Post by Admin on Jul 24, 2021 12:43:11 GMT -6
Federal Government Spending, Printing Money and the Economy:
How are these three items interlinked and how do they affect each other and us?
Let’s start with the Constitution – The Constitution was written such that individual state governments are free to write laws about anything not expressly forbidden to them in the Constitution. Alternatively, the Federal government cannot use powers or pass laws that are not expressly given to them via the Constitution. This is the widely held view of many Constitutionalists throughout the nation. In the negotiations around the Constitution, it was expressly forbidden for the individual state governments to print their own money, which by counter argument, since it is not expressly stated that they can, the Federal government cannot do so either. Why is this important? The founding fathers did not want any more taxation by edict like they were under from the English Monarchy. They wanted any funds required by the governments to go through the elected representatives and the checks and balances they had setup. If individual states or the federal government were just allowed to print their own money, then they could simply pass new spending and then print new money to cover the new spending and impose taxes by edict . . . no taxation without representation? They closed that loophole.
History of Money Printing – There have been national central banks, on and off, since 1791. In between there have been state chartered banks (sometimes several per state, up to 8000 total at the peak) issuing currency backed by real assets. The real assets were real estate, precious metals, something with real value. The holder of the bank notes issued could go into the bank and exchange their notes for the real commodity if they wished. However, the exchange rates between the notes were of questionable value and the history of bank failures was spread far and wide. In fact, just the rumor of a single bank failure in an area could prompt citizens, in fear, to make a run on their own bank to withdraw funds and cause its failure as well. They would deplete its reserves, since much of the actual deposits had been loaned out for the bank to make interest on, have to turn away customers asking to withdraw notes/assets, confidence in the bank would be lost and it would fail. One such large panic occurred in 1907 prompting the establishment of the Federal Reserve Bank in 1913. The powers of the Fed have varied over the years. The ones pertinent to this discussion are that the Federal Reserve would establish the printed money for the entire nation backed by gold and silver holdings. All other banks could count on the national reserves of the Federal bank to provide in times of banks runs and the like. The Fed also sets the rate of interest for interbank loans in the country and issues currency. That currency was backed by gold reserves until 1971, when the dollar went off of the gold standard and simply became its own entity. It is simply backed by the power of the US economy, not by mountains of precious metals held in Fort Knox.
Why did I bore you with all of that history? – Let me bring the two points together. Note that all of those 8000 state chartered banks and the Federal Reserve that issued/issue currency are not officially part of the government. They are supposed to be 100% independent entities. This keeps the mandates of the Founding Fathers in the Constitution in place that the Federal government or any individual state government cannot directly print money to pay for its spending. It must have appropriations bills sent through Congress that are negotiated and approved, signed by the President and not successfully challenged by lawsuits in the Supreme Court . . . checks and balances are a wonderful thing!! The situation has changed though.
What has changed? Part 1 – First, the dollar is no longer on the gold standard as of 1971. Meaning that it is not backed by any real assets, its value is only held by the willingness of the global market to continue to use and exchange dollars for things. People across the globe still see the dollar, the US economy and the US Government as relatively stable and powerful things, so the value of the dollar stays high and it only costs a few of them to buy a gallon of milk or a loaf of bread or anything else with “real value.” However, the dollar is not immune to the law of supply and demand. The more dollars that there are in circulation, the less value each of them has. Just like everything else, there is a “saturation level” where the demand for the next dollar printed begins to fall and takes the value of all of those printed before it along for the ride. No one is really sure where that saturation level actually is and where the level of dollars in circulation really begins to affect the value. Well, that shouldn’t be a problem though, because it’s not like the Federal Reserve is printing billions and billions of new dollars every year, right?
What has changed? Part 2 – Enter Quantitative Easing (QE) programs instituted by the Fed. This is a personal description of what they are doing and what they believe and may be discussed/clarified by others in the comments if I am misinformed. QE has 2 parts to it. First, interest rates from the Fed (on interbank loans) are lowered near or to zero. This frees up the flow of capital for loans/investing/etc. Secondly, the Fed will expand its “balance sheet” or the assets that the Federal Reserve actually owns. These items on the balance sheet are bought with money that was simply printed by the Fed. So how much has been printed lately? The Fed’s balance sheet in Sept 2019 was $2.1 trillion of US Treasuries, which are made up of government debt. The Fed’s balance sheet last week (the report is issued on Thursdays) is $4.7 trillion of US Treasuries. In 16 months, the National debt monetized by the Fed has more than doubled and has increased at the rate of $162.5 billion per month. These values do not include the recent $2.3 trillion relief and omnibus spending bill that was just passed through Congress and signed by the President.
