«

»

Apr 15 2016

So Simple Even The Washington Post Gets It

Time Magazine Front Covers this ignorant screed from James Grant, noted Inflation Hawk and Gold Bug, that contends that at $42,998.12 per person the United States National Debt is insupportable and a grave threat to our economy.

As everyone should know, the only problem with a National Debt of any amount is not it’s sheer magnitude, but the relationship of its size to the National Economy. Not that household metaphors are appropriate (and they really aren’t), nobody would think twice about signing a mortgage that represented 3 – 5 years of total income payable in installments over 30 years. How many people do you know that are pulling down $100K annually who don’t live in $300K+ houses?

In fact the only negative effect from a debt that is too large is that people (lenders) are less willing to give you loans and charge you more money (interest) to offset the risk that you will default and refuse to pay them back anything at all. A side effect is that higher interest rates can fuel inflation because it raises the cost of capital (which is also measured in interest).

So what do we see?

We see a world in which there is unlimited demand for U.S. Government debt (Treasury Notes) even at interest rates that are effectively negative (less than the projected rate of inflation which means you’d actually do better to take piles of cash and stuff them in a warehouse) along with a projected rate of inflation that has failed to meet even the Federal Reserves too modest 2% goal (if inflation were higher there would be more incentive to invest money in productive and job producing enterprises instead of stashing it in warehouses or T-Bills).

The logic of this is so stupid simple that not only the normal lefty economists (i.e. Eisenhower Republicans) have pointed it out, but the august Washington Post itself, playground of Fred Hiatt and his crew of iceflow abandoning granny and baby starvers, have realized that it is a few yucks short of wacky.

This is the worst argument about the national debt you’ll ever find
By Matt O’Brien, Washington Post
April 15 at 7:28 AM

The United States government has $13.9 trillion in debt, and I feel fine.

You should, too. That’s because, despite what Jim Grant tells us on the cover of Time magazine, this doesn’t mean that every man, woman, and child has to pay $42,998.12 themselves. All it means is that we have plenty of debt to roll over — which we will. The government, after all, is immortal. It doesn’t have to pay back everything it owes like you or I do. It just has to pay back the interest it owes, so that investors will keep lending to it on good terms.

And, as you might have noticed, they are. The government can borrow for 10 years at 1.77 percent, for 20 years at 2.16 percent, and for 30 years at 2.58 percent. It’d be hard for those to get any lower. And that’s what makes Grant’s debt doom-mongering not just wrong, but world-historically so.

Think about it like this: The reason we care about the debt is that lenders might. In other words, if the debt got to be too big a share of the economy, then investors might demand tougher terms to make up for the fact that we looked a little riskier. Reducing the debt, then, is about reducing interest rates. Indeed, that was the rationale behind Bill Clinton’s big deficit-reduction package in 1993. But that’s impossible when interest rates are already as low as they can go, like they are now. So what would be the point of cutting the debt?

Easy: cutting the government. That, more than the debt, is what Grant really cares about. You can tell by the fact that his solution to what he thinks is too much red ink is … a big, fat tax cut? Actually, yes. “Are we quite sure,” he asks, that “we want no part of the flat-tax idea?” What he doesn’t say, though, is that if you’re going to cut taxes by, say, $8 trillion over 10 years — that’s how much Ted Cruz’s flat tax would cost — then you’re going to have to get rid of a lot of the government to bring the debt down. So goodbye Social Security, goodbye Medicare, goodbye Medicaid, goodbye Obamacare, and probably goodbye food stamps and unemployment insurance, too. (The actual debt is $19 trillion, but that includes obligations we owe ourselves, like Social Security.)

But the problem is that cutting taxes for the rich to cut spending for everybody else isn’t exactly a popular political platform. Just try telling people that we can’t afford a safety net anymore because — again, looking at Cruz’s plan — the top 0.1 percent need a $2.2 million tax cut. So instead, Grant says that this is all about helping the economy over the long-term. Because, don’t you know, “sound money and a balanced budget were two sides of the coin of American prosperity.”

So there’s no reason to cut the debt today, and no reason to cut the government down to a pre-New Deal size. At least not any economic reasons. And that’s why the best Grant can do is try to scare people by pointing out that our debt is in the trillions — did you know that’s a million millions?!? — without mentioning that our economy is in the trillions, too.

It’s not the government that’s bankrupt. It’s Jim Grant’s fear-mongering.

What a paradise! If only we could get rid of all those “takers” we’d have ever so much money to give to the “makers”.

1 ping

Comments have been disabled.