Business, Economics, Education, Media Criticism, Political Commentary

The Economic Brilliance

26 Comments

…of Obama supporters:

Let’s say that you have the ability to print your currency using your computer printer, and every merchant accepted your printouts as a valid exchange for goods and services. You need to pick up your dry cleaning? You printout a $20 bill and your cleaners hand over your garments without question. Same would be true for your mortgage, groceries, car note, etc. Your creditors even accept your printouts as payment on your debts.

Given this, how can you ever be broke? Answer, you cannot be broke. The U.S. government is not in debt simply because it can create currency to pay off the debt, and our creditors gladly accept our currency as payment on our debts. You see, the world needs our dollars because the world needs oil, and in order to buy oil, you need dollars, which means that the world needs to stockpile dollars, and that means that the U.S. can print all of the money that it wants without incurring massive hikes in interest rates to attract lenders.

This person is serious.

26 thoughts on “The Economic Brilliance”

  3. The problem is twofold. Obama himself and many in congress believe this and nobody seems to be able to articulate why this is so incredibly stupid.

    Watching this last debate I wanted to climb through the television screen, push Romney aside and start debating Obama myself.

  4. So the author would be freaked out by countries trying to end trading oil in dollars?

    What is the disturbing part of the link? The comments…

      1. Fair enough. There were a lot of people pointing out how bad of an idea hyper inflation is. But there is also a lot of,

        “1) Chinese imports go away. Offshoring dies, immediately.
        2) Plutocrats lose control of any asset they are not physically sitting on. No more absentee ownership of farms, mines, etc.
        3) In fact, hyperinflation makes it hard to pay the police thugs. That means the workers can finally take control of farms, mines, etc.
        4) A lot of billionaires are going to be wiped out.”

        “The trouble starts when you create too much money and don’t skim off the scum that floats to the top, or flush out the stagnant wealth.

        If you don’t properly tend an economy, if you don’t tax the stagnant wealth at high rates, and you don’t adequately regulate the markets, then you get the mess we have now — a lot of scummy people sitting on hoards of stagnant wealth.

        Guys like Romney are like anaerobes. A certain number of them are necessary in a healthy environment, but when you’ve got too many of them they poison the pond.”

        “The rich have $50 trillion in wealth. The US just needs $1 trillion of that to balance the budget.”

      2. A lot of billionaires are going to be wiped out

        Billionaires keep very little of their assets in cash. They will do a lot better than the starving masses.

  5. Snark all you want.

    Check out Cullen Roach at pragcap.com.

    Libya is a problem. Iran is a problem, Syria is a problem. Crony Capitalism and Green Energy tech not ready for prime time is a problem. The trampling on the First Amendment is a problem. The Affordable Care Act is a train wreck waiting for the green signal to let that thing go forward, which is a problem.

    The large deficits during what Mr. Roche calls a “balance sheet recession” is not a problem.

    I think Mr. Romney knows this, and he is pandering the folks like us, and that is why he proposing a 20% across-the-board tax cut, which is something he isn’t quite able to explain.

    That tax cut “will blow the deficit open”, but that is the whole point. Kinda like Star Trek’s “The Doomsday Machine” where Kirk (to the consternation of the Enterprise crew not knowing his full intentions) states “He” (Decker) “had the right idea — he just didn’t have enough power . . .”

    If you read your Cullen Roche, tax cuts are a great way to apply more stimulus because you are not picking winners and losers (in Mr. Romney’s words, the government has been in the business of picking losers).

    1. It sounds like you’re falling for the old static analysis fallacy. The “Bush Tax Cuts” (extended by Obama for 2 years) are set to expire at the end of the year. That will cause tax rates to increase across the board for over 150 million Americans, meaning they’ll have less money in their take home pay. Do you think that’s going to be a good thing for the economy?

      To a point, lowering tax rates (as Romney is proposing) has been proven to stimulate the economy leading to increased tax revenues. They did it 4 times and revenues increased each time because economic activity increased. Unfortunately, spending by government increased even faster so deficits increased.