So, what does this mean? – Through the re-establishment of the QE program, the Federal Reserve has enabled unlimited spending by the Federal Government without the consequences of higher interest rates for doing so by agreeing to buy the debt (in the form of US Treasuries) at the low interest rates offered and printing dollars to cover the expenses. Those dollars flood into the global marketplace where they mingle with all of the other dollars out there already and increase the possibility of de-valuation. With this independent entity working hand-in-hand with government officials to artificially keep the interest on the US National Debt low, but agreeing to allow the debt itself to increase they are taxing the American people without officially raising the taxes on anyone, just by lowering the purchasing power of the dollar. Those that are hurt worst by this sort of taxation are those without assets outside of dollars, those without investments, those without real estate holdings, those living paycheck to paycheck and those who rent their dwellings and don’t own them, because those people depend on the value of the dollar for everyday expenses to live their lives. Those who own homes and own investments and other things like that will see the value of their real assets increase as the purchasing power of the dollar falls. Their assets will be worth more dollars when they sell them and will cost more dollars for others to buy, but so will milk and bread and gasoline and all “real” commodities. Those on fixed incomes or barely making their monthly expenses will suddenly find themselves with too much month at the end of the money and their standards of living will have to decrease or they will have to go into debt.
Can we fix it? If so, how? – I hope that this still can be fixed. The process has been in place for a very long time now though and the issues are accelerating as the problems with the policies in place begin to show themselves in real ways. Right now, those in power are simply doubling down against them and expanding the problem. Whether this is through ignorance or a desire for the collapse of capitalism or a malicious intent I cannot say, but the policies have to change in order for the system to be able to correct itself. There are a few ways to do this, these are listed in no particular order.
Possible Solution 1 - The Fed can cease its enabler role in Federal government overspending and stop buying US Treasuries at artificially low interest rates. The amount of dollars in circulation will stabilize (and can perhaps go down if the Fed also begins to clear its balance sheets) but the interest on the Federal debt will rise and it will cost more of the incoming Federal Tax base to pay for the maintenance/interest on the debt. This is not happening currently and recent announcements from the Fed state that the policies currently in place will continue.
Possible Solution 2 - Cut government spending to the bone!! This is my favorite path forward. Defense spending, foreign aid, corporate bailouts, war on drugs and a lot of other things can go away. We need to run budget surpluses in the range of $1 trillion per year in order to pay off the debt inside of 30 years. This would include maintenance/interest on the debt as part of the budget (not part of the surplus) and would include paying back both public-held and government-held debt. Right now we are running budget deficits in the range $1-$5 trillion per year. Note, that federal revenues are only $3-$3.8 trillion per year. Mandated benefits (Social Security, Medicare, Medicaid, welfare, unemployment, etc.) account for $3 trillion per year, so cuts in all areas must be considered. In order to run a budget surplus in the $1 trillion range we have to budget for a surplus of $1.5 trillion and hope nothing crazy (like a pandemic or multiple hurricanes or giant earthquakes or a supervolcano eruption or the reversing of the earth’s magnetic field) happens. This is not happening currently either and the incoming administration and the outgoing administration are both all for deficit spending continuing at current levels.
Possible Solution 3 - Raise taxes. Don’t hide what you are doing from the American people and stealth tax them by devaluing the dollar. Go through the Representatives and Senators in Congress. Pass your expenditures, pass your tax hikes and face the music in the next election. This also will never happen. Politicians can’t take this tactic because they want to keep getting re-elected and they have to run the fine balance of funneling money to their own interests and those who helped get them elected while also being able to be re-elected because they didn’t propose something dumb like raising taxes.
