliminate the deficit and tackle lowering the debt.  Instead, we seem determined to turn into Greece.

Meanwhile, we're on target for another $1 trillion deficit year, making five in a row.  If that occurs, the national debt will once again hit the debt ceiling of a little bit above $16 trillion.  That breaks down to about $50,000 per citizen, and that includes infants and children.

Good luck paying that back.

Presumably, the government has no intention of ever paying off the debt and just intends to default at some point.  But, hey, stock up on savings bonds anyway!  The only other apparent way out is increasing the money supply to such a degree that hyperinflation occurs.

The politicians, Democrats and Republicans alike, insist that there is another way out, and they'll find it.

Right after they figure out how to lower the deficit.

*Yes, I know there's a big difference between a government in debt and an individual in debt.  The principal difference is that the individual can't just create her or his own money and get people to accept it.

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