Why Deficits Are Politically Convenient
Deficits
Terry Coxon of Casey Research discusses the effects of deficits on the economy and politics. ~editorHow Far to the Wall?
By Terry Coxon, Casey Research
Decades of manipulation by the Federal Reserve (through its creation of paper money) and by Congress (through its taxing and spending) have pushed the US economy into a circumstance that can’t be sustained but from which there is no graceful exit.
With few exceptions, all of the noble souls who chose a career in “public service” and who’ve advanced to be voting members of Congress are committed to chronic deficits, though they deny it. For political purposes, deficits work. The people whose wishes come true through the spending side of the deficit are happy and vote to reelect. The people on the borrowing side of the deficit aren’t complaining, since they willingly buy the Treasury bonds and Treasury bills that fund the deficit. And taxpayers generally tolerate deficits as a lesser evil than a tax hike.
Deficits are politically convenient for a second reason. They can take a little of the sting out of a recession. That effect is transient, and it’s not strong – more like weak tea than Red Bull. But it can be enough to help a struggling politician get past the next election.
Yes, sometimes there’s a big turnover in the personnel, such as with the 2010 election, when a platoon of self-styled anti-deficit commandos parachuted into Congress. As soon as they had taken their seats, they began offering proposals to deal with the government’s trillion-dollar revenue shortfall. But none of the proposals were serious. They were merely tokens intended to make politicians wearing anti-deficit uniforms look less ridiculous. Cut a ginormous $2 billion out of this program and a great big $500 million out of that program. Reduce spending by half a trillion dollars… over ten years. Balance the budget to the penny, but later. No one proposed anything close to dealing with the deficit now. Continue reading
Hyperinflation and Double-Dip Recession Ahead
An interview with Karen Roche of The Gold Report
Economic recovery? What economic recovery? Contrary to popular media reports, government economic reporting specialist and ShadowStats Editor John Williams reads between the government-economic-data lines. “The U.S. is really in the worst condition of any major economy or country in the world,” he says. In this exclusive interview with The Gold Report, John concludes the nation is in the midst of a multiple-dip recession and headed for hyperinflation.
The Gold Report: Standard & Poor’s (S&P) has given a warning to the U.S. government that it may downgrade its rating by 2013 if nothing is done to address the debt and deficit. What’s the real impact of this announcement?
John Williams: S&P is noting the U.S. government’s long-range fiscal problems. Generally, you’ll find that the accounting for unfunded liabilities for Social Security, Medicare and other programs on a net-present-value (NPV) basis indicates total federal debt and obligations of about $75 trillion. That’s 15 times the gross domestic product (GDP). The debt and obligations are increasing at a pace of about $5 trillion a year, which is neither sustainable nor containable. If the U.S. was a corporation on a parallel basis, it would be headed into bankruptcy rather quickly. Continue reading
Hyperinflation in Weimar Germany vs. The U.S. Now
Postcards From Weimar Germany
Monday, September 20, 2010
The Weimar Republic is perhaps the quintessential example of hyperinflation. But the buildup took longer than one might think.
Walter Levy is a German-born oil consultant. His father, a German lawyer, took out a life insurance policy in 1903.
Every month he had made the payments faithfully,” recounts Levy. “It was a twenty-year policy, and when it came due, he cashed it in and bought a single loaf of bread.
Such was life in the German Weimar Republic.
Things got so bad there for a while, dentists and doctors stopped asking for currency, seeking payment in butter or eggs instead. But the farmers weren’t keen on trading their produce for paper money either.
Prices rose not just by the day, but by the hour — or even the minute. If you had your morning coffee in a café, and you preferred drinking two cups rather than one, it was cheaper to order both cups at the same time.
Here is how a Weimar factory worker described payday (which was every day): Continue reading
How paper money fails
Porter Stansberry, in the S&A Digest
About right now, I imagine 90% of our subscribers and most of the analysts in my building think I’m nuts. Truthfully… I feel a little bit like Chicken Little. I’ve been saying the risk of hyperinflation is a more serious threat to our wealth (and way of life) than a massive deflation. Meanwhile, just about every month it looks more and more like Europe’s banking crisis will cause another round of serious deflation in the world’s asset prices. I’m starting to look pretty foolish…
I thought economic growth would be stronger than expected, not weaker. I thought job growth would be stronger than expected, not weaker. I thought yields on long-term Treasury bonds would move higher, not collapse to less than 3%. And I thought silver and gold would soar, instead of stall out. What do I have to say for myself? Continue reading
What the Deflationists Are Missing
by David Galland, Managing Editor, The Casey Report
An interesting article by Ambrose Evans-Pritchard came my way the other day. It’s worth a read, if for no other reason than that he paints an appropriately dark picture of the current state of the U.S. economy. You can read it here.