What else can we do? - Those are the only pathways out of this issue that I can see, though others may have different ideas that they can comment. It is also possible that the US economy skyrockets and increases the tax base widely, which could allow for budget surpluses at current levels of spending. However, considering everything the Fed is doing to prop up the economy in its current state, I don’t believe that to be likely. Additionally, with the current set of politicians in place, the odds of a budget surplus of any kind actually going to pay down the debt is ludicrous. Though these are our only pathways out of this issue, odds are they will not be implemented until it is obvious that the crisis is on the horizon and inevitable and at that point it will be too late.
My opinion on the matter . . . if that matters –
The best path forward is actually a combination of all 3 items listed and some honesty in the upper levels of the government and the Federal Reserve is needed.
Statements from the Fed like “we are no longer going to monetize Federal overspending, though we will keep interest rates between banks low until we are out of this crisis. We realize that we cannot create inflation by printing unlimited dollars and also not be able to fight it by keeping interest rates low. We have to choose.”
Statements from Wash DC like “we are cutting the Federal Budget to only spend 75% of the projected tax intake for the fiscal year. The 25% will be used for emergency funding only and any remainder will be put towards the principal of the national debt by buying back US Treasuries. If in a given year, the 25% of the budget is not enough to have a remainder of at least 10% to put towards the deficit principal, then both spending will be cut AND taxes will be raised, because if we aren’t putting at least 10% of the budget towards payoff of the debt, we won’t pay it off in less than 100 years. Interest on the debt is included in the 75%. Please write/contact your Congresspeople and let them know which direction you prefer to be larger, cutting or taxing.”
Transparency like this is never seen in government, but it should be demanded by the people. Elected officials acting like adults and treating their constituency as adults should not be a rarity, but it definitely is. Explain to us what is really going on, give us the bitter pill to swallow, let us make our decisions and vote for our choices and take a path forward that improves the country as a whole.
If we get away from centrally planned solutions and cut the spending of the Federal government drastically, we can start to dig ourselves out of this hole and we may be able to do it at current tax levels. I’m not saying that hard choices won’t have to be made or that our standard of living won’t decrease at all, but that may be what is necessary for our economy and our country to survive.
It starts with understanding what is happening in the world at large and demanding honesty from those that are distributing that information and making the decisions at the upper levels.
It starts by not looking to the Central Planners and the Federal Government to solve every problem that we perceive in our lives.
If we do that, then maybe we won’t get Federal budget proposals that say we will spend $4.829 trillion from Oct 1 2020 to Sept 30 2021 when the project tax revenues from all sources is going to be $3.863 trillion. That is what is proposed and it does not account for emergencies or unforeseen issues of any type before spending 125% of the estimated yearly income. Could you run your household like that? Then why do we agree to let the government run our country like that year after year?
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Commenter #1 - How do we motivate the "powers that be" to be transparent with the American people and be fiscally responsible? That's what I want to know. What can WE do? Without term limits, politicians get more powerful, more entrenched, and much less concerned with the people they represent. I am trying to better educate myself on issues(and these posts of yours help, lol), but other than making my voice heard with my vote, I don't know what else we can do. Also, do you see the lack of transparency as something potentially more insidious, say working toward globalism? If the US economy and/or goverment collapses, I feel there will be nothing else to stop it.
My Reply - As stated above, I'm not sure what to attribute these decisions/policies to, but I'm not ready to rule out intent on globalism either. What we can do is what you are doing. Inform yourself for voting. Do your best to distribute the information that you find as widely as you can. Be prepared for some to confront you for doing so, treat them amicably, listen and never close your mind. There may be additional solutions outside of your frame of reference. Show people that we don't have to stand for the government we have allowed to grow in our collective distraction/absence. We can reverse it, either through widespread informed voting and within the system as it stands, or by forcing their hands in the Central Planning State by having a Convention of States and modifying the Constitution around them. These are not easy things to do, but outside of electing actually civic minded people or forcing those that refuse to shape up by going around them, I do not know what else to do. Suggestions are welcomed.
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Discussion between myself and Commenter #2:
Commenter #2 - Get your alternate digital currencies now because gold is just silly and paper money is going out of style. Decentralized finance can’t be stopped at this point. The more people research, understand and transact in digital the fewer misconceptions people will have. This is the future. This is the way. I have spoken.
