Inflating our way out of debt

The Congress has recently raised the official debt ceiling to $14.3 trillion.  This amounts to about 100% of GDP and is a sign of trouble ahead.  What is rarely mentioned is that this total does not include future unfunded obligations which run the total into the neighborhood of $100 trillion.  This level of debt is unsustainable and the day of reckoning may well occur this decade.  How can such massive debts ever hope to be paid?  There are four basic methods available to address the debt.

• Rapid GDP growth
• Rising inflation
• Increased taxes
• Outright default

As illustrated by the Laffer Curve and confirmed by history, the current level of taxation is near the point where higher levels will depress GDP growth.  Additionally, the sheer size of government at all levels will make it very difficult for the economy to grow sufficiently to reduce the ratio of debt/GDP.  This leaves default or inflation as the realistic options.  Outright default is politically unfeasible, requiring the government to renege on future Social Security and Medicare benefits, and current interest payments on the debt.  Inflation, which is a quiet, long-term form of default, is in all likelihood what the US will be experiencing in the future.  This paper demonstrates how this can be accomplished with a surprisingly modest level of inflation.  When you hear the term “quantitative easing” in the news, you’re seeing inflation being imposed on the economy.  In an inflationary environment debtors will be relatively better off, while savers will be crushed.

Are you stimulated yet?

Now that the Jobs Bill (aka Stimulus 2) is being proposed, it’s a good time to look at the results of the first stimulus and reasons why that bill failed to have effects put forth by the Obama administration.  Of the $787 billion allocated for stimulus, $186 billion has been spent.  A small of amount of this was allocated for infrastructure ($31 billion), which does have true economic benefit by increasing efficiency and productivity.  The remainder of this is simple transfer payments, largely to the states, which is the source of the “created or saved” numbers touted by administration.  The “saved” numbers includes teachers, police and fire fighters who might have been laid off without the stimulus.  Notice how pay cuts to these groups never entered the discussion, while pay cuts are always an option in the private sector.  The prime goal of the stimulus was to prevent unemployment from going above 8%.  To the administration’s surprise, it hovers around 10%.  Why is this?

Every time these large “jobs” programs are proposed, they inevitably fall prey to Bastiat’s “broken window fallacy.”  The fundamental problem with jobs programs is that they take funds from the economy at large (reducing employment generally) and put funds into politically-favored jobs.  Brian Riedl of the Heritage Foundation does a great job of exploring this phenomenon in this paper.  As anyone who has raised living entities (human, animal or plant) knows it is quite easy to stunt or kill growth and impossible to force growth.  The best that can be done is to create a nurturing environment where growth can occur, and then hope and pray for good results.  All governments that believe they can force economic growth with “jobs” and “stimulus” are arrogant, ignorant, and doomed to failure.

Hello world!

Welcome! This blog was created to comment on current events around the world that can impact the citizens of Northern Colorado from the perspective of one whom believes in God and the founding documents of the United States.  Praise and brickbats will be laid upon all parties, irrespective of race, gender or political party, when called for.  The progressive viewpoint put forth by the mainstream press and government agencies will subjected to the most criticism.

The US is approaching a point where our way of life will be drastically changed and not for the better.  An open discussion of the issues is critical if the country is to survive these changes and give our descendants a chance to prosper.  We know enough history to see that our current path cannot be continued even though the progressive mindset is that the “experts” in charge will tax here, regulate there and nirvana will be ours.  Good luck with that!