Would You Want Your CPA Treating You for Cancer?
Then why is a doctor in charge of coming up with the Congressional Budget?
We have a problem in the US. The people we send to Congress dont know the first bit about how our economy or monetary policy work. Rep. Tom Price, the chairman of the finance committee, is a medical doctor. He is also in charge of coming up with the Congressional Budget for the upcoming year and a blueprint for the years to come. He has no education in finance. No education in economics. He can tell you if you are sick with more certainty and probably diagnose whats wrong to make you better. If thats your problem, he would be someone to ask. He is not, however, qualified to budget for a country whose monetary policy he fails to understand.
If you ever hear a politician (of any party) say the following, they are being disingenuous, completely clueless, or in the pocket of someone who has a lot of money riding on you believing it.
We are going to become Greece
We are robbing our children’s future with the US debt
The US is going to be bankrupt
The current US debt is “Job Killing”
Comparing the US budget to the “kitchen table” budget
None of these statements is even close to true. The US is a Sovereign Debt Nation. This means that only the government (The Fed) can issue currency (the dollar). No one else can do that.
The Us also owes all of its debts in dollars. We can always pay our debts. The US cannot technically default (Congressional stupidity not withstanding). Greece does not have any control over the Euro, but they owe their debts in Euros. If Greece spends more than they receive they can default if there is no aid from the European Union’s central bank. Thats a basic description (very basic) of the Greek Crisis last year.
We have seen real world examples of what Austerity (fiscal contraction) does in a downturn. It makes it worse. Europe is a living laboratory of this principle. The US avoided much of the pain (not all) that Europe is going through because we did not initially embrace Austerity as policy, but that changed when republicans took control of Congress which brings me to the main point.
The people we’ve sent to Washington dont know what they are doing, Dr. Tom Price, MD being the chief “No Nothing”. Paul Ryan pretends to know but its snake oil and “magic asterisks”. They speak of balancing a budget that shouldn't exist in the first place if it is comparable to the way a business would do it.
We hear about “job killing debt” “robbing future generations”, but has anyone ever articulated how this will occur? You see commercials on TV by The Peterson Foundation with closed factories and barren playgrounds. Pete Peterson has spent over a BILLION dollars to make sure you believe thats what will happen if we dont pay it down. They bank on you making the “kitchen table” comparison. Well, when you can print money from your kitchen table, you might be comparing apples to apples. Currently trying to compare it’s like apples to zebras…not even in the same ball park.
So, how do you budget when the Fed can print money. Truth is, you really cant. There are those that try to project what deficits and the like will be 10 years from now. They are usually wildly wrong.
But we have 17 trillion dollars in debt! We’re going to destroy the economy! Thats the battle cry you hear on the right. You even hear it from some democrats (back to the ‘they have no idea’ premise). If this was the case, why are people stampeding to buy US debt? There are even some rates on debt purchase that are NEGATIVE. Seems the markets dont think its a problem. The Fed is printing money like crazy! Inflation is coming! Thats another battle cry of the last six years that again is not true. To have inflation, you must have too many dollars chasing too few goods. Thats to say if everyone received a million dollars from the government, prices would rise because everyone would have more disposable income and there wouldn't be enough goods to purchase at current pricing. The shortages would make prices go up until businesses could adjust by hiring more people and paying them more to do it so they could produce more. There aren’t many goods that most people buy for which we have shortages. Inflation has been nonexistent for the last 6 years. So if all this money is being printed, why isnt inflation going up along with wages and the other things inflation would bring?
The Fed can only do so much. They control monetary policy. They dont control fiscal policy. Thats up to Congress as mandated by The Constitution. Congress’s job is to appropriate funds. By being clueless about how our monetary system works, they are failing…really badly. So all Fed can do to get money into the economy since interest rates have been at 0 is Quantitative Easing. Thats where they buy troubled assets off the books of major banks in hopes that they will in turn lend that money out to the “main street” economy. Thats not very efficient and it hasn't done much to help average people, although it hasn't hurt big banks.
What makes the actions of Congress even more insane is that if you forget everything I’ve said to this point and believe we have a kitchen table monetary system, is that Congress could be investing in infrastructure which is in scary disrepair. Those investments generally bring back a 4–6% return. You would make money long term by spending money now. Anyone that has a mortgage goes into a huge amount of debt in hopes of a return. Why cant Congress? It would also create thousands or even millions of decent paying jobs as well. You dont have to rob safety net programs from poor people to do it. Pay fors shouldn't exist the way those in Congress demand.
Your spending is someones income and government spending is private sector surplus. If everyone stops spending…its not too hard to see what happens.