      Tax rates affect behavior. When rates increase, people do things to minimize their tax liabilities. When rates decrease, people have more incentive to earn money instead of sheltering it.

      1. (More Star Trek Analogies)

        As in the old Vulcan proverb, “It took Nixon to go to China”, it also took Reagan to follow one of the most aggressive tax-cut fueled economic stimulus programs.

        The problem is that “everyone around here” (Libertarians? Tea Party? Conservatives? Latter-day Republicans?) is screaming “The Deficit! The Deficit!” Mr. Romney is boxed into a corner with respect to explaining what he is going to do, along with the not-so-gentle-threats from Tea Party peopl regarding “what they are going to do if President Romney” strays from Tea Party orthodoxy.

        The deal with tax cuts is that will blow a hole in the deficit — they did under Reagan. The thing is, that there are long lags for the economic growth effect on tax revenues to catch up with the immediate effects.

        Even the Bush tax cuts had this effect; it was only towards the end of Mr. Bush’s second term that the deficits started to narrow, and narrow they indeed did, that is, until the 2008 financial crisis.

        We can point blame fingers all we want for the 2008 crisis, and Mr. Obama does his share of that, but the TARP as originally constituted, yes, Treasury Secretary going before Congress and saying “Gimme 800 billion dollars. Now.”, the Bush people assert that if we had followed that plan instead of all that came later in 2009 (the main effect in my view was President Obama’s White Whale of the Tax Cuts for the Rich, where he jawboned the economy into lagging by constantly and continually threatening to raise taxes over a rolling time horizon of confrontations with Congress), the economy would have righted itself.

        So in my view, the Reagan tax cuts were a success, the Bush tax cuts were a success — financially — but the latter, especially, a political failure. Static analysis is fallacious, yes, but the lags for the beneficial effects are long and politically difficult.

        How we got into this mess, in my opinion, is the consequence of all of the Libertarians disrespecting George W Bush (Obama, how bad can he be? And if he is “bad”, that will help us by making the political pendulum swing back in our direction. OK).

        What am I trying to say? 1) I think that GW Bush got it right on taxes, and we should just make that tax structure permanent — the anemic economy is the result of waiting for the other shoe to drop on the expiration of the tax cuts, 2) Mr. Obama’s “soak-the-rich” is pure leftie ideology, 3) I don’t think we need to cut taxes 20% more — when you are running for office, you have to promise to “do something”, but how that is going to work and what “loopholes” will be closed are also creating uncertainty, 4) our economy will run on hydrocarbons, it will use hydrocarbons at ever increasing efficiency, but it will be based on hydrocarbons (this talk about how we are going to run out of government debt financing — in the present environment — is much like the talk about running out of oil — if anything can’t go on forever, it won’t).

        1. To paraphrase Jim Carvell, “It’s the spending, stupid.” And no, I’m not calling you stupid. I’m just using his phrase.

          The deficit increased during the Reagan years due to spending. Tax revenues increased but spending increased even faster (reportedly about $1.40 of additional spending for every additional dollar of revenue). You can’t continue that forever.

          To a point, lowering tax rates can lead to increased revenue. Even the Laffer Curve shows that there is a point where lower rates lead to lower revenues (with zero revenue at a zero rate being obvious). However, raising rates has a poor correlation to increased revenues. Historically, the highest marginal tax rates have ranged from very low (in the early years of the income tax) to as much as 90%. For decades, the percentage of GDP collected as tax revenue has normally ranged between 18-20%. People change their behavior in response to tax rates. That’s where static analysis has always failed.

          Federal government spending has increased far faster than inflation and population increase for a long time. This is unsustainable. Last week, it was reported that the annual spending on over 80 means-based welfare programs (income redistribution) is about $1.03 trillion a year. This is separate from Social Security and Medicare. This spending has increased dramatically during the Obama years. This is unsustainable. You simply can’t raise enough revenue fast enough to keep up with the spending increases. The appetite for the spending is insatiable – people like getting “free stuff” and politicians love buying votes. Until spending is addressed, there is no hope for reducing the deficit.

