Lasting Debt

“Rule one: Never allow a crisis to go to waste,” said President Obama’s Chief of Staff Rahm Emanuel in November of 2008.  “They are opportunities to do big things.”

 

Rahm Emanuel looks happy. He should be – he is the mayor of Chicago, which is best described as crisis incarnate. Or maybe the proper term is perma-crisis? Anyway, it undoubtedly looks like a giant opportunity from his perspective, a gift that keeps on giving, so to speak. [PT]

Photo credit: Ashlee Rezin / Sun-Times

 

At the time of his remark, Emanuel was eager to exploit the 2008 financial crisis to raid the public treasury.  With the passage of the American Recovery and Reinvestment Act in February 2009, Emanuel’s wish was granted.  The Obama administration had the opportunity to do big things.

Politically, the passage of the Recovery Act was a huge success.  Washington was able to dole out funds to their preferred projects like never before.  What could be better for a Congressman than to direct massive amounts of funds to infrastructure, healthcare, energy, security, law enforcement, and just about everything else?

Some Congressman even directed money to bridges and buildings that were then named after them.  No doubt, this flattered their egos.  But what it really did was memorialize their political swindle.

Economically, the Recovery Act was a great big dud.  The money was frittered away without producing any lasting wealth.  However, it did produce lasting debt.  Since the Recovery Act’s passage, the U.S. national debt has nearly doubled from roughly $10.6 trillion to nearly $20 trillion.

 

The post-GFC economic recovery was not the weakest of the entire post-WW2 era  despite all this money printing and deficit spending, but because of it. Government spending does not “help” the economy, it is a terrible burden on the economy. Every cent the government spends must be extracted from the private sector. Unless bureaucrats have magically found a way to gauge the opportunity costs of their spending, this is apodictically certain to damage the economy structurally and impoverish the citizenry at larger relative to what would have happened otherwise, as scarce capital is consumed and wasted. Not to mention that  the stimulus spending was utterly riddled with crony favoritism and utterly ridiculous items, including $535 Million for Solyndra (a now bankrupt “alternative energy” company) to $384,949 for a Study of Duck Penises, to $100,000 for Anti-Capitalist Puppet Shows, $389,357 for College Students to Keep a Diary of Their Marijuana and Malt Liquor Use,  while $1.3 million was spent for signs on highways to advertise that infrastructure spending was paid for by the stimulus. Countless more examples of this sort can be found. You couldn’t make this up if you tried. [PT] – clicki to enlarge.

 

Squib Kicking the Debt Ceiling Can

Several weeks ago we scribbled an article detailing why there will be no 11th hour debt ceiling deal.  We thought we were really on to something.  We even followed it up with a similarly themed article, calling Mitch McConnell’s debt ceiling bluff.

This week we were reminded that, like Socrates, “We know that we know nothing.”  For on Wednesday, President Trump squib kicked the debt ceiling can across the aisle into the outstretched hands of Senate Minority Leader Chuck Schumer and House Minority Leader Nancy Pelosi.  This came less than an hour after House Speaker Paul Ryan called the Schumer and Pelosi proposal “ridiculous and disgraceful.”

The Hurricane Harvey crisis, and the popular support for relief aid, provided Trump the opportunity he needed to reach an expedient, yet short-term, extension of the debt limit.  Come mid-December, he’ll likely regret his decision.  Mitch McConnell offered a small elaboration:

 

“[The President’s] feeling was that we needed to come together to not create a picture of divisiveness at a time of genuine national crisis, and that was the rationale.”

 

What to make of it?  U.S. stock markets were tickled pink.  After a brief panic on Tuesday, the DOW, S&P 500, and NASDAQ all closed Wednesday higher than where they started.  On Thursday, these markets closed about where they opened.

From a broader perspective, aside from digging a deeper hole that the American people will have to eventually dig their way out of, what does the debt ceiling extension really accomplish?

For one thing, the debt ceiling extension brought clarity.  It elucidated that the faux appearance of fiscal responsibility that a debt ceiling projects is no longer needed.  Thus, President Trump wants to end the debt ceiling all together.

