There is an argument being made in mainstream and Keynesian circles that the deficit must not be cut because otherwise what little recovery there has been in the economy so far would be damaged and perhaps erased. This is in response to false cuts proposed by Republicans such as Representative Paul Ryan who only proposed a reduction in the rate of increase and not a single actual cut, and also in response to arguments by libertarians that reducing the deficit is vital to restoring some economic order.
From an Austrian perspective, this argument is rubbish. The biggest threat to the economy of the United States as well as the rest of the world is the loss of value of the dollar, caused primarily by the low interest rate policy of the Federal Reserve in support of the expansive deficits of the Federal Government. If the Federal Government were to significantly reduce spending, there would be no reason for the Federal Reserve to keep interest rates so low, and therefore the decline in the dollar can at least slow, and perhaps even stop or even reverse.
From the modern Keynesian perspective, the support from the argument comes from the recession of 1937, the recession inside a depression, which is blamed on an alleged desire by the Roosevelt administration to reduce federal spending. A refutation of this particular argument can be found at the VonMises website with the article The Dangerous Lesson of 1937 by Jonathan Finegold.
Jonathan Finegold wrote his article in response to attempts by Keynesians to answer a difficult question: given that they had predicted recovery, and it would be difficult to admit that they were wrong, they had to find a justification to refer to the ongoing malaise as a double dip.
That it is being dragged out again in response to the desperate need to balance the budget is yet more evidence of increasing desperation among those in the political class and their supporters, and the crash that will inevitably come unless the fiscal policies of the United States government are reversed.
For decades, not changing course was the only way to maintain the status quo. The problem now is that no matter what is done the status quo is finished. The only reason to not change course now is to avoid admitting error, which for some people is more critical than being right. Disaster might be a sufficient cause to lock down tyrannical controls on the population. Peacefully giving control over to those who believe in liberty would be, from their point of view, a disaster.
Showing posts with label collapse. Show all posts
Showing posts with label collapse. Show all posts
Saturday, February 09, 2013
Sunday, January 27, 2013
In Denial over the Budget Crisis
The arguments being made with regards to solving the governmental budget crisis are becoming fundamentally absurd as the situation with the federal deficit and federal debt worsens. As the deficits do not shrink and as the debt continues to grow the hysteria to deny the only three solutions gets louder.
People are actually proposing that there is no reason to balance the budget, and that paying off even a portion of the debt is bad for the economy. Perhaps there would be a short term downturn if a portion of the debt were paid off, and perhaps not, but the long term effects would only be beneficial. The argument is made citing the downturn of 1937, where an additional tax as well as additional labor regulations combined to create a recession in the middle of a depression.
Suggesting tax increases as a means to close the budget gap elicits a response that taxes aren’t raised for that purpose but instead to control inflation. This puts the paltry show of raising the taxes on top earners a few points in a new light, as it shows that the purpose had nothing to do with dealing with the fiscal cliff but was entirely and only about making the rich pay more. That it took place during fiscal cliff negotiations was showmanship, nothing else.
Those who are burying their heads in the sand are actually hoping that people making arguments about balancing the budget and paying down the debt are just posturing for political purposes, because the belief is that no person seriously believes that fiscal responsibility is a good thing.
A proposed solution is that the United States, being in control of its own currency and with the ability to print more, is unable to go bankrupt. This is presented as the grown up and mature solution, mocking those who say the budget should be balanced before there is a fiscal disaster.
The denial that the current Kenyesian order is failing is intense. And as the situation grows more dire, the arguments needed to bolster it grow more and more extreme. It can cause a person to wonder what defenses would be offered when it finally does collapse.
People are actually proposing that there is no reason to balance the budget, and that paying off even a portion of the debt is bad for the economy. Perhaps there would be a short term downturn if a portion of the debt were paid off, and perhaps not, but the long term effects would only be beneficial. The argument is made citing the downturn of 1937, where an additional tax as well as additional labor regulations combined to create a recession in the middle of a depression.
