The U.S. Debt and Monsters Under the Bed

Unless you are one of about 10,000 people in the entire United States, whatever you think you know or what you have “learned” from network “news” about the nature, cause and effect, or owners of U.S. debt…more than likely you are wrong. Not that it’s your fault. With all the misinformation being disseminated by lazy politicians and an even lazier “news media”, it’s amazing that anywhere near 10,000 people actually do know anything factual about the U.S. economy.images

If you are a politician the odds of being wrong, intentionally of not, are MUCH higher. Now that is some scary shit.

The most misunderstood pieces of America’s economics are the nature and sources of U.S debt, the status of U.S. debt to China, and that both of them are more of a function of the trade deficit and both have almost nothing directly to do with the budget deficit or the U.S. debt….which is itself something of a misnomer because 81% of our national debt is owed to ourselves and has almost nothing to do with what the government spends. That’s right, as counterintuitive as that might sound to people who know the nature and workings of household or business debts, it true, and it all but proves that 99.9% of Americans know diddley about U.S. debt.

Well,  I’ve been writing about both for years; the first foray being, (Rethinking Jobs and China, October 20, 2011).

Now, what you have to understand is, the U.S. hasn’t been debt-free since January 8th, 1835, it lasted almost one year, and then they saw the error of their ways…as did the founding fathers. You know them. The ones so often selectively quoted by conservatives (usually only when it pertains to the 2nd Amendment) when it suits their political motives (more on that later).

So there you have it; gun rights everyone knows, but economics is totally lost on 99.99% of Americans. The plain truth is that government economics and individual and business economics are spelled similarly, but any comparison past that is so minimal that it’s like comparing mules and thoroughbred horses…they both have four legs and mostly carry or pull something for humans but the similarities end there.

The U.S. Debt or the U.S. Trade Deficit, Which Matters More?

After the American Revolution, the founding fathers actually debated whether or not to just wipe clean all those financial promises made during the war, even though they had the means, and they specifically decided to not pay them. Now, these guys are infinitely smarter statesmen than any politician alive today, and the truth is, politicians by and large have never liked it; mainly because they don’t know shit about economics, and even if they do they don’t tell the truth about it.

But at least the originals had the sense to know their limitations and they left the economy up to economists, back when actual experts rather than politicians made those kinds of decisions. It’s only been since the early 20th century that politicians began to enthusiastically use falsehoods about the U.S. debt to infuse animosity and fear into the general population in order to cloud their judgement in the hope of garnering votes.

A huge expanse of ignorance among the millions of America’s armchair economists, is that the U.S. trade deficit with China is a much more fundamental problem than anything having to do with our national budget or monetary policy.

Trade agreements, like the TPP (otherwise known as NAFTA on steroids) puts hard-working Americans out of jobs so that prospective big-time political donors and their interests will be able to utilize cheap, inferior and sometimes poisonous products from communist dictatorships or extremely poor countries that follow minimal environmental, health and safety standards. And they do this while charging American consumers through the nose for them AND knowing they are defective and some are outright harmful. Incredibly, those same shameless interests use bombastic aplomb in calling what those exporting countries practice as “American-style capitalism”…which is an insult to real capitalists, not to mention the memory of Adam Smith.

Now, I have been an avid reader, a voracious student, and now a humble writer about all things having to do with macroeconomics— (governmental economic practices and theories) vs. microeconomics (which is business or individual economic thinking). In recent years I’ve begun doing some serious corresponding with other macroeconomists (and it’s easy to see who they are because they are Twitter followers of mine), in both political and non-political settings. To a lesser extent, I’ve attempted, with decidedly mixed success, to be an ad hoc teacher of economics. And in almost 25 years of these endeavors, never have I been more concerned about the state of our own government and its inability to perform its function as it relates to American and global economics…as I am right now.

And it’s not so much the current rate of unemployment, or slow GDP growth in the U.S., or the near Depression conditions in Spain, Italy, Portugal and Greece, or the rise of other countries taking America’s place as the source of the best educated,  best innovators, or modern infrastructure leaders,  that has me scared to death.

What has me scared to death is the encroachment of wretchedly biased “news” monopolies into the mainstream and a total lack of understanding, or caring about Americans in Washington by so-called representatives who are supposed to be making policy on the behalf of ALL of their respective constituencies; not just the wealthy donors.