 

The time for installing the retractable roof has finally come! [PT]

 

The Government Debt Paradox: Pick Your Poison

Of all modern economic dogmas, perhaps the most broadly accepted is the belief that the government can spend the economy to growth using debt.  Certainly, government spending redirects economic growth to government preferred industries.  So, too, when government spending is financed via deficits, it grows inflation.

But government stimulus doesn’t grow the economy.  How could it?  Aside from reams of legislation, levies, and fees, the government doesn’t produce a doggone thing.

To the contrary, the government usurps capital and uses it in ways that it otherwise wouldn’t be.  Specifically, the government uses its heavy hand to distribute capital in ways that absent coercion, people wouldn’t pay for.  These generally equate to value subtracting endeavors.

 

As Ludwig von Mises pointed out: “At the bottom of the interventionist argument there is always the idea that the government or the state is an entity outside and above the social process of production, that it owns something which is not derived from taxing its subjects, and that it can spend this mythical something for definite purposes. This is the Santa Claus fable raised by Lord Keynes to the dignity of an economic doctrine and enthusiastically endorsed by all those who expect personal advantage from government spending. As against these popular fallacies there is need to emphasize the truism that a government can spend or invest only what it takes away from its citizens and that its additional spending and investment curtails the citizens’ spending and investment to the full extent of its quantity.” [PT]

Image via mises.org

 

For example, last month we learned that a foreign company hired by the U.S. government ran up a $50 million tab on luxury cars, weapons, and booze to mentor Afghan intelligence officers.  Was this a good investment?  Does it provide some benefit, financial or otherwise, for U.S. taxpayers?  Did someone at least have a little fun at the public’s expense?

In addition, value subtracting endeavors like these have the effect of attracting dependents.  Some become hooked on direct transfer payments, like monthly welfare and disability checks.  Others become hooked on the fat government contracts for their daily bread.

Over the decades, the entire economy’s been warped by the constant expansion of government debt.  Take it away, and the economy crumbles.  Continue its current trajectory and the economy blows up.

That’s the government debt paradox we presently live with.  Pick your poison.  Enjoy the ride!

 

Nothing bad will ever happen! Promise! [PT]

 

Chart by: St. Louis Fed

 

Chart and image captions by PT

 

MN Gordon is President and Founder of Direct Expressions LLC, an independent publishing company. He is the Editorial Director and Publisher of the Economic Prism – an E-Newsletter that tries to bring clarity to the muddy waters of economic policy and discusses interesting investment opportunities.

 