Me - The problem with digital currencies (Bitcoin and the like) is two fold in my eyes. First, there is no intrinsic value as there are with commodities. It can't be used for anything outside of currency and its value is agreed upon by buyers/sellers. How is that any different than digitizing the dollar or the Euro except minus the government backing? Why not just do that? Secondly, I do agree that cryptos are a threat to the current monetary system. As soon as governments realize this, they will outlaw them or make it prohibitively expensive to use. India is already proposing an additional 18% tax on all Bitcoin transactions. Bitcoin is also very hard to use directly, you have to exchange Bitcoin for dollars or Euros and then spend the dollars or Euros. There is also a centralized location/entity that has to track and verify every Bitcoin transaction, no better way to get tracked and audited once the government turns its eyes to focus there. For myself, I'm still on the precious metals and commodities side as safe havens/good investments as the dollar and market collapse. Look carefully at silver, copper and uranium ETFs and commodities. Those have double whammies of having intrinsic value and also being necessary and scarce when the Biden administration starts to convert the country to electricity and upgrade the grid for less fossil fuel use. Uranium in particular expects severe supply shortages in the next 2 years unless the commodity price rises enough for mining company to restart production and exploration. Good luck with your investments!
Commenter #2 - I like to keep it simple. I can’t whack off a chunk of gold to buy a sandwich. Commodities are subject to market manipulation in countless ways. Meh on commodity; this is pre-boomer strategy. Markets evolve and change, especially payment markets. Digital payment and currency is a great equalizer. Allows people to stop paying banks for stupid stuff like transfers, overdrafts, and pulling cash of an ATM your bank does not like. None of that contributes in anyway to society or our monetary system stability. Second, you are right, everything blockchain is tracked, that’s the point. You can’t hide from the ledger and you will pay taxes, but at least a bank won’t grift off you. Third, Wall Street is an absolute mess right now pumped up by speculation and cheap cash form the fed. The US stock market is no longer a global safe zone for investors, everyone knows the clock it ticking until the next corrector, or worse total collapse of the current systems (remember 2008 and collateral debt obligations?). We are one step away and have no backstop because the value of the US dollar is plummeting at the same time inflation is rising because of horrid fiscal policy for my entire lifetime and outdated monetary facilities. Crypto is simply better money. It’s immune from many of the risks about but also not without its own risk. If you think it’s just bitcoin, wrong. It’s a huge ecosystem full of rug pulls, moon boys, and venture capital software types all shilling each other on the next big thing. But, again, it’s evolving very quickly and many countries are moving to adopt. Lastly, the most fascinating thing going in DeFi right now is Seigniorage-based algorithmic decentralized stable coins. I could go on but I probably already sound like a kook at this point. Some people are into Q/conspiracy and some people are into crypto
Me - I like many of your points, but you can't exactly go into that sandwich shop and pay directly with Bitcoin either. If the system really does collapse, you are more likely to find people willing to trade you food for gold dust than for digitized currency, but that is my opinion. For me, the biggest issue is the tracking. You see it as a way for everyone to make sure everyone else is paying their fair share of taxes. I see it as another way for the government to enforce and enact even more control over our lives. If it's made (unconstitutionally) illegal to buy weapons of any sort and all transactions are tracked digitally, then where is the recourse against the central planners who are violating the Constitution? But maybe you are anti-gun or whatever and don't have a problem with that, there are many who agree with you, however, let's get more insidious. The government decides to outlaw Austrian schools of economic thought because it flies in the face of their Central Planning, Deficit Spending, Debt building Keynesian agenda? If all monetary transactions are tracked, how can one learn or do anything that is not government approved without risk of sanctions/fines/imprisonment? Freedom of choice in spending has been removed from the agenda in exchange for assuring government funding is properly paid. That's a win/win for the central planners and you know they would run as far as they could with it. Just like they are doing with COVID.
Commenter #2 - this is not a bad read of the situation. Govt f’d up Covid in countless ways but the Orange “businessman” /mobster/ friend of dictators presided or all of it and sold voters on “drain the swap” as he and his family literally grifted more any any administration in history. I digress. Proud gun opener here, for hunting birds and deer, not people or antifa/fascist alike.
