Tag Archives: inflation

Fiscal Cliff Diving And Debt Ceilings, Oh My

Well, the Mayans were wrong about the world ending, Jack Van Impe was wrong again on the rapture, and the fiscal cliff was avoided. Yahoo! But just as Americans never really seemed to understand what the Mayans were saying (it was the calendar ending, not the world), few Americans really grasped what the fiscal cliff meant.

And it isn’t hard to understand why.

The fiscal cliff, like its parent the debt ceiling, is an arbitrary creation; a crisis of convenient contrivance. Both parent and child were born of power politics, with no connection to economic or financial need. The 2011 confrontation over the debt ceiling produced a series of debt reduction spending cuts known as the sequester scheduled to take effect in January of 2013. These cuts were seen as “fiscally responsible,” despite the macroeconomic nonsense of massive spending cuts during a slow recovery. A year later, those that saw the sequester as fiscal responsibility, acknowledged the fiscal irresponsibility of the sequester. The presence of the spending cuts, paired with the expiration of both the Bush and Obama tax cuts, created a precipitous cliff over which our nation might fall.

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On Deficit And Recession

President George W. Bush and the Republican Congress he worked with, added nearly $5 trillion to the national debt during his first six fiscal years. Members of The Rational Middle will not be surprised to read that statement. Bush’s doubling of the debt is not the reason for the Great Recession. Perhaps that statement is a surprise. A singular fact of economics needs to be understood by the citizens of this democracy, and that knowledge is needed now more than ever: budget deficits do not cause recessions.

Throughout this recession and recovery, the fact that budget deficits have nothing to do with recessions has been consistently ignored by those that do understand. Linking the two items has political benefits for both sides of our rusted two party system. Democrats were able to hammer Bush for his war spending and top heavy tax cuts, Republicans are able to hammer Obama and the Democrats for social and infrastructure spending. The Tea Party is able to lash out in anger at everyone, because the political figures in that group lack even the most basic knowledge of anything fiscal.

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Ready, Fire, Aim

Something doesn’t make sense. The process is askew. Shouldn’t aim come before fire? The media and Congress are operating today, based on their actions, as though a debt crisis is our great national problem. The people don’t believe that; poll after poll find jobs and the economy are more important than the federal deficit. We are constantly told that Congress went against the wishes of the people when they voted for health care reform. The same polls tell Congress that jobs matter more than the deficit; where is the drumbeat for action on that front?

I can hear folks thinking already; the people say jobs, but what do the professionals say? Economists have been beating the drums for real stimulus for over a year now. The collapse of the housing bubble blew a $2 trillion hole in the economy; a hole that resulted in precipitous falls in state and federal income tax and local sales tax collections. Better than half of our current federal deficit is a direct result of the recession; a fact which means once people go back to work, that potion of the deficit will no longer be an issue. The professionals are calling for federal action on jobs, the people are calling for federal action on jobs, the media are being led like sheep towards the false idol that is debt crisis.

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Greece, America, And The Budget Panic

Greece is begging for money. The home of the world’s original democracy is essentially bankrupt and is now forced to ask the rest of Europe for a bailout. Many of our nations’s newspapers, along with Conservative commentators and dim bulbs like Dana Milbank, are suggesting that the United States will take its turn if nothing is done with our fiscal crisis. Folks, we are spending a great deal of money at the moment trying to dig out from the collapse of the $8 trillion housing bubble. As a nation, we are also facing unprecedented inflation in the health care sector. We are not however, on the road to bankruptcy…period.

Please put politics aside on this issue, as it is about basic macroeconomic realities and not the difference between Democrats and Republicans. Greece finds itself in desperate straights because they are in the Eurozone (yes, it is a real place and not a bad joke); they no longer have a currency that adjusts to regional economic realities. We have the U.S. dollar and a central bank (The Fed) that can influence the supply of money. In other words, we have the flexibility to meet our challenges whereas Greece does not.

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The Myths About Money and Markets

There is a growing mythology in the United States about money and the “free market”. The GlennBecks of the world have a platform to speak, and have set about aggressively using that platform to spread bad ideas to the people that trust them. The facts about these issues are within the grasp of most Americans, so lets correct the misconceptions now.

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