        2. “The problem is that “everyone around here” (Libertarians? Tea Party? Conservatives? Latter-day Republicans?) is screaming “The Deficit! The Deficit!” Mr. Romney is boxed into a corner with respect to explaining what he is going to do, along with the not-so-gentle-threats from Tea Party people regarding “what they are going to do if President Romney” strays from Tea Party orthodoxy.”

          It is a good thing that Romney would be at odds with a more conservative house. They will (hopefully) moderate each other’s tendencies. If the Senate remains under Democrat control and SCOTUS keeps up with wildcard decisions, then all the branches of government will be in conflict with each other, just as intended by the founders.

          And we all know the 4th branch of government, the media, will suddenly get their balls back when it comes to holding the government accountable.

          I don’t think either party will balance the budget. Going from a $1.4t deficit to $0 in four years seems unlikely but if we got down below Bush level spending, it would be a major success.

          1. Actually, it might not be as hard as you think. The last budget passed by the Senate was over 3 years ago. That budget included the so-called stimulus spending at about $700 billion. Each year afterwards, the government has been funded by a series of continuing resolutions that maintained the budget at the last-passed baseline. In short, that stimulus has been part of the budget baseline for the last 3 years instead of a one-time deal. Going back to the FY 2008 budget as the baseline would cut a lot of money out of the budget. The question is where has that continued spending gone these last few years?

  6. Strictly speaking, this person is correct in that the U.S. Government can never be broke, and almost correct in that while the U.S. Government is in debt, it can trivially pay the debt at any time.

    It’s the second-order effect that is the killer. By pursuing such a plan, the U.S. Government, while maintaining a healthy positive balance, would make everyone else broke. Everyone else who uses dollars, at least.

    Since this includes just about everyone who sells the stuff the U.S. Government wants to buy, it would ultimately blow up in the Government’s face. See, e.g., the Confederate States of America 1864-1865. But even then, the government won’t be broke – rather, flush with cash in a store full of empty shelves.

        1. Like Peak Oil?

          We will eventually run out of oil, it is of some finite supply, but there is a lot more of the stuff than people think.

          We will eventually hit the limits of debt financing, but not now and in the current economic environment. Really.

          Mr. Romney knows this in his “20% tax cut for everyone plan” which is economic stimulus on steroids, and just might be the correct thing to do. Thing is, with his momentum in the polls and everything, he just may win this election. But if he doesn’t, Rand, I am going to point the finger of blame at you for not giving Mr. Romney the maneuvering room to get elected.

          1. We will never run out of oil, ever. It is a chemical, the only question is cost.

            “loopholes”

            Capping deductions closes the loopholes. Especially since the cap is zero over a certain income.

          2. Given the current state of the economy–8+ % unemployment for 4+ years, national debt ballooning, manufacturing fleeing the US, anemic real growth, and this despite year after year of setting all-time records in government spending and a trillion dollars pissed away on a “stimulus” that did nothing except put money into the pockets of union gangsters and Obama’s “green energy” cronies, I would argue that we are ALREADY, right now, TODAY, at the limits of debt financing. We’re already over the cliff and we’re in free fall. $4+/gallon gasoline shows that the hyperinflation portion has already kicked in. This economy is in a death-spiral. Obama has well and truly driven the bus over the cliff. We just haven’t hit bottom yet.

            The big investments for the 21st Century aren’t going to be “green energy” and computer companies. They’re going to be canned food and ammunition. It’s already almost Mad Max time.

        2. One more remark. The idea that deficits will make us all go broke was the fallacy of Herbert Hoover (PBUH — he was a great engineer, a great humanitarian, and a great man) and Andrew Mellon.

          The only difference between Andrew Mellon’s fear of deficits and now is that just a few more zeros are added owing to the long-term inflation scaling factor . . .

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