The government already has a huge influence on our lives, if this one is so terrible maybe we can try a different way? This debate is as old as this nation itself. Balance liberty and stability with capitalism is tricky business. Long term we have done well, just looking forward we are deer in the headlights rn, frozen and lost because the nation is run by a bunch of boomer lawyers on both side who think they’ve seen it all and know best for us spoiled youngsters. Notwithstanding the sacrifice the greatest generation made and the situation the boomer inherited when they came of age. We’ve come along way with equity and environmental protection (although it’s slowed considerably lately). Next step it to fix the broken dollar/deficit/out of control spending situation. Part of that situation is equitable distribution of tax burden, when rump claims he’s rich and I pay more taxes than him, one of us is lying. Blockchain ledger is about as transparent as it gets. Not without issues but it’s good step to weed out the banksters who help the 1% evade taxes from our system. If folks don’t like it, they can vote. But, we should not suppress a technically better system of money because the old outdated system is most beneficial for the boomers. Once they are gone, the system will be rebuilt; too much upside potential for the evolution vs the status quo.
Me - It's not a bad path forward and, as is typical, when open-minded adults talk civilly about issues they find they are more in agreement than in disagreement. It surprises me (and doesn't surprise me at the same time) that the divide has gotten so deep. Something I just heard about and was going to be looking into deeper is this - Tax-Free Wealth by Tom Wheelwright. When I heard him talk, he was speaking about building wealth by taking actions and directing investments like the government wants you to. By working, earning, saving and using a 401k, you are subject to the highest tax rates there are. By taking advantage of government subsidies and programs there are ways to reduce your tax burden to near zero. I was interested in reading up on it to see if it was really bankers and shady accountants reducing the 1%'s tax burdens or if it was the government doing it all along and then putting them up as cheaters to the masses. Sounds like some background that might interest you too.
How are these three items interlinked and how do they affect each other and us?
Let’s start with the Constitution – The Constitution was written such that individual state governments are free to write laws about anything not expressly forbidden to them in the Constitution. Alternatively, the Federal government cannot use powers or pass laws that are not expressly given to them via the Constitution. This is the widely held view of many Constitutionalists throughout the nation. In the negotiations around the Constitution, it was expressly forbidden for the individual state governments to print their own money, which by counter argument, since it is not expressly stated that they can, the Federal government cannot do so either. Why is this important? The founding fathers did not want any more taxation by edict like they were under from the English Monarchy. They wanted any funds required by the governments to go through the elected representatives and the checks and balances they had setup. If individual states or the federal government were just allowed to print their own money, then they could simply pass new spending and then print new money to cover the new spending and impose taxes by edict . . . no taxation without representation? They closed that loophole.
History of Money Printing – There have been national central banks, on and off, since 1791. In between there have been state chartered banks (sometimes several per state, up to 8000 total at the peak) issuing currency backed by real assets. The real assets were real estate, precious metals, something with real value. The holder of the bank notes issued could go into the bank and exchange their notes for the real commodity if they wished. However, the exchange rates between the notes were of questionable value and the history of bank failures was spread far and wide. In fact, just the rumor of a single bank failure in an area could prompt citizens, in fear, to make a run on their own bank to withdraw funds and cause its failure as well. They would deplete its reserves, since much of the actual deposits had been loaned out for the bank to make interest on, have to turn away customers asking to withdraw notes/assets, confidence in the bank would be lost and it would fail. One such large panic occurred in 1907 prompting the establishment of the Federal Reserve Bank in 1913. The powers of the Fed have varied over the years. The ones pertinent to this discussion are that the Federal Reserve would establish the printed money for the entire nation backed by gold and silver holdings. All other banks could count on the national reserves of the Federal bank to provide in times of banks runs and the like. The Fed also sets the rate of interest for interbank loans in the country and issues currency. That currency was backed by gold reserves until 1971, when the dollar went off of the gold standard and simply became its own entity. It is simply backed by the power of the US economy, not by mountains of precious metals held in Fort Knox.
