Do Deficits Matter?

[The Machine]

THERE ARE the dumb US deficit deniers, and then there are the smart US deficit deniers.

Anatole Kaletsky is one of the smart ones. But even the smart ones make us wonder.

Do deficits really matter? **** Cheney said they didn't. Apparently, Ronald Reagan didn't think they mattered. Today's big federal debt got its first big growth spurt during Reagan's first term.

And here comes Kaletsky with a prediction. When the Republicans realize that the only way they can cut the US deficit is by raising taxes, they won't think deficits matter either.

Kaletsky says that today's deficits are really nothing to worry about. They're not that big. And with interest rates so low, they are easily handled.

'Why are sophisticated investors unmoved by the deficit panic? Because they know that governments, at least outside the Eurozone, are nowhere near bankruptcy. In fact, debt levels are not dangerously high. The US government net debt is expected to stabilize at 89 percent of gross domestic product from 2014 to 2017, according to the International Monetary Fund, even if all the Bush tax cuts were extended and without any of the spending cuts assumed in the fiscal cliff.

'Similar stable debt levels are projected for Germany, France, Italy, Britain and even Spain. Assuming debt levels do stabilize in the range of 85 percent to 100 percent of GDP, these won't be worryingly high. US national debt peaked at 110 percent of GDP in the late 1940s, and Britain's was even higher. But nobody worried much about national bankruptcy after World War II - and the confidence proved justified. For the US and Britain both enjoyed their strongest economic performance in the two decades after their deficits peaked at more than 100 percent of GDP.'

Nobody worried about the debt after the war was over for two reasons: first, because the war was over... and second, because public officials meant to pay it off!

Today, the social and security spending goes on and on...and gets bigger. There's no end in sight. And public officials - urged by people like Kaletsky - have no intention of paying down the debt. Instead, they intend to add to it... and are ready to print money to keep the lights on.

Kaletsky continues:

'Conservative politicians, opposed in principle to all government, exploited deficits to demand cuts in government spending, while denying that higher taxes could play any role in reducing deficits.

'But now the tables are turned. After the 6 November US election, deficit phobia no longer implies drastic cutbacks in public spending. Instead, it is becoming the main argument for higher taxes - especially on the rich.

'Once this becomes obvious, I expect to welcome many Tea Partiers and tax lobbyist to the ranks of deficit deniers.'

He may be right about that. Republicans have been deficit deniers when it suited them. They will be again. Just like Democrats, in other words.

But that doesn't mean deficits don't exist... or that they won't cause a lot of hardship in the future. Kaletsky cleverly notes that governments could reduce their debt substantially just by cancelling what they owe to their own central banks. Good thinking!

The central banks print up money. They use it to buy bonds from the government. Thus does the government 'borrow' money that didn't theretofore exist.

If something seems fishy about that transaction to you, you are already on your way to suspecting that the human race is indeed getting stupider. One hundred years ago, central bankers wouldn't have stood for it. Neither would the governments and publics they served.

But now we take for granted what we used to take for absurd, stupid and criminal. Central banks print money and pass it off as the real thing. Central governments run deficits of 10% or more of their nation's GDP and cover it with printing press money.

[Chartman17]

The Obama Administration has LOWERED the Federal Deficit....no, really....look it up. You don't have to believe me...look it up.

Chartman17