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We just ticked over 38 trillion dollars in national debt. And Democrats want to keep the government shut down until we spend even more on extending Obamacare subsidies that they designed to sunset this year. Apparently, Obamacare isn't the panacea they promised. (Imagine that.) Oh ... and they also want to fund healthcare for illegal aliens in the 14 states (including my NJ) where federal money partially funds state programs providing healthcare to illegals. All with money we don't have. It seems obvious that we can't continue on this way. But if we are at loggerheads about spending EXTRA money, how will we ever get around to spending LESS!?!?
I know there are those who assert that deficits don't matter; that as long as we can print our own money, we can go on like this indefinitely. This idea, from Modern Monetary Theory, seems guaranteed to ignite ruinous inflation. I'm always reminded of a line from Hemingway's The Sun Also Rises. One of the characters is asked how they went bankrupt. The answer is concise. "Two ways. Gradually and then suddenly." Hemingway had his finger on an idea that the mathy folks studying complex systems wouldn't formalize for another 75 years. That most consequential changes tend to follow a similar pattern - a long, gradual buildup followed by a sudden and dramatic tipping point.
From a fiscal standpoint, the US has been in the "long, gradual buildup" phase since at least the Great Society days of the 60s. Our elected representatives — of all political flavors — borrow more and more money to bribe voters with government-provided goodies. They are enabled by an accommodating Fed providing ever-increasing injections of fiat money and a sanguine bond market willing to lend those dollars to the US Treasury. But as the world's population ages, the need to save and invest gets replaced by the need to cash in those savings and investments to fund current expenditures. That is, the day will come (and I think sooner rather than later) when the market will no longer be able to absorb the amount of bonds the US (and others) will need to sell. That's when "suddenly" will arrive.
Discussion (60)
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I wish every discussion or question about the “shutdown” or the “budget” would start with asking “Would you borrow money that you personally had to repay to fund _____ (discretionary or any other activity or item)? Would you give that amount of borrowed money to a stranger, for use in his own purposes, with no expectation of being paid back?
If the answer to either is NO, that activity does not belong in the US (or any state) federal budget. I think the “day” you describe is pretty nearby.
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Regarding Modern Monetary Theory, the theorists have an out. They point to managing the printing of money: do it only when inflation doesn't get out of hand; in other words, it's not printing any time that you want to. But having read Stephanie Kelton's book twice, though, I still think MMT is bunk and the household budget does work as an example.
(BTW, I really enjoy reading your posts. Keep them coming.)
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It is working great for the Medical Industrial Complex.
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I think we should bring back Texas Senator Phil Gramm's "Dickey Flatt test". To hear Gramm tell it, Dickey Flatt owned a printing shop in Mexia, Texas. He worked very, very hard. No matter how early you went into your job or how late you stayed, when you drove past Dickey Flattt's shop the lights were on and he was inside working. If you saw him outside the shop, the first thing you noticed was that his fingers were stained blue from the ink. He wasn't slovenly, the ink stain was perpetual. The test was easy: Is an item of spending worth taking a dollar from Dickey Flatt’s ink-stained hands? Gramm knew that Washington’s generosity was truly paid for by hard working taxpayers like Dickey Flatt.
Now that I'm writing about it, maybe we should formalize this as follows:
Every Congressman and Senator voting to increase spending or taxes has to personally go to collect a dollar, face to face, from 100 randomly selected people from their district or state.
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Thanks ... glad you enjoy them. Re MMT I'd argue that vis a vis money supply, inflation lags by at least 60 days and up to as much as 18 months. So, by the time the inflationary impulses from goosing the money supply show up, its already too late.
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