Win-win – US budget deficit expands and supports growth and private saving - by bill

[Sam1]

The Sydney Morning Herald carried an AFP story today (November 14, 2012) – US deficit hits $120b as fiscal cliff nears – which reported the latest US Treasury Department figures which showed that “the US budget deficit rose 22 per cent in October from a year ago, to $US120 billion ($A115.56 billion), as spending far outpaced revenue”. At which point I thought – how lucky the American people are that the Government deficit is still expanding and supporting growth unlike the expanding deficits in Europe which are expanding because of a lack of growth. It is an astounding achievement for the US people. Unfortunately all the signs are that the American polity doesn’t actually understand that their in-fighting, which has allowed the deficits to continue growing, has been good for the nation. Had they actually cut the deficits or failed to pass the debt limit extension, the US economy would be in the doldrums just like Europe. The problem now is that the political debate will reach some conclusion pretty soon and the harbingers of doom are growing stronger. But for the time being with the US budget deficit expanding and supporting growth and private saving it is a win-win.

The article should have stopped at that point. It then had to tell readers “But the sustained deficit continues to push the country’s debt load higher”. Why the use of the word “but”? That shifts the article from being news to opinion and the biases revealed indicate a lack of understanding of what the issues are.

The rest of the report was about how time was running out and not only did the US government have to navigate the “fiscal cliff” but it also would violate the current debt ceiling soon, both events giving the politicians a chance to demonstrate how destructive their ideological leanings might be.

But meanwhile, the substantive information was that the budget deficit rose and supported private saving through continued national income growth.

Read more at http://bilbo.economicoutlook.net/blog/?p=21692

[Lefty Thinker]

1. Why we are listening to Wall Street instead of Bill Mitchell

comes down, I suppose, to who can donate the big bucks to the political campaigns. It's really too bad what Wall Street claims to want is going to sink our country and they'll get it because the money is there and the American people are not smart enough to recognize straw men and false equivalencies (please, America, prove me wrong!).

We are not Greece (we have currency sovereignty). We are not Weimar Germany (we have no debts denominated in foreign currency or commodities). We have no operational risk of governmental bankruptcy (since Congress can at any time coin new money). Public debt does not "crowd out" private borrowing (the net expenditure by the government widens the pool before soaking up some of the dollars) and isn't necessary, anyway (since Congress can at any time coin new money). All of the financial bogeymen the need-a-crisis press likes to write about simply are not real.

We need to make sure that any member of Congress who invokes any of these bogeymen is confronted. We need to get these concepts out in the media, to friends and family. The more people who can critically evaluate the country's financial situation, the better. Bill Mitchell's blog is a great place to start.

P.S. Public debt measures private wealth (savings over all time) plus net imports over all time (at least when the government borrows all net spending as ours has/is), so getting rid of the debt (not deficit) means either a tremendous increase in exports (not bad, but not under the government's control), a dramatic decrease in private wealth, or a move to net spending without corresponding borrowing. Each has it's own side-effects, and they can be mixed and matched. We should be realistic about what we are trying to accomplish.