Suggesting tax increases as a means to close the budget gap elicits a response that taxes aren’t raised for that purpose but instead to control inflation. This puts the paltry show of raising the taxes on top earners a few points in a new light, as it shows that the purpose had nothing to do with dealing with the fiscal cliff but was entirely and only about making the rich pay more. That it took place during fiscal cliff negotiations was showmanship, nothing else.
Those who are burying their heads in the sand are actually hoping that people making arguments about balancing the budget and paying down the debt are just posturing for political purposes, because the belief is that no person seriously believes that fiscal responsibility is a good thing.
A proposed solution is that the United States, being in control of its own currency and with the ability to print more, is unable to go bankrupt. This is presented as the grown up and mature solution, mocking those who say the budget should be balanced before there is a fiscal disaster.
The denial that the current Kenyesian order is failing is intense. And as the situation grows more dire, the arguments needed to bolster it grow more and more extreme. It can cause a person to wonder what defenses would be offered when it finally does collapse.
Sunday, December 23, 2012
End of the world madness
It appears at times as if the end of the world is an increasingly popular topic. There were, unfortunately, many people frightened by the end of one of the Mayan calendars, even though the meaning was that the calendar was supposed to start over at the beginning. Many others were scared back in 1999 over the year 2000 being an ending, and there was also the Heaven’s Gate suicide cult that happened when the Hale Bopp comet was passing close to the earth. Meanwhile there are many jokes circulating about the Zombie Apocalypse.
Although one can point out various doomsday movements that have occurred throughout history, there seems to be a particular frequency of them as well as an underlying dread that these movements feed upon. Why then are people so concerned with doomsday? The answer is that the average person is not well versed in politics or in economics.
In terms of foreign policy, the most that many people is that the USA is at war because some "terrorists" attacked on 9/11/2001. Any analysis of underlying causes immediately results in the accusation that the analyst wants to blame the USA for the many problems around the world. A full analysis shows that the United States is an empire in decline, following the path recently trod by the British Empire, or possibly by the Union of Soviet Socialist Republics. In either case it is clear that the United States has far less influence than in the past and that the only real remaining influence of the United States is a far overstretched military.
Domestically the people of the United States are losing civil liberties at an accelerating rate. It is quite clear to the informed observer that the United States is a police state, where the law givers and law enforcers are basically above the laws that they are supposed to protect and enforce. The law is instead a weapon to be used against ones enemies when one has power.
Finally the economy of the United States is in a tailspin only partially disguised by repeated and ever increasing doses of various types and modes of stimulus. Great Depression II started in 2007, and ever since the election of Barack Obama the press has been reporting recovery. There has been no recovery. The debate over the Fiscal Cliff shows that either those in congress don’t know how to fix the problem or don’t care to since they are not having a real debate.
None of this is new to someone who follows the issues. Yet all of this is new to those who don't, and most of it is new to those who mistakenly think they are following the issues because they pay attention to what the leader of their major party tells them. Since people are told one thing, but the evidence points in another direction, this causes a certain unease. Since the evidence points to a severe and major decline - economically, politically, and internationally - this causes even more unease.
Nobody wants to face the ugly truth of decline, those who do so only do because of a devotion to the truth overcoming a desire for false comfort. Yet the knowledge, if not appreciated consciously, is still there that there is something fundamentally wrong with the United States and the direction it is going, and much of the rest of the world as well. This creates the feeling of impending doom among those who do not study the issues, and that feeling is what the various doomsday cults feed into. The mess made by the political leaders of the United States and various other countries created this mess as well.
Although one can point out various doomsday movements that have occurred throughout history, there seems to be a particular frequency of them as well as an underlying dread that these movements feed upon. Why then are people so concerned with doomsday? The answer is that the average person is not well versed in politics or in economics.
In terms of foreign policy, the most that many people is that the USA is at war because some "terrorists" attacked on 9/11/2001. Any analysis of underlying causes immediately results in the accusation that the analyst wants to blame the USA for the many problems around the world. A full analysis shows that the United States is an empire in decline, following the path recently trod by the British Empire, or possibly by the Union of Soviet Socialist Republics. In either case it is clear that the United States has far less influence than in the past and that the only real remaining influence of the United States is a far overstretched military.
