Friday, February 17, 2012

Scary? Facts about the Debt

Saying these are facts about the debt is one thing, but to call them 'scary' is to put needless fear into Americans. My comments are in red.
As President Obama unveiled the 2013 fiscal year budget, the nation's financial situation came back into sharp focus. Experts say partisan gridlock in Washington means the budget will probably go nowhere.

Considering this is an election year, however, expect politicians to harp on facts, figures and terms that most Americans weren't taught in high school. To help out, it's time to dredge up lots of scary facts to make you pay attention.

Before we get going, a quick primer on the number TRILLION:

$1 trillion = $1,000 billion or $1,000,000,000,000 (that's 12 zeros) very true

How hard is it to spend a trillion dollars? If you spent one dollar every second, you would have spent a million dollars in 12 days. At that same rate, it would take you 32 years to spend a billion dollars. But it would take you more than 31,000 years to spend a trillion dollars.

And now, some scary (She still hasn't said why it is scary) facts about the debt and the deficit -- some basics:

Deficit = money government takes in -- money government spends very true

2012 US deficit = $1.33 trillion still see no problem here, it is not causing inflation and our economy is still not doing that well

2013 Proposed budget deficit = $901 billion this may actually not be enough to grow our economy, still too far away to tell for sure

National debt = Total amount borrowed over time to fund the annual deficit sort of true, the debt is meant to 'fund' the deficit, but isn't necessary to do so. Issuing debt is a way for the Fed to maintain interest rate targets, not a necessary means for raising funds. The government can spend without taxes or issuing debt.

Current national debt = $15.3 trillion (or $49,030 per every man, woman and child in the US or $135,773 per taxpayer) True, but thinking of it this way is misleading. We will never have to fork over $49,000 to pay it off. Most of it isn't due for years to come and doesn't ever have to paid off at anyone one moment. Plus, the national debt=national savings. That means there is $15.3 trillion dollars of US bonds in the hands of the private sector, of which they are earning interest on.

OK, let's get started! Here is her official list of "scary" facts

Thursday, February 16, 2012

Are we leaving our debt to our children?

I think this article by Dean Baker at Truthout explains fairly well how our national debt isn't a transfer of stuff now for debt later. Our lack of using all our productive capability is a real cost to our future generations. The (federal) debt only becomes a burden to future generations if paying the interest on that debt leads to inflation, where too much money is flooding the markets to compete for real goods and resources. The US debt clock is, to the penny, the amount of savings in bonds that the private sector holds and is not something we have to pay off out of our own pockets or that has to be taxed from us to pay off because the government doesn't need tax dollars to spend. The threat is inflation, not insolvency. We should focus on full employment growth and stable prices, not the mythical 'burden' of our debt.

Here are some highlights:
It's budget time, again. This means that the deficit hawks will be out in force warning us about the devastating debt burden that we are passing on to our children. So that this Halloween fright gang doesn't needlessly cause any kids to lose sleep, here's what parents can tell their children.

First, it is important to tell your kids that the national debt is not in any way a measure of intergenerational transfers from the young to the old. Debt is also an asset to the people who own the bonds. At some point, everyone who is alive today will be dead, which means that the bonds they own will be passed on to their or someone else's children and grandchildren.

Our children and grandchildren might owe the debt, but they will also be receiving the interest paid on the debt. There can be an issue of distribution within future generations (e.g. Bill Gates' descendants own all the debt), but that is a question of inequality within generations, not between generations. So, when you hear the deficit hawks ranting about the $15 trillion debt that we are passing on to our kids, you can tell your children that we are passing on $15 trillion in government bonds to our children.

Wednesday, February 15, 2012

Safety Net full of Holes

Looks like our safety net has some holes in it and could use some repair:

From this article at the NY Times:
"...across the nation, the government now provides almost $1 in benefits for every $4 in other income. Older people get most of the benefits, primarily through Social Security and Medicare, but aid for the rest of the population has increased about as quickly through programs for the disabled, the unemployed, veterans and children.

