Tuesday, November 30, 2010

The US Government is NOT a Household

NPR managed to piss me off again this morning. I don't remember who was talking but they were painting a doom and gloom image of the US debt, and how it would suddenly hit us and we would be like Greece and Ireland and Spain, and how we could fix this by cutting the deficit NOW and by keeping the federal books like a responsible homeowner. But that's a whole load of crap.

First: Greece, Ireland, and Spain would not be such big problems if it weren't for the Euro. We don't have that problem. We aren't sharing our fed with Germany, so if a real problem develops we have a solution that the other nations don't: print money. Yes, wealthy people don't like that because higher inflation eats at their wealth, but for the rest of us, and our nation, it would solve any "debt crisis" fairly painlessly.

Second: The government is not your or my or anyone's household. We have fiat currency (which, no matter how much you hear otherwise, has been far more stable and beneficial to the economy than gold or silver or other commodity backed currency). If the government has too much debt interest rates go up (which, actually is similar to if I have too much debt and ask for a loan), but the US government can't actually default on debt because...IT CAN PRINT MONEY! If people start worrying that the US will resort to printing money...interest rates will go up. Inflation will also go up, and inflation makes debt smaller! A household cannot do anything that will cause inflation and shrink it's effective debt.

Third: "Addressing the deficit" now will make things worse, not better. What we need is to kick start the economy, then worry hard about our future deficit. Boosting the economy costs money which means more spending and bigger deficit, but a economy back on track produces more jobs, stuff, gdp, revenue...everything! If we can get the economy back up, then that will do more to help the deficit/debt picture than would cutting the military budget by 50% and eliminating social security! Again, this is not like a household. When a household is in debt, and having income issues, then cutting back is probably the best thing...because it is the only thing. If a household member decides to buy a 50" 3D LED television it isn't going to help that person improve their financial situation. If the government pours the percent equivalent into the economy boosting consumption, that does improve the government's financial situation.

1 comment:

Anonymous said...

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