American Consequences - May 2021

DEFICITS

The burden for our grandchildren isn’t debt as much as they’re inheriting from us a much less evolved society – technologically, culturally, and surely in terms of health care advances capable of turning today’s killers into tomorrow’s afterthoughts. attractive to lenders who want to be paid back. Deficits paradoxically signal a revenue problem, albeit one of too much revenue now, and in the future. expectations of rising tax revenues in the future. With tax cuts, reduced barriers to production logically redound to economic growth that renders the growing nation more Market signals support the above contention. Consider the borrowing costs for the U.S. Treasury over the last 41 years. In 1980, total federal debt was roughly $900 billion, but the yield on the 10-year Treasury note was 11.5%. In 2021, and with the U.S. nearly $30 trillion in arrears, the yield is 1.64%. And no, the Fed didn’t do this. Government once again can’t support government, after which it’s always worth bringing Russia back into the mix. If central banks could make borrowing simple, then logic dictates Putin would have the RCB working the printing presses non-stop. It would be a waste of paper and electricity. “Money” quite simply has no use without production first.

way enable government without limitation. Never forget that when investors buy debt, they’re buying future income streams paying out currencies that can be exchanged for market goods. Hülsmann’s reasoning implies that those goods can be printed or summoned by the creation of “money.” In other words, Hülsmann asserts that markets are shockingly stupid whereby the producers of goods and services would actively exchange what’s real for paper rapidly produced by central banks. No, markets are rather wise... Money is a logical corollary of production, not an instigator of it. Applying this simple logic to the U.S., it’s not the Fed enabling the growth of the federal government... but rather the U.S. political class has arrogated to itself a piece of the world’s largest economy. Borrowing by the U.S. Treasury is yet again a consequence of U.S. prosperity, much as Russia’s very limited borrowing capacity is a consequence of the country’s poverty relative to the U.S. Moving back to Left-wing mythology, that Russia’s borrowing is limited in concert with seemingly unlimited borrowing for the U.S. is a pretty resounding rejection of all the whining every time members of the Right call for tax cuts. The routine reply from the Left is that tax cuts “for the rich” will “blow out” the deficit... the implicit argument being that tax cuts reduce revenues only to necessitate more borrowing. The view is backward. Once again, government borrowing, like corporate borrowing, is enabled by

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May 2021

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