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Subject:  Re: Bogus Fiscal Crisis Date:  2/13/2013  7:21 PM
Author:  rfaramir Number:  394279 of 392

Actual critique of the article's contents:

"There is so much worldwide investor confidence in the financial health of the U.S. government that for the past 20 years, the government’s cost of borrowing has been negative in real terms…. investors are effectively paying to lend money to the government… worldwide enthusiasm for U.S. debt… costs the government less to borrow money from investors than it does to tax its citizens"


These are an amazing set of facts! These are absolutely the warning signs that a crisis is approaching if not upon us. This should not be!

No one can sustain a negative cost of borrowing. This is prima facie evidence of something wrong somewhere. My prime suspect is the Fed. Only the dilution of the money supply--so that debts are repaid with cheaper dollars than were borrowed--sustains this.

The next has the same answer: "worldwide enthusiasm for U.S. debt"??? There has been a noted cooling off of such enthusiasm, but purchases by the Fed have prevented the failing of debt auctions that the free market has tried to produce to get us back on track.

The unbridled spending of our federal government comes from it costing less to borrow than to tax. Taxation is painful, borrowing ought to be more painful. But strangely, it is not. As a result, our politicians promise to rape our children instead of giving us the pain of paying today for today's 'benefits' of government largesse. Shameful.

"the U.S. will never default." followed by "U.S. dollars are not pegged to other currencies or backed by gold."

This simply means, the US *will* not default because it already *has*. When (D) Roosevelt made dollars inconvertible back to gold for Americans, he effected a partial default. When (R) Nixon made dollars inconvertible back to gold for everyone else, he completed the default. A dollar used to be a promise to pay the bearer 1/20th ounce of gold. Reneging on such a promise is a default, no matter the justifications that have made it the law of the land. The current situation is immoral and unconstitutional. It ought to be fixed.

Without such a fix, we are headed for a cliff of some sort, at least.

"the debt-to-GDP ratio for the U.S. is only expected to be about 6% higher in 2022"

"Only"? 6% increases forever will eventually do one in. Knowing which 6% will do it is another matter, of course. We've had 99.5 years of Federal Reserve shenanigans, maybe we can live with another 20 or more? Maybe we cannot. scott231 is on the right track with the straw and camel.

 

"U.S. GDP in the fourth quarter of 2012 actually contracted 0.1 percent due to government spending cuts."

This shows the uselessness of believing any argument based on GDP. Government spending is *not* productive spending. It detracts from our prosperity at least twice: once when what we produced is confiscated from us (through taxation or debasement), and again when it is spent politically instead of economically by the state (spending). The first is directly impoverishing, the second indirectly so, with varying impact, depending on how stupid the spending is. Adding regulation-writing bureaucrats is worse than taxation as they destroy the capacity for wealth production. Infrastructure spending is still bad but less bad because we at least get something somewhat useful in return. Just remember that it is always less than the free market would have produced.

And there is more Keynesian nonsense that I am not responding specifically to here, including "boosting aggregate demand".


By fearing "austerity measures", he fears the solution. He has probably never heard of the Great Depression of 1920-21. It started as a panic and was a great disruption, but because  the government did *nothing* but cut its expenditures, cut its regulations, and cut taxes, the whole episode was over in about 18 months and was never labelled a "depression" as it didn't last long enough. Afterwards, we were set for a prolonged period of robust growth. The bubble end of the "Roaring Twenties" was fueled by loose Fed policy, but at the beginning it was just a sound period of prosperity following a quick recovery from the preceding panic. Sound because of austerity on the part of the government.


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