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Default by a Thousand Cuts

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Alan Greenspan half-smilingly argues that U.S. Treasury bonds will never be defaulted because “we can always print money.” How reassuring.

It’s one thing to pull money out of the proverbial magic cookie jar and place it in bank ledgers (“high-powered money,” or QE1, QE2) while people are substituting consumption with saving, fearful of the near-term prospects (increasing their “demand for money”). It’s quite another to do that while people expect prices only to rise. Massive increase in the supply of money (“printing money”) while people anticipate inflation (lowered “demand for money”) can lead to runaway inflation, hyperinflation.

America hasn’t experienced that since the Civil War. But Germany has (after World War I), as has Zimbabwe (just recently). It can ruin a whole way of life.

After Germany’s hyperinflation, Nazism arose.

Greenspan may have been trying to make a subtle point, but the blunt point remains: Default is likely, for inflation itself serves as a form of default. Under Greenspan’s scenario, the Federal Reserve, conspiring with Treasury, would, by “simply” printing money, pay debt with decreased-value dollars.

The ancient Chinese had a perverse form of torturous execution: Death by a thousand cuts. Inflation is like that, it’s torture for almost everyone, default by a . . . gazillion devaluations.

The only way around this is to make very different cuts — in federal spending.

That’s not torture, that’s the road to recovery.

It’s unlikely, of course, because, to politicians and insiders, cutting spending seems like torture.

This is Common Sense. I’m Paul Jacob.

7 replies on “Default by a Thousand Cuts”

2war-
The did that in Weimar and people dumped the money out on the ground and stole the wheelbarrows.

Canada was in similar shape economically 10 years ago, with the Canadian dollar being worth a third to a half of what a US dollar was worth. They cut actual government spending by 30%. Not cutting the planned increases, but the actual spending. Down 30%. Their hyperinflation stopped and their economy stabilized and then tookm off.
Wonder if they could work as advisors to the US government, since they have already figured out what works and our govevernment has supposed run out of ideas.
This is a supercilious postulation, since our government is only interested in redistribution even at the expense of trashing the economy, no matter who gets hurt.
The politicians that are doing this are counting on their protestation of good intentions to protect them from any consequences of their unconstitutional actions.

Where to cut is the question. The Republicans seem to think that seniors, the disabled and the poor should be the first to lose out. Why not make the super rich and the corporations pay their fair share?

That won’t happen since the rich and the corporations control the government through their lobbiests.

Good to know what Repubs think. I didn’t get those conclusions from analyzing any of the plans that the Repubs put out. Also didn’t get that from Presbo’s plan either. Since he didn’t have one.

Taxing 100% of ALL income over $250,000 would net the government $1.4 trillion, which sounds like a lot. It would last the govenment 141 days of the $3.7 TRILLION that they are planning to spend in the coming year. That only leave 224 other days of the year that have not been covered, just at the current rate of spending. Just not enough “super rich” to cover all o the expenses.

It also assumes that those “super rich” folks, the top 10% of which are paying 2/3 of all the federal income taxes and the top 1% of which are paying 1/3 of all the federal income taxes, do nothing to change their behavior. Every time the government has changed the tax code to collect more taxes from them, they have changed their behavior in the past but that doesn’t mean that they would do it still again.

Like when they added an extra 10% luxury tax on expensive boats bought in the US and dried up the domestic expensive boat manufacturing industry.

Corporations don’t pay taxes. They pass any taxes on to their customers. Too many taxes and the US companies can’t compete with the folks that have moved their manufacturing to other countries.

If the rich and corporations controlled the government, we wouldn’t have the czars and administration we do now. But we might have QE1, 2, and soon 3, since printing funny money and ploughing it into the stock market and the banks to keep them afloat sounds exactly like the kind of thing that businesses might dream up to do to cope with all of the insane spending that the government is doing.

To Johnny K and all others:

I HAVE SAID THIS BEFORE: NOWHERE HAVE I SEEN ANY POLITICAN WILLING TO CUT CONGRESSIONAL ( AND EXECUTIVE BRANCH- SEEING THAT OBAMA WANTS SOEM $100,000 I BELEIVE- FOR HSI BIRTHDAY APRTY TRIIP)-SALARIES, PERKS, PENSIONS, AND TRAVEL- EVEN WHEN LEAVING OFFICE. AND THE TRAVEL USUALLY INCLUDES THEIR SPOUSES; LOVERS 9OR BOTH) AND ONE OR MORE STAFF MEMEBERS.

AND THE TRIPS TO SUCH VITALLY IMPORTANT PLACES TO THE NATIONAL INTEREST AS SCUBA DIVING TRIPS TO THE GREAT BARRIER REEF; ETC.

————————————
AND, IN A RECENT ( WELL, PERHAPS A MONTH OR SO AGO) WALL STREET JOURNAL OP-ED- (OR PERHAPS IT WAS AN EDITORIAL)- THERE IS SOME $1 TRILLION SITTING OVERSEAS IN BANK AND INVESTMENT ACCOUNTS, FROM US CORPROATIONS. CITRIX, I BELEIVE, SAID IT HAD SOMEWHERE IN THE AREA OF $100,000,000.

BUT DUE TO A 35% TAX ON REPATRIATED EARNINGS, THE MONEY IS STAYING THERE.

DURING THE BUSH ADMINISTRATION, WITH SMALLER NUMBERS, THEIR WAS A TEMPORARUY REDUCTION 9OR SUSPENSION) AND BILLIONS FLOWED HERE.

THIS IS $$$$ THAT COULD BE USED TO PAY DOWN DEBT; BUY BACK SECURITIES; BUILD R & D FACILITIES OR MANUFACTURING PLANTS; OR, HORROR OF EVIL-PAY BONUSES–ALL OF WHICH PUTS MONEY BACK INTO PEOPLE’S HANDS.

BUT OBAMA AND REID SAY NO.

WHY?????

To JohnnyK
You’ve got it backwards, our government, via “regulation” controls the corporations. They “regulate” them to generate campaign cash. It’d be preferable to have lassize-faire and let disputes be resolved in the courts, rather than a bureaucrat second guessing, over ruling, and inhibiting everything a company does. Politicians don’t have to give corporations favors (subsidies, tax breaks, cutting of regulatory red tape, restrictions on competition), they can say no. And when politicians quit handing out favors, the campaign cash chasing favors (aka rent seeking) will slow to a trickle.

Regarding “Why not make the super rich and the corporations pay their fair share?” first you haven’t made a case they aren’t, as they pay a higher percentage than others. I could say, why shouldn’t the 50% of citizens who pay no income tax, pay income tax? Don’t they benefit from government spending as much as the rich do, and perhaps more so?

And how do you justify using force to take money from some and give it to others? If you or I did this, we’d be prosecuted as thieves. That the government does it doesn’t make it any different. In fact it’s immoral. Thus, we should eliminate government charity else we’ll have more, and unnecessary, use of force in the world.

Also, there’s a strong case to be made that corporations shouldn’t be paying taxes, because their profits (after tax) go to individuals in the form of dividends or capital gains which they then pay tax on, so this production is double taxed.

If you want jobs to return, the only option that will work is to reduce the burden of government so companies become more competitive globally. That means less government, more freedom, and more prosperity.

To JohnnyK

I’d like to add that your statement:

“The Republicans seem to think that seniors, the disabled and the poor should be the first to lose out. Why not make the super rich and the corporations pay their fair share?”

finds a false moral equivalence between giving less to people who have not earned it and taking more from the people who have.

What is moral is not forcing others to support you via a majority vote.

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