 
 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • 21st Century Shoe-Shine Boys
      Anecdotal Flags are Waved   "If a shoeshine boy can predict where this market is going to go, then it's no place for a man with a lot of money to lose." - Joseph Kennedy   It is actually a true story as far as we know – Joseph Kennedy, by all accounts an extremely shrewd businessman and investor (despite the fact that he had graduated in economics*), really did get his shoes shined on Wall Street one fine morning, and the shoe-shine boy, one Pat Bologna, asked him if...
  • Christopher Columbus and the Falsification of History
      Crazed Decision The Los Angeles City Council’s recent, crazed decision* to replace Christopher Columbus Day with one celebrating “indigenous peoples” can be traced to the falsification of history and denigration of European man which began in earnest in the 1960s throughout the educational establishment (from grade school through the universities), book publishing, and the print and electronic media.   Christopher Columbus at the Court of the Catholic Monarchs (a...
  • The Forking Paradise - Precious Metals Supply and Demand Report
      Forking Incentives A month ago, we wrote about the bitcoin fork. We described the fork:   Picture a bank, the old-fashioned kind. Call it Acme (sorry, we watched too much Coyote and Road Runner growing up). A group of disgruntled employees leave. They take a copy of the book of accounts. They set up a new bank across the street, Wile E Bank. To win customers, they say if you had an account at Acme Bank, you now have an account at Wile, with the same balance!   BCH, son...
  • The Government Debt Paradox: Pick Your Poison
      Lasting Debt “Rule one: Never allow a crisis to go to waste,” said President Obama’s Chief of Staff Rahm Emanuel in November of 2008.  “They are opportunities to do big things.”   Rahm Emanuel looks happy. He should be – he is the mayor of Chicago, which is best described as crisis incarnate. Or maybe the proper term is perma-crisis? Anyway, it undoubtedly looks like a giant opportunity from his perspective, a gift that keeps on giving, so to speak. [PT] Photo...
  • India: The Genie of Lawlessness is out of the Bottle
      Recapitulation (Part XVI, the Last) Since the announcement of demonetization of Indian currency on 8th November 2016, I have written a large number of articles. The issue is not so much that the Indian Prime Minister, Narendra Modi, is a tyrant and extremely simplistic in his thinking (which he is), or that demonetization and the new sales tax system were horribly ill-conceived (which they were). Time erases all tyrants from the map, and eventually from people’s...
  • The United States of Hubris
      Improving the World, One Death at a Time If anyone should have any questions about whether the United States of America is not the most aggressive, warlike, and terrorist nation on the face of the earth, its latest proposed action against the supposed rogue state of North Korea should allay any such doubts.   Throughout history, the problem with empires has always been the same: no matter how stable and invincible they appeared, eventually they ran into “imperial...
  • Long Term Statistics on AAPL
      Introductory Remarks by PT Below we present a recent article by the Mole discussing a number of technical statistics on the behavior of AAPL over time. Since the company has the largest market cap in the US stock market (~ USD 850 billion – a valuation that exceeds that of entire industries), it is the biggest component of capitalization-weighted big cap indexes and the ETFs based on them. It is also a component of the price-weighted DJIA. It is fair to say that the performance of...
  • Tragedy of the Speculations
      The Instability Problem Bitcoin is often promoted as the antidote to the madness of fiat irredeemable currencies. It is also promoted as their replacement. Bitcoin is promoted not only as money, but the future money, and our monetary future. In fact, it is not.   A tragedy... get the hankies out! :) [PT]   Why not? To answer, let us start with a look at the incentives offered by bitcoin. We saw a comment this week, which is apropos:   "Crypto is so...
  • Despite 24/7 Trading: Bitcoin Investors are Taking off for the Weekend on Friday Already
      Crypto-Statistics In the last issue of Seasonal Insights I have discussed how the S&P 500 Index performs on individual days of the week. In this issue I will show an analysis of the average cumulative annual returns of bitcoin on individual days of the week.   Bitcoin, daily. While this is beside the point, we note the crypto-currency (and other “alt coins” as well) has minor performance issues lately. The white line indicates important lateral support, but this looks to...
  • Precious Metals Supply and Demand
      Fundamental Developments There were big moves in the metals markets this week. The price of gold was up an additional $21 and that of silver $0.30. Will the dollar fall further?As always, we are interested in the fundamentals of supply and demand as measured by the basis. But first, here are the charts of the prices of gold and silver, and the gold-silver ratio.   Gold and silver prices in USD terms (as of last week Friday) - click to enlarge.   Next, this is a...
  • To Hell In A Bucket
      No-one Cares... “No one really cares about the U.S. federal debt,” remarked a colleague and Economic Prism reader earlier in the week.  “You keep writing about it as if anyone gives a lick.” We could tell he was just warming up.  So, we settled back into our chair and made ourselves comfortable.   The federal debtberg, which no-one cares about (yet). We have added the most recent bar manually, as the charts published by the Fed will only be updated at the end of the...
  • Precious Metals Supply and Demand
      Back to the Happy Place Amid a Falling Dollar The prices of the metals dropped this week, $24 and $0.38. This could be because the asset markets have returned to their happy, happy place where every day the stock market ticks up relentlessly.   Sometimes, happiness is fleeting... - click to enlarge.   The major currencies have been rising all year—we insist that this is a rise in these dollar derivatives, not a fall in the dollar—and this is a risk-on pattern....

Support Acting Man

j9TJzzN

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com