The government safety net was created to keep Americans from abject poverty, but the poorest households no longer receive a majority of government benefits. A secondary mission has gradually become primary: maintaining the middle class from childhood through retirement. The share of benefits flowing to the least affluent households, the bottom fifth, has declined from 54 percent in 1979 to 36 percent in 2007, according to a Congressional Budget Office analysis published last year.
And from this article also in the NY Times via Yahoo:
"...the new study suggests that the recent recession did not cause any significant increase in the share of benefits flowing to the poor, as might once have been expected.

The study found that older people received slightly more than half of government benefits, while the nonelderly with disabilities received an additional 20 percent. These benefits are not means-tested - indeed, better-paid workers get more in Social Security.

Tuesday, February 14, 2012

Functional Finance: Govt ≠ Household

This post probably explains better than I can why the government is not like a household and what good finance really means for the government. Full post here.

FUNCTIONAL FINANCE: Monetary and Fiscal Policy for Sovereign Currencies
By L. Randall Wray

This week we begin a new topic: functional finance. This will occupy us for the next several blogs. Today we will lay out Abba Lerner’s approach to policy. In the 1940s he came up with what he called the functional finance approach to policy. In one of those amazing historical coincidences, Lerner happened to teach at UMKC when he published one of his most famous papers, laying out the approach. Maybe there is something special in the air in Kansas City?

Lerner posed two principles:

First Principle: if domestic income is too low, government needs to spend more. Unemployment is sufficient evidence of this condition, so if there is unemployment it means government spending is too low.

Second Principle: if the domestic interest rate is too high, it means government needs to provide more “money”, mostly in the form of bank reserves.

The idea is pretty simple. A government that issues its own currency has the fiscal and monetary policy space to spend enough to get the economy to full employment and to set its interest rate target where it wants. (We will address exchange rate regimes later; a fixed exchange rate system requires a modification to this claim.) For a sovereign nation, “affordability” is not an issue—it spends by crediting bank accounts with its own IOUs, something it can never run out of. If there is unemployed labor, government can always afford to hire it—and by definition, unemployed labor is willing to work for money.

Friday, February 10, 2012

Interesting Video

I think this is an interesting video and is a pretty good understanding of our current situation, both in Europe and in the U.S.:

Wednesday, February 1, 2012

Hijacking Christianity

This article was written by Aryeh Spero a few days ago in the Wall Street Journal. These types of articles really bother me, particularly because I feel that he is hijacking Christianity to justify a position he feels strongly about rather than critically analyzing society in light of the teaching of the Bible in order to make it better. Capitalism has its strengths, but it isn't without weaknesses, and to say that Christianity or the Bible endorses it, I think, is very wrong-headed if not out-right ridiculous. This doesn't mean that I think Christianity endorses socialism, but I certainly don't think our brand of capitalism is the best we can come up with to follow the teachings of Bible. To say that Christianity specifically endorses capitalism, is, I think, to be like one of the Pharisees and is extremely dangerous because people can come away from reading this thinking that this is indeed what Christ told us.

Spero's article can be read here (and below): What the Bible Teaches About Capitalism. My comments are in red.

Who would have expected that in a Republican primary campaign the single biggest complaint among candidates would be that the front-runner has taken capitalism too far? As if his success and achievement were evidence of something unethical and immoral? President Obama and other redistributionists must be rejoicing that their assumptions about rugged capitalism and the 1% have been given such legitimacy.

More than any other nation, the United States was founded on broad themes of morality rooted in a specific religious perspective. We call this the Judeo-Christian ethos, and within it resides a ringing endorsement of capitalism as a moral endeavor.

I disagree that within Christianity resides a "ringing endorsement of capitalism as a moral endeavor". The Bible does not endorse 'self-interested' individuals, nor does it endorse the accumulation of riches, and both are hallmarks of capitalism.