Domestically the people of the United States are losing civil liberties at an accelerating rate. It is quite clear to the informed observer that the United States is a police state, where the law givers and law enforcers are basically above the laws that they are supposed to protect and enforce. The law is instead a weapon to be used against ones enemies when one has power.
Finally the economy of the United States is in a tailspin only partially disguised by repeated and ever increasing doses of various types and modes of stimulus. Great Depression II started in 2007, and ever since the election of Barack Obama the press has been reporting recovery. There has been no recovery. The debate over the Fiscal Cliff shows that either those in congress don’t know how to fix the problem or don’t care to since they are not having a real debate.
None of this is new to someone who follows the issues. Yet all of this is new to those who don't, and most of it is new to those who mistakenly think they are following the issues because they pay attention to what the leader of their major party tells them. Since people are told one thing, but the evidence points in another direction, this causes a certain unease. Since the evidence points to a severe and major decline - economically, politically, and internationally - this causes even more unease.
Nobody wants to face the ugly truth of decline, those who do so only do because of a devotion to the truth overcoming a desire for false comfort. Yet the knowledge, if not appreciated consciously, is still there that there is something fundamentally wrong with the United States and the direction it is going, and much of the rest of the world as well. This creates the feeling of impending doom among those who do not study the issues, and that feeling is what the various doomsday cults feed into. The mess made by the political leaders of the United States and various other countries created this mess as well.
Sunday, September 23, 2012
Hyperinflation or Default?
The big debate in libertarian circles regarding the economic future of the United States government managed economy is whether the future contains hyperinflation or if it contains default. The answer is really quite simple; the question cannot be answered. An economist cannot predict the actions of politicians, but can instead only tell what will be the result of decisions made by politicians. What path exactly the United States will follow when conditions worsen is a question that can be answered only by politicians.
The biggest question can only be answered by the Federal Reserve, which has a hybrid nature that is partly political and partly private. If the "Audit the Fed" bill passes, then the resulting audit will surely reveal facts that will not please the political class. Given that the only advocate of a sound currency is retiring from the congress, the result of an audit will instead result in tighter governmental controls over the Federal Reserve, which could ultimately end up in nationalization of the Federal Reserve.
This would be the solution favored by the other great opponents of the Federal Reserve, the Greenbackers. If the Federal Reserve is brought under greater governmental control it will result in a Federal Reserve that has no choice but to continue purchasing worthless government bonds and in that event the flood of worthless currency will indeed result in hyperinflation.
On the other hand, the Federal Reserve as it is currently structured is ultimately owned by the private banks that do not desire hyperinflation. If the Federal Reserve remains mostly independent of the government, the private banks could order the Federal Reserve to purchase no more bonds that it can sell on the market. As the federal budget remains unbalanced, with almost half of the revenue the result of borrowing that will result in the Federal Reserve refusing to purchase any more bonds from the government. That ends with a government default as the money to pay for more than can be sustained simply isn’t there anymore.
Both cases hinge on the decisions made in the legislative and executive branches of the federal government. Congress and the President are in full control of that decision, and thus no economist can actually predict what will happen.
In either case, though, there will be upheaval and social unrest. Again, there are many options but no economist can predict which will happen. Economists can only outline the different options and describe the resulting conditions of each.
In one scenario the unrest results in riots. There may be riots due to the banks being unable to process any more payments as an emergency measure. If the electronic payment network breaks down, most people do not have enough currency on hand to purchase more than a few trinkets or a few snacks. Currency riots would lead to food riots.
In another scenario, politicians actually act before the riots start by declaring martial law before the riots instead of after them. Strict controls barely contain the chaos, with political control breaking down farther away from the armed encampments of the cities.
In a third scenario the infrastructure grid in the country cannot sustain the delicate balance and this ultimately results in food shortages, which will result in even more desperate riots throughout the country as people flee the cities to find food.
Of course, in order to preempt those outcomes, the political class may decide that a war against an external enemy is necessary to distract the population. This would most likely result in a war against Iran If that happens, there will be both high inflation but not necessarily hyperinflation, as well as shortages and other hardships. There will be much more direct management of the economy, with people receiving their basic sustenance from the government.