And to top it all off, the absurd Supreme Courts Citizens United decision is allowing mob-style corruption of the NATIONAL political system by allowing literally a few wealthy individuals to buy NATIONAL as well as local elections. They have literally turned the U.S. into a glorified, corrupt banana republic. They might just as well have placed Manuel Noriega or Hugo Chavez in charge of U.S. elections.

Compounding my fear is the sheer volume of misinterpretation that has turned opinions into the new “facts” and has embedded itself into the general public like the ear slugs used by Khan Noonien Singh in Star Trek II that made otherwise dedicated Star Fleet officers bend to Kahn’s will.

Then There’s the “Media Deficit”and the Monetary Policy Ignorance

This intentional distortion of the facts is being provided by politicians and a “news” media community completely run by Entertainment presidents who have forced the former news divisions to run amok, with no regard for ethics or veracity,  for the sake of viewership and ad dollars. Today’s media is to journalism what “Professional Wrestling” is to Greco-Roman wrestling.

News divisions have totally deserted their mandates to REPORT the news in favor of USING THE DISGUISE of news to further the political ambitions of target audiences to fill the coffers of their respective parent companies rather than to serve the public good. And these insidious mind-bending machines called tee-vees have apparently turned 100 million Americans into instant macroeconomic experts, with nothing more than information from television “pundits”, or A.M. radio blowhards who believe they know how a government economy functions (or their ignorant opinions of how it “should” function).

It’s resulted in a condition tantamount to 100 million Americans believing that they could do heart surgery because someone on television showed them how to do it….and then trying it out at every opportunity just to see if they can do it with no concern whatsoever for the patient.

The economic and long-term illogic of these actions have become a rapidly growing cancer on the body of America. It reminds me of the past when cigarette commercials vociferously claimed that smoking was good for you and was actually a healthy way of life, (according to on-screen doctors no less!!) even though they knew it was killing every person who believed them.

In the most recent State of the Union address, even President Obama likened the federal budget to that of a household. The constant repetition of this totally false, and almost infantile analogy, is shared by conservatives, both in politics or just as simple-minded followers of those in politics; and it has led millions of Americans to believe that cutting government expenditures in the midst of the second-worst contraction in economic history is actually a good idea.

It is an invalid, abjectly foolish, and myopic opinion based in ignorance, lies and misdirection.

First, households do not print their own money unless they want to go to jail. And many of the same people who believe that gold-backed currency is somehow magically worth more than fiat currency, also believe that the indiscriminate “printing of money” bt the Federal Reserve makes it worth less.

It is impossible to create a situation where monetary policy, merely by using fiat currency (currency that a government has declared to be legal tender, but is not backed by a physical commodity) could be analogous to what would happen if our currency value were tied directly to the value of gold bullion. Under the Gold Standard any new discovery of gold, or any foreign enemy who decided to crash our economy by dumping a marginal amount of their own gold, could do it.

That’s why we DON’T and CAN’T back our currency with the pretty, shiny baubles unless every other major economy does the same thing. Moreover, had we converted to the Gold Standard when Ron Paul and his legion of libertarians were proclaiming it as the salvation of our economy, U.S. debt would stand today, conservatively, at $454 Trillion instead of $18 Trillion due to the decline of the value of gold ever since Ron Paul and his out-of-their-depth libertarians decided that a 19th century economic model was appropriate in the 21st century.

This is precisely what happened prior to The Great Depression of the 20th century when England, our good buddies, convinced the U.S. to return to the Gold Standard then dumped some its own gold (in order to stimulate their own exports, primarily to America!!!), devaluing Americas currency, destroying any demand for U.S. goods or services and crushing worldwide demand in the process. With friends like these…

Provocateurs ignorantly proclaim that the Federal Reserve prints money indiscriminately, yet the Treasury Department–not the Federal Reserve–has been doing this for 40 years with virtually no increase in inflation. But of course that’s the thing about apocalyptic predictions…one can always claim that they’re POSITIVE that it’s still coming or that their last prediction was premature and the REAL apocalypse is just around the corner.

The conservative mantra, that the “printing money” by the Federal Reserve Bank will be inflationary, has been a favorite that has no basis in fact or history. First of all, The Federal Reserve has absolutely NO AUTHORITY TO PRINT MONEY OF ITS OWN VOLITION….they are forbidden to do so without a specific request from investment or commercial banks. Please let that simple truth sink in.

I’ll repeat it…the primary tool by which our central bank introduces new money into the economy is by requests from our Too-Bigger-to-Fail banks that dwarf what they were when they crashed the U.S. economy with their Bush-era Ponzi-like real estate schemes.

