The US debt clock shows a shrinking federal budget deficit...?
Hundreds of years and trillions of dollars of government spending have given us roads and bridges, schools and clinics, police and fire stations, courts and prisons, and the armed services that protect everything else. Spending is good! To stay ahead of China, we need to spend trillions of dollars more, not less, on infrastructure, including defense. Spending is good! By spending more, government could put to use such idle resources as the twenty-five million unemployed and underemployed Americans who are drawing benefits instead of creating wealth. Real government waste is caused by NOT converting idle resources into wealth. Spending is good! Government spends too much only when it buys scarce resources that could be better used by the private sector. Our scarcest resource is energy and the only way to increase it is by spending more, not less, on energy resources: wind, solar, geothermal, nuclear, coal, and oil. Spending is good! What’s bad? Borrowing is bad and paying interest to bond-holders is even worse. Why can’t we just print our own damn money? In an emergency, both Lincoln and Roosevelt printed money with great success. Out of desperation, both resorted to an excellent idea that should be used normally. Pros and cons? Pro: Print just enough money, not more, and full employment will create Heaven on Earth. Con: inflation, if you either print or borrow too much money. The only difference between printing and borrowing is that borrowing increases debt interest expense, a fiscal drag on the economy. Government prints too much money only when it runs out of idle resources. So, when resources become scarce and inflation begins, government can just reduce printing and raise interest rates. It’s like sprinkling the lawn: when it’s wet enough, stop! Voila! Heaven on Earth! Print the damn money! Google: Economics faculty, UMKC; http://www. NewEconomicPerspectives.org
How would you balance the federal budget?
Our current budget has a deficit of over 1.3 trillion dollars. What would you do to have a deficit of 0 dollars next year? Personally, I would focus on raising revenues and cutting spending. I would cut the budget for every federal department by 15%, saving $200 billion dollars. Next I would work towards canceling expensive military projects like the F-35 fighter jet saving another $20 billion. I would strongly reduce medicare benefits, pushing towards pain management and palliative care over expensive drugs, surgeries and cancer treatments for terminally ill patients. There also needs to be accountability for patients with chronic diseases. Coupled with reducing fraud and this would save a lot of money on medicare. Finally, I would implement a draft during times of war that would reduce our nation's dependence on expensive private contractors to the tune of another $50 to $100 billion dollars. Ending the wars would also help reduce costs. Return control of education to the states and reduce federal involvement including ending the student loan programs and pell grants. As for spending, repeal the earlier tax cuts from the Bush era. Repeal social security tax cuts, raise the FICA tax rate past prior levels and extend the wage cap to shore up social security and medicare. Reduce many tax exemptions and eliminate the student loan and mortgage interest deductions. Tax capital gains at a flat rate with the only exception being long term gains on investments producing small business loans.
What Monetary Policy Tools should the Federal Reserve use to fight a recession?
None. The only macroeconomic variable the Fed can really control is the rate of inflation. They can try to do other things, with limited success, but it compromises their goal of low, positive inflation and doesn't lead to long-term growth. Forty years ago, it was thought possible to make a trade-off between inflation and unemployment. If you grew the money supply to spur aggregate demand, jobs would be created and the economy would grow at the expense of higher inflation. In essence, you could *choose* a monetary policy that would lead to full employment. The theoretical relationship was called the Phillips Curve, and the school of thought that relied on it was called Keynesian economics. Well, we now know that whole idea is bunk. The terrible stagflation of the '70s and early '80s proved Keynesianism wrong and dumped it into the trash heap of history. It turns out that Keynesianism only works as long as you can prevent people from finding out what's really going on. That is, expansionary monetary policy is possible for only a little while before people realize prices are rising fast. When they do, they'll raise their expectations of what the rate of inflation will be, and refuse to work if their pay doesn't rise in line with the expectation. Then you have have to inflate even faster to preserve full employment. At some point, you either get into runaway hyperinflation—essentially RUNNING TO STAND STILL—or you give up and let unemployment rise. In other words, it's NOT possible to make a long-term choice between inflation and unemployment. You can't get out of a recession by inflating the money supply. This may sound theoretical, but it's exactly what happened in Canada and the US between the '60s and '80s. Of course, deflation is dangerous too, and it should be possible to prevent the worst of a recession by making sure prices don't fall. We now know that the best possible thing for a central bank to do is to KEEP THE PRICE LEVEL STABLE. Everything else should be subservient to the goal of targeting a low, positive, stable rate of inflation. And now you know.
Will anything happen when the United States’ national debt hits $20 trillion or $30 trillion?
Mr. Clement (below answer) has no concept of the differences between U.S. finances and Italy’s finances, so his answer is 100% wrong.Italy is monetarily NON-sovereign. It has no sovereign currency. It uses the euro, the sovereign currency of the European Union. Italy can, and has, run short of euros.By contrast, the U.S. is Monetarily Sovereign. It has its own sovereign currency, the U.S. dollar, which it has the unlimited ability to create. The U.S. government never can run short of dollars. It has the unlimited ability to service any creditor’s request denominated in dollars.As for the U.S. government “debt,” that is nothing more than the total of deposits in T-security accounts. When you “lend” to the federal government, you actually transfer dollars from your checking account to your T-security account, where your dollars are held.To pay you back, he federal government merely transfers those dollars back from your T-security account to your checking account.In short, it makes no difference whether the federal debt is $14 trillion or $140 trillion; the government easily could repay it simply by transferring existing dollars from those T-security accounts back to the checking accounts of T-security owners.Your question is identical with this: “What happens if my savings account becomes too large?” The answer: You would transfer dollars out of your savings account back to your checking account. Simple.By the way, back in 1940, the federal “debt” was $40 billion, and the bankers referred to it as a “ticking time bomb.” Today, the debt is about $14 Trillion, 365 time higher, and the “time bomb” still is ticking.The people who tell you the federal debt is too big, or is “unsustainable” (a favorite word) simply do not know what they are talking about. What’s really unsustainable is debt reduction:U.S. depressions tend to come on the heels of federal surpluses.1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807.1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.Increasing the so-called “debt” grows the economy and cures recessions.