Op-ed:
Debt, Budgeting, and Necessary Evils By: Diane Sori / The Patriot Factor / Right Side Patriots
As we head down the road to the November 8th election, and since
the national debt is once again being pushed to the forefront as something that many say must not only be addressed but actually dealt with, there is something very important that is often forgotten...as in the actuality of numbers being shifting
on paper...as in numbers being 'manipulated'...something akin to federal market
manipulation...done to make it appear that the national debt is either more or less
than it actually is.
And being that I am not an economist I am forced to speak in
generalities in this article, but even I know that certain tangibles are just
common sense dictated. And the number one tangible is that the national debt is
most assuredly open to numbers shifting and manipulation and that a balanced
budget...the cry of so many...is NOT necessary to a successful economy and
sometimes can actually work against both a country's economic stability and its
economic recovery when coming out of a recession.
First…as to the national debt…as I write this article the
U.S. national debt stands at roughly $19 and a half trillion dollars* and
growing due to rising annual deficits. But what exactly are the specifics of
the national debt some ask…simply, it’s the total amount of monies owed by the U.S.
federal government to creditors, and this includes all individuals, businesses,
governments, and other organizations that own U.S. government debt securities,
but does not include any debts in the name of individuals, corporations and
state or municipal governments.
And why is this money owed…because of a failure of the
federal government…and especially Obama…to understand basic economics 101…as
in you cannot spend more money than you take in. And when you add in the monies
borrowed to make up the difference the national debt becomes the ‘gross federal
debt.’ And that debt has two parts with one part being the debt held by the public…meaning
money the government borrows on the open market from domestic or foreign
investors; and the other part being what’s known as intra-governmental debt
meaning money the government owes itself…with the Social Security trust fund
being but the largest and most known example with the others being similar
programs for government employees and the military.
And here is where one major problem lies as Social Security
revenues have exceeded benefit payments for years now with the surplus being required
by law to be invested in ‘treasuries’...’treasuries’ that have a low liquidity risk
and almost zero credit risk but have yields that are lower than all other kinds
of debt securities of comparable maturities…with treasury bills having a maturity
of less than one year; treasury notes maturing between one and ten years; and with
treasury bonds reaching maturity over 10 years.
So knowing all the above how can the ‘monies owed’ numbers
be manipulated…for starters by the government's abolishing of the long held ‘gold
standard’ they has been able to depreciate the value of our currency allowing for
what some economists call the “hidden and
deceptive tax of inflation.” And according to these same economists
inflation could be controlled if the feds were not able to monetize debt or
manipulate mandatory reserve requirements…as in the amount of monies that must by
law be kept in reserve for emergencies.
But now the questions are what exactly is the ‘tax of inflation’…which
comes complete with a rise in interest rates courtesy of the Federal Reserve
reducing ‘real’ interest rates on U.S. government debt obligations…and how does
it tie into the national debt. Simply, inflation is an increase in what’s
called ‘fiat’ money…monies paper and otherwise that our government declares to
be legal tender but monies not backed by a physical commodity (tangible ‘treasure’)
that brings with it higher consumer prices. And this happens when the economy's
“aggregate volume of money” expenditures (total spending in the economy) grows at a faster rate than its total real
output grows.
Now when you add in that inflation is also an increase in
the actual supply of money (again without tangible ‘treasure’ to back it up) and
without a corresponding increase in the supply of goods and services that
should but don’t go with it, the reality becomes that when only the federal
government can create new money in order to cover for what it spends in excess
of its income…its monies made…you just know the numbers have been manipulated so
that the feds…so that Obama…can cover what they know is spending wrong doing
but simply don’t care.
And numbers manipulation can be used in both the pro and con
sense in regards to the national debt with actual budget deficits…with deficits
being the annual difference between income and expenses…inflating the debt and
with surpluses shrinking it. Two pros of the national debt is that first, it is
a good way to get short term extra funds to invest in much needed infrastructure
improvements and second, a ‘revolving debt’…a line of credit where the customer
(in this case the government) pays a commitment fee and is then allowed to use
the funds when they are needed….is how we are able to fund all of our programs and
finance both private and government investment in what’s called ‘productive
capital’ (capital which is invested to give interest) to support and sustain economic
growth.
But the cons are what most need to understand for too much
debt…the situation we now face thanks to Obama and his cronies out of control
spending…means increasing government resources must go towards ‘servicing debt’…as
in to pay interest not to pay down the principal owed.
Another critical con is that by paying off the national
debt…bringing it down to zero as many want…is that a debt-free U.S. can upset the global
financial markets as there would then be no need to issue U.S. Treasury bonds.