That is also an unsustainable solution, but the additional bloodshed abroad may forestall the inevitable result of either hyperinflation or default for a short time. But as any economist can predict, the government cannot ignore reality forever.
The biggest question can only be answered by the Federal Reserve, which has a hybrid nature that is partly political and partly private. If the "Audit the Fed" bill passes, then the resulting audit will surely reveal facts that will not please the political class. Given that the only advocate of a sound currency is retiring from the congress, the result of an audit will instead result in tighter governmental controls over the Federal Reserve, which could ultimately end up in nationalization of the Federal Reserve.
This would be the solution favored by the other great opponents of the Federal Reserve, the Greenbackers. If the Federal Reserve is brought under greater governmental control it will result in a Federal Reserve that has no choice but to continue purchasing worthless government bonds and in that event the flood of worthless currency will indeed result in hyperinflation.
On the other hand, the Federal Reserve as it is currently structured is ultimately owned by the private banks that do not desire hyperinflation. If the Federal Reserve remains mostly independent of the government, the private banks could order the Federal Reserve to purchase no more bonds that it can sell on the market. As the federal budget remains unbalanced, with almost half of the revenue the result of borrowing that will result in the Federal Reserve refusing to purchase any more bonds from the government. That ends with a government default as the money to pay for more than can be sustained simply isn’t there anymore.
Both cases hinge on the decisions made in the legislative and executive branches of the federal government. Congress and the President are in full control of that decision, and thus no economist can actually predict what will happen.
In either case, though, there will be upheaval and social unrest. Again, there are many options but no economist can predict which will happen. Economists can only outline the different options and describe the resulting conditions of each.
In one scenario the unrest results in riots. There may be riots due to the banks being unable to process any more payments as an emergency measure. If the electronic payment network breaks down, most people do not have enough currency on hand to purchase more than a few trinkets or a few snacks. Currency riots would lead to food riots.
In another scenario, politicians actually act before the riots start by declaring martial law before the riots instead of after them. Strict controls barely contain the chaos, with political control breaking down farther away from the armed encampments of the cities.
In a third scenario the infrastructure grid in the country cannot sustain the delicate balance and this ultimately results in food shortages, which will result in even more desperate riots throughout the country as people flee the cities to find food.
Of course, in order to preempt those outcomes, the political class may decide that a war against an external enemy is necessary to distract the population. This would most likely result in a war against Iran If that happens, there will be both high inflation but not necessarily hyperinflation, as well as shortages and other hardships. There will be much more direct management of the economy, with people receiving their basic sustenance from the government.
That is also an unsustainable solution, but the additional bloodshed abroad may forestall the inevitable result of either hyperinflation or default for a short time. But as any economist can predict, the government cannot ignore reality forever.
Sunday, June 10, 2012
Collapse in Motion
For some reason there exists a belief that economic collapses are sudden events. Because the collapse isn’t happening all at once, those who see what is happening must be wrong. This is true even in the rather fast collapse that started in 2008 with the housing collapse.
People generally think that the Great Depression of 1929, which started officially in, happened all at once with the stock market crash of 1929. Contrary to conventional wisdom, the crash was not the cause of the Great Depression, but was instead the trigger.
The same is true of the Great Depression of 2008 in that it was not caused by but was instead triggered by the collapse of the housing market. The second Great Depression actually started in late 2007, but the effects weren’t noticed until the housing market was no longer able to disguise the symptoms in the rest of the economy.
Collapses take time. This is true even of rapid collapses like in 1929 and 2008; it takes time for the many failed institutions to wind through and finish - longer if the government attempts intervention to rescue failed institutions.
Political collapses take even longer. The reason people do not believe that the current United States imperium is not in decline is because the decline has been going on for several decades. If the several years of an economic decline are too long for the average observer, then the several decades of political decline are beyond notice for the average observer.
Like an economic collapse, political collapses aren’t single events but often have a single event trigger. The collapse of the Roman Empire didn’t occur when barbarians invaded, but was made real when barbarians invaded. Until the invasion, Rome looked as might as ever, but was a hollow shell.
