Sunday, April 24, 2011

Happy Easter!

Liberal/Socialists, like this one from the Guardian, will do anything to ignore/lie about our deficit.  They want an ever expanding Socialist state (Dear Liberal deniers:  an ever expanding state will by definition become Socialist and ultimately Communist).  They want government spending to achieve 25% of GDP, as it must to accommodate current spending, then increase taxes to cover the current deficit. 

What caught my eye about the following excerpted article is not the obvious dishonesty, ignoring the deficit (although he does have a point, exactly who is borrowing the annual $1.5 TRILLION that this administration overspends and wastes on such worthless programs as the Stimulus and green energy, not China alone, could we be just printing money...why yes we are!), no what caught my eye, and seems to be the standard Liberal/Socialist wishing to be Communist argument is the use of the word gutting.
Gutting....that is a powerful word, it means basically taking out all support and leaving nothing but the shell.  Recently there was a spending reduction...$38B  out of a $3T budget, no current enrollees are involved, and that is gutting?  
The truth?  Liberal/Socialists wishing to be Communists ONLY want to grow government and want a government takeover of society, there can be no other logical conclusion.

We are at the breaking point, it is stated in accounting but says what kind of country we want to live in, do we want to spend 20% of GDP and be self sufficient or 25% and be Socialist on the road to serfdom.

One of the lines frequently repeated by the deficit hysterics is that if we don't get the deficit under control, then there could be a run from the dollar. This is a great line for getting little boys and girls and reporters at elite news outlets very scared. After all, the prospect of the dollar becoming worthless is pretty scary.
One of the other lines pushed by this same crew is that we are borrowing hundreds of billions of dollars from foreigners, with the Chinese also being cited for special mention. The prospect of the Chinese holding trillions of dollars of US government debt is also scary to little boys and girls and reporters at elite news outlets.
The problem with these two scary stories is that they actually are in direct contradiction to each other. The only plausible way that we can stop borrowing hundreds of billions of dollars a year from those nasty Chinese is by having the dollar fall in value against the currencies of our trading partners. This decline probably would not take the form of a scary run that ends in the dollar being worthless, but more likely a substantial and sustained decline that makes US goods much more competitive in international markets.
The reason that we are borrowing from abroad every year is that theUnited States has a trade deficit of the order of $550bn a year, or just under 4% of GDP. This trade deficit is financed by foreign borrowings. The logic is simple. If the United States buys more than it sells, then it must borrow the difference.
Note that this has nothing to do with the budget deficit. If the United States buys $500bn more from other countries than it sells to other countries, then it must borrow $500bn a year from them, regardless of whether the United States is running a budget surplus or a budget deficit. Foreign borrowing is determined by the trade deficit, end of story.

The deficit hawks want the country to agree to take steps that are incredibly unpopular. They want the public to support the gutting of essential support programmes for the middle class like social security and Medicare. Naturally, this is a hard sell. Therefore, if it takes a little China bashing to make the policy go down easier, the deficit hawks are perfectly prepared to go that route. That's the way politics works in the United States.

1 comment:

Baxter said...

This whole post was silly.

Apparently, if one advocates more government than the Good Doc they are supporting the inevitable communist takeover of our country. That's his "logical conclusion." Brilliant!

Dean Baker, though a University of Michigan grad, is not one of my favorite economists. In the referenced piece, he misstates the facts about the trade deficit. A $500B net deficit does not, in fact, require foreign borrowing "end of story". More often, it means more investment in the USA. All those extra dollars can certainly be lent to us directly or indirectly (purchase of US bonds), but they can also buy American assets on Wall Street - boosting the indexes - as well as real estate, an asset class that can use buyers right now.

It does not help matters to confuse the budget and trade deficits. The former requires action in Congress for resolution. The latter will ultimately resolve itself, for better or worse.