While I very much share Mr. Evans-Pritchard’s view that the global economy is far from out of the woods, our views diverge in that he sees devastating deflation speeding our way down the tunnel. Casey Research readers of any duration know that we see devastating inflation.
While we could both be right, with deflation first and inflation later, I’m not so convinced.
For starters, there is already a massive inflation operation being run by the Fed, evidenced in a historic spike in the monetary base over the last two years. Continue reading
Zimbabwe Hyperinflation and the U.S. Dollar
By John Lee, CFA
The (Zimbabwean) Dollar – The Point of No Return
Last week, Zimbabwe slashed 12 zeros from its currency as hyperinflation continued to erode its value, the country’s central bank announced in late January.
The government instituted price cuts to arrest inflation. As time went by, it became apparent the forced price cuts cause bare shelves in shops and many businesses closing .
“Even in the face of current economic and political challenges confronting the economy, the Zimbabwe dollar ought to and must remain the nation’s currency, so as to safeguard our national identity and sovereignty… Our national currency is a fundamental economic pillar of our sovereignty,” said Gideon Gono, governor of the Reserve Bank of Zimbabwe . Continue reading
Why the Bailout Will Result in Hyperinflation
Editor’s Note- In this article Olivier Garret, CEO of The Casey Report shows us the massive extent of the bailout compared to every major Government expenditure from the Revolutionary War and the Louisiana Purchase to the Iraq War in inflation adjusted terms and the results are pretty scary.
Based on the magnitude of the bailout expenditures it appears Hyperinflation is already baked into the cake. You thought WWII and Iraq were expensive? You “ain’t seen nothin’ yet. The current bailout is larger than all the major government expenditures since the revolutionary war combined.
And lest you think that is because the bailout is comparing inflated dollars against more valuable (and thus smaller numbers) it isn’t. This article uses all inflation adjusted numbers!
In three months, Paulson and Bernanke spent more than twice the cost of all of WWII.
Iraq? Vietnam? A drop in the bucket. Continue reading
Is the United States Bankrupt?
“This is a job for the printing press”.
Hyperinflation here we come
By Jon Herring
There are so many headwinds and cross currents in the market today, it is all but impossible to predict what will happen in the short term. There is too much volatility and noise. So, it pays to keep your eyes on the horizon, focused on the long term and the biggest trends.
Today, I want to tell about the biggest of all possible financial trends: the eventual bankruptcy of the United States government. Or should I say the existing bankruptcy of the U.S. government?
The United States government is facing an impending fiscal crisis. Former Comptroller General David Walker calls it a “cancer growing from within.” And the wheels for this were already set in motion well before the financial crisis. With ongoing wars in Iraq and Afghanistan, a costly stimulus package and falling tax receipts, the U.S. was already neck deep in debt. Continue reading
Will the $800 Billion Bailout Cause Massive Inflation?
by Tim McMahon, editor
Last month I said that the simulated M3 measure of the money supply was indicating that deflation was in the works. See M3 is Back and Predicting Deflation.
So how will a massive injection of almost $1 Trillion dollars affect the money supply?
If you have read any of the articles on inflation on this site you will realize that the primary cause of price inflation is monetary inflation. In other words, if the government cranks up the printing presses the price of almost everything goes up. For more information see What is Inflation? and Inflation Cause and Effects.
So you would think that it is only obvious that a massive injection of money like the recent $800 Billion bailout would cause massive inflation. Right? Continue reading
Inflation Moderate? Who Does The Fed Think They Are Fooling?
By Charles Delvalle
Just when you thought reality was setting in at the Fed, you get reminded how silly that idea really is.
I say that because lately the Fed has been talking about how bad inflation is, and how they need to be ‘vigilant’ so that inflation expectations don’t deteriorate.
If you talk to anyone on the street, I bet they have noticed that prices are higher for just about everything. I don’t know about you, but I sure think that inflation expectations are already pretty bad.
So, you would think they’d be really hawkish about inflation at the meeting.
Maybe that’ll happen at another meeting, because it sure didn’t happen at the one on Wednesday. Continue reading