This decline, economic and political, will not be visible to someone who hasn’t studied history. Because it is not apparent on the surface it is something that won’t be believed, especially since so many people have an emotional investment in the current greatness of the United States. Reality doesn’t care of people don’t believe in the collapse.
People generally think that the Great Depression of 1929, which started officially in, happened all at once with the stock market crash of 1929. Contrary to conventional wisdom, the crash was not the cause of the Great Depression, but was instead the trigger.
The same is true of the Great Depression of 2008 in that it was not caused by but was instead triggered by the collapse of the housing market. The second Great Depression actually started in late 2007, but the effects weren’t noticed until the housing market was no longer able to disguise the symptoms in the rest of the economy.
Collapses take time. This is true even of rapid collapses like in 1929 and 2008; it takes time for the many failed institutions to wind through and finish - longer if the government attempts intervention to rescue failed institutions.
Political collapses take even longer. The reason people do not believe that the current United States imperium is not in decline is because the decline has been going on for several decades. If the several years of an economic decline are too long for the average observer, then the several decades of political decline are beyond notice for the average observer.
Like an economic collapse, political collapses aren’t single events but often have a single event trigger. The collapse of the Roman Empire didn’t occur when barbarians invaded, but was made real when barbarians invaded. Until the invasion, Rome looked as might as ever, but was a hollow shell.
This decline, economic and political, will not be visible to someone who hasn’t studied history. Because it is not apparent on the surface it is something that won’t be believed, especially since so many people have an emotional investment in the current greatness of the United States. Reality doesn’t care of people don’t believe in the collapse.
Sunday, August 14, 2011
The Downfall Begins in Earnest
The economy has been in a state of flux ever since the recent debt showdown. Before the deal was made it was obvious that Keynesians would use the lack of a deal to describe any downturn that might have occurred had no deal been made. But there was no indication as to what Keynesians would blame for a downturn if a deal is been made.
A deal was made at the last minute. There were some attempts to blame the lateness of the deal, but those attempts fell rather flat. Then S&P downgraded the credit rating of the United States from AAA to AA+. As Lew Rockwell pointed out, this would not cause a crash unless people knew matters were much worse.
Are matters worse? A trip to the grocery store can answer that. Prices on food are going up. The official inflation rate is measured by a basket of goods that underrates the impact of food and energy. Those are the areas that are more important on the budget of the middle to lower classes. As Gonzalo Lira pointed out only some prices rise in an hyper-inflation. Food, energy, medicine all rise in price, while the price of everything else collapses.
The creditors of the United States did not view the increase in the debt limit, without any actual accompanying reforms, as a financially sound thing to do. The view was instead that the Unites States continued to live beyond its means.
Food prices are rising. This is obvious to anyone who actually have to consider the price of food. Utility prices are trending upwards as well. The cost of health care is in an even greater state of uncertainty due to the phenomenon called “regime uncertainty.”
Although the decline has been going on for a long time, and the point of no return was passed a long time ago, the decline has started to accelerate to the point where the average person is beginning to notice. And they notice just as it has started to accelerate in earnest.
A deal was made at the last minute. There were some attempts to blame the lateness of the deal, but those attempts fell rather flat. Then S&P downgraded the credit rating of the United States from AAA to AA+. As Lew Rockwell pointed out, this would not cause a crash unless people knew matters were much worse.
Are matters worse? A trip to the grocery store can answer that. Prices on food are going up. The official inflation rate is measured by a basket of goods that underrates the impact of food and energy. Those are the areas that are more important on the budget of the middle to lower classes. As Gonzalo Lira pointed out only some prices rise in an hyper-inflation. Food, energy, medicine all rise in price, while the price of everything else collapses.
The creditors of the United States did not view the increase in the debt limit, without any actual accompanying reforms, as a financially sound thing to do. The view was instead that the Unites States continued to live beyond its means.
Food prices are rising. This is obvious to anyone who actually have to consider the price of food. Utility prices are trending upwards as well. The cost of health care is in an even greater state of uncertainty due to the phenomenon called “regime uncertainty.”
Although the decline has been going on for a long time, and the point of no return was passed a long time ago, the decline has started to accelerate to the point where the average person is beginning to notice. And they notice just as it has started to accelerate in earnest.
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