The great debt ceiling hoax

In my reading of U.S. history, I've never come across a moment of financial distress that was caused by the statutory limit on the federal government's ability to sell bonds and other debt instruments.  I may still be wrong, but it seems that two factors are causing the current brouhaha: the use of brinkmanship to boost federal spending so that Democrats can buy more votes for the next election — and the pervasive ignorance of matters financial among the "news" media.

Back in the aftermath of the attack on Pearl Harbor, a green eyeshade–wearing nerd working in the FDR administration, named Milton Friedman, proposed deducting estimated income tax from workers' paychecks — in order to help finance the war effort.  The first "withholding" had occurred years earlier for Social Security and was greeted by howls of displeasure. 

We're used to all of that now.  About every three months, there's a surge of dollars flowing into the U.S. Treasury.  Income from other sources such as tariffs, customs duties, and alcohol tax are continually trickling into federal coffers.  Meanwhile, the media hyenas keep screaming, "Default, default!," as if our magnificent government needs to keep borrowing in order to pay its debts...which it does. 

We mere mortals are not allowed to behave this way on anything like a sustained basis.  But then, we don't have a Bureau of Printing and Engraving that is always standing by to help us out.  As a result, a big chunk of our political establishment relies on its ability to keep throwing money at every pet project that it can find.  Balancing the ledger is a waste of time.  Our fearless leader is stiffing the strategic lynchpin of the South Pacific, Papua New Guinea, so he can minimize his absence from the "heated" negotiations over (again) the debt ceiling.  Otherwise, his lapdogs in the media may lose interest in the imaginary crisis.

Those conspicuous adults in Congress who want to dial back the rate of growth of government spending as a condition of keeping the debt spigot open are being characterized as sadistic exploiters of the elderly and downtrodden.  Trying to stabilize the value of the U.S. dollar is of no importance.  It's merely a theoretical concept.

Increasing the money supply is a longstanding mainstay of the American left.  Unsuccessful four-time Democrat presidential candidate William Jennings Bryan is best remembered for his "Cross of Gold" speech.  The benighted common man was being crucified by the evil gold standard.  Dropping gold as the support for the dollar would enable a drastic increase in the money supply.  Common folk would likely have many, many more dollars to spend...and they would have needed them in order to compensate for their lost value.  Lyndon Johnson and then Richard Nixon more or less finally weaned the U.S. officially off the gold standard.  They didn't go so far as to sell Fort Knox to some Chinese oligarch, but the stability of the dollar has since relied all the more on its comparison to its foreign competition.

Of course, there's always the possibility of increasing federal revenue.  "Tax the rich" is the usual mantra.  But there's only so much blood that can be squeezed out of a turnip.  Typically, the top 5% of income earners already pay about 60% of the income tax...that's really up there as far as "graduation" of tax rates when compared to the rest of the known world.  They've already proposed taxing incomes that have yet to occur in the form of unrealized capital gains and are also noodling over taxing wealth — which is mostly the residue left over from already taxed incomes.

It is anathema to mention (ahem) Supply Side Economics.  Lower taxes allow for more economic activity, thus creating more taxable events.  Rather, we have to obey the specious tenets of Modern Monetary Theory.  Public debt is good.  Complete government control of the economy is even better.

Image: PublicDomainPictures via Pixabay, Pixabay License.

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