And What Discussion of Economics is Complete Without China

If this were true, selling the Treasury bonds (“printing money”) to China, Japan, and a handful of other countries would have caused runaway inflation long ago, but there’s been virtually no inflation since the Carter administration–despite the fear-mongering to the contrary by conservatives that it will happen any day– since the brief runaway inflation of the 1970s. And that BRIEF period was brought on by confluence of a wide-range of simultaneous global economic upheavals; none of which the U.S. could control through monetary policy and none of which were the result of America’s debts…but it sure does make for damn good fear-mongering when twisted and contorted by politicians whose only full-time job is to get re-elected every few years, or a fear-mongering pitiful excuse of a national media.

While I’m at it, China—despite proclamations daily that China “owns us”—isn’t even the largest foreign holder of Treasury bonds. They are under economic duress much worse than the U.S., and since February this year, Japan is the largest foreign holder and they hold a mere 7.1%. In fact, China needs U.S. consumption dollars so badly that their economy would collapse if the U.S. sought to de-value our currency the way they’ve systematically de-valued theirs.

Why? Because China desperately needs Americans buying their unregulated, poorly made, sometimes poisonous, cheap bullshit. They’ve got a Trillion dollars’ worth of crappy steel nobody wants, entire mega-ghost towns that are literally vacant, and virtually no electricity to the half of their country that lies beyond the big cities  that foreigners are allowed to see. But because of misinformation and political manipulation of the media, the U.S. has had to keep our currency “strong”, for political expediency, which makes it impossible to export any meaningful amount of American goods.

Last but Not Least, the Crap About Our “Money Inventory”

As I mentioned before, the worst episode of inflation in U.S. economic history, (in the 1970s and early 1980s) happened because the OPEC oil cartel cut supply in order to drive up prices and that created a panic. The resulting inflation went well beyond oil, because of the central role played by oil in our 1970s economy; especially in the trucking industry at the time, because then, as now, everything purchased in America has, at one time or another, been on an 18-wheeler. And plastic, which is made from oil derivatives, was in its hay-day. Between long lines at gasoline stations and talk of rationing, sure, runaway inflation was the result.

This is not to say that increases in the money supply cannot cause some inflation. However, not only are the conditions under which they can cause rampant inflation extremely uncommon, but the key condition necessary to bind together all the other conditions necessary to cause a repeat of the 1970s phenomenon require that we are operating at, or near full employment. That hardly describes where we are today or will be in the foreseeable future—primarily due to absurdly timed austerity measures by conservatives who cater to those that benefit most by the current economic conditions; wealthy individuals and corporations.

Thus, comparing the federal government’s budget to a household or business budget is just pure crap. And anyone that cannot understand this simple truth, should stop thinking they know jack about economics.

As I’ve said many times before, the last Republican President to reduce our debt by a single dollar was Herbert Hoover…and his irrational “debt panic”, combined with being conned into reinstating the Gold Standard, were primary reasons our private economy went to shit in 1929.

I am not saying that allowing the government to spend at will could not or would not lead to abuses. Of course it can and does. But the balanced-budget myth was perpetuated by the dean of economic mathematical analysis, Paul Samuelson, for a reason:

It was meant to act as an indirect constraint on political power over the economy, because he knew all too well that politicians         are shitty economists, as proven by self-proclaimed politicians setting economic policies that caused the Great Depression.

I suppose, in order to keep my kids in bed every night, I could tell them that are monsters hiding under their beds that waken after dark, so stay in bed and go to sleep! But what would happen if there were a fire and my children refused to leave because of the fear of those monsters? The result would be horrifying and it would be my own laziness that did them in.

Well we have a house on fire right now, and, jokes about politicians aside, we aren’t dealing with children. If we need a means of corralling self-important politicians and the wealthy lobbyists they serve, then let it be accomplished in a way that deals honestly and pragmatically with the real problem, not by scaring the crap out of voters.

The lives of almost 300 million people and their families depend on responsible politicians to grow some balls and do the jobs they are elected to do, not act on the whims and desires of a handful of wealthy donors.

Perhaps the cruelest irony is that of all the problems we face today, economics is the easiest one to solve–yet most of us are ignoring the truth,  while the rest are doing their very best to make it much, much worse by being blindly led, or scared by politicians and a severely compromised media that preys on people’s emotions and ignorance rather than facts and responsible governing.

Harvey A. Gold