And why…because we borrow money by selling bonds and with no debt there would
be no reason or obligation to sell bonds…and with no reason or obligation to
sell bonds especially with U.S. bonds seen as a safe investment and the
backbone of the global economy…other country’s economies would then be tethering
on quite unstable grounds for what then could they safely invest in.
Remember, too, the national debt has been around since our
country’s birth starting with the $75 million inherited from the original 13
colonies, so is paying off the national debt a necessity or even required by
law…in a word ‘no.’ But with this being a time of relatively high unemployment
paying off the debt in full would a be economically disastrous as the foreign markets
would then lose confidence in America's ability to pay its debts as they actually
come due. And if the markets lose
confidence they will either stop lending monies or will demand higher interest
on monies lent…neither a wanted scenario.
And yet common sense dictates that what should be done is at
least reduce the size of the debt. But sadly, the fastest way to do so is to
increase taxes and cut spending, something many on both sides of the aisle
would never go for. So a compromise of sorts would be that if the national debt
could be made to stay around a congressional set percentage of the GNP…the Gross
National Product (the total value of all final goods and services produced
within our nation in a particular year)...and with the economy having a GDP…the Gross
Domestic Product (a monetary measure of the market value of all final goods and
services produced in either a quarterly or yearly period)...that grows at a steady rate
of around 3-4% each year, the economy itself would then start to show a decidedly
marked improvement.
And all this could be done by lowering the amount of monies
owed NOT by wrongly paying off the national debt in full.
Now as for the call for a balanced budget…here too there are
pros and cons, and in this case the cons are more critical to our economic
well-being than the pros. And a big con is that a balanced budget would limit
the federal government's ability to deflect sudden threats to the economy…as in
for example extra monies suddenly needed for war…and according to numerous Keynesian
economists, a balanced budget can actually hinder an economy’s ability to ward
off serious recessions. For example, if interest rates rise too quickly (to
fight inflation), the government would find it very hard to afford interest
payments on the national debt, leading to default or still even higher inflation.
A vicious cycle for sure, tightly tying the national debt
and the budget together.
How so…as with the aforementioned inadvisability of paying
off the national debt…which can only be reduced by increased taxation, reduced
spending in sometimes key areas (as in major cuts to Medicare, Medicaid, and
Social Security), debt restructuring (numbers shifting), monetization of the
debt (the process of turning U.S. Treasury debt and private corporate debt into
money), or outright default…all unwanted scenarios…comes the indisputable fact
that the federal budget process does deal directly with taxation and monies
spent, and suggestions made for restructuring the debt or for defaulting will most
likely not be to ‘We the People’s’ benefit or will actually address the debt.
Not be to ‘We the People's’ benefit puts it mildly for in no
uncertain terms this means that to balance the budget, like with paying off the
national debt, taxes must be raised and raised again and again until there will
be more taxes taken out of your paycheck than the pay you get to take home.
And while most elected officials…most politicians…know and
accept this as fact…some still continue to push for a ‘balanced budget
amendment’…an amendment that contrary to what some claim still would not put a set-in-stone
limit on government spending as a vote by three fifths of Congress could raise
the limit…making this yet another reason why Congress must stay red. And while
this amendment would also putting certain restrictions on the amount of debt the
feds are allowed to accrue, the fact remains that this amendment is nothing but
a band aid of sorts laying on top of the still remaining core issue of how to seriously
control over sending.
And while the budget process itself gives Congress the
chance to pick through both individual and government programs and spending to
see what works and what doesn’t coupled with what is needed and what is not
needed…to balance the budget forever means costs must be contained while income
sources still must be obtained…again meaning taxes need to be raised…and with
the burden of that raise falling as usual on the already struggling and
over-taxed middle class.
So while some aspects of balancing the budget do show
promise of sorts…like its addressing of the deficit and long-term debts…the
fact is that this amendment does not take into account that if government
spending is cut drastically or is cut too fast, this can lead to an increased
economic downturn. And as per some leading economists, government spending
should increase when the economy is on the decline, because when a country
starts producing less than they used to, there is a recession, and if that
condition goes on for a given period of time, then a depression results and if
lasting long enough a country’s economy…including our own…could collapse.
And while all this sounds like gloom and doom, what people simply need to
be remember is that for a country to truly be successful in the economic
sense is that some manageable debt is advisable...just like one needs to have some personal debts so that one has a history of repayment because without that one cannot get loans as in a mortgage or a car loan...and that balancing the budget does
more harm than good no matter what some politicians pandering for votes say.
_______________________________