Why did I bore you with all of that history? – Let me bring the two points together. Note that all of those 8000 state chartered banks and the Federal Reserve that issued/issue currency are not officially part of the government. They are supposed to be 100% independent entities. This keeps the mandates of the Founding Fathers in the Constitution in place that the Federal government or any individual state government cannot directly print money to pay for its spending. It must have appropriations bills sent through Congress that are negotiated and approved, signed by the President and not successfully challenged by lawsuits in the Supreme Court . . . checks and balances are a wonderful thing!! The situation has changed though.
What has changed? Part 1 – First, the dollar is no longer on the gold standard as of 1971. Meaning that it is not backed by any real assets, its value is only held by the willingness of the global market to continue to use and exchange dollars for things. People across the globe still see the dollar, the US economy and the US Government as relatively stable and powerful things, so the value of the dollar stays high and it only costs a few of them to buy a gallon of milk or a loaf of bread or anything else with “real value.” However, the dollar is not immune to the law of supply and demand. The more dollars that there are in circulation, the less value each of them has. Just like everything else, there is a “saturation level” where the demand for the next dollar printed begins to fall and takes the value of all of those printed before it along for the ride. No one is really sure where that saturation level actually is and where the level of dollars in circulation really begins to affect the value. Well, that shouldn’t be a problem though, because it’s not like the Federal Reserve is printing billions and billions of new dollars every year, right?
What has changed? Part 2 – Enter Quantitative Easing (QE) programs instituted by the Fed. This is a personal description of what they are doing and what they believe and may be discussed/clarified by others in the comments if I am misinformed. QE has 2 parts to it. First, interest rates from the Fed (on interbank loans) are lowered near or to zero. This frees up the flow of capital for loans/investing/etc. Secondly, the Fed will expand its “balance sheet” or the assets that the Federal Reserve actually owns. These items on the balance sheet are bought with money that was simply printed by the Fed. So how much has been printed lately? The Fed’s balance sheet in Sept 2019 was $2.1 trillion of US Treasuries, which are made up of government debt. The Fed’s balance sheet last week (the report is issued on Thursdays) is $4.7 trillion of US Treasuries. In 16 months, the National debt monetized by the Fed has more than doubled and has increased at the rate of $162.5 billion per month. These values do not include the recent $2.3 trillion relief and omnibus spending bill that was just passed through Congress and signed by the President.
So, what does this mean? – Through the re-establishment of the QE program, the Federal Reserve has enabled unlimited spending by the Federal Government without the consequences of higher interest rates for doing so by agreeing to buy the debt (in the form of US Treasuries) at the low interest rates offered and printing dollars to cover the expenses. Those dollars flood into the global marketplace where they mingle with all of the other dollars out there already and increase the possibility of de-valuation. With this independent entity working hand-in-hand with government officials to artificially keep the interest on the US National Debt low, but agreeing to allow the debt itself to increase they are taxing the American people without officially raising the taxes on anyone, just by lowering the purchasing power of the dollar. Those that are hurt worst by this sort of taxation are those without assets outside of dollars, those without investments, those without real estate holdings, those living paycheck to paycheck and those who rent their dwellings and don’t own them, because those people depend on the value of the dollar for everyday expenses to live their lives. Those who own homes and own investments and other things like that will see the value of their real assets increase as the purchasing power of the dollar falls. Their assets will be worth more dollars when they sell them and will cost more dollars for others to buy, but so will milk and bread and gasoline and all “real” commodities. Those on fixed incomes or barely making their monthly expenses will suddenly find themselves with too much month at the end of the money and their standards of living will have to decrease or they will have to go into debt.
Can we fix it? If so, how? – I hope that this still can be fixed. The process has been in place for a very long time now though and the issues are accelerating as the problems with the policies in place begin to show themselves in real ways. Right now, those in power are simply doubling down against them and expanding the problem. Whether this is through ignorance or a desire for the collapse of capitalism or a malicious intent I cannot say, but the policies have to change in order for the system to be able to correct itself. There are a few ways to do this, these are listed in no particular order.
Possible Solution 1 - The Fed can cease its enabler role in Federal government overspending and stop buying US Treasuries at artificially low interest rates. The amount of dollars in circulation will stabilize (and can perhaps go down if the Fed also begins to clear its balance sheets) but the interest on the Federal debt will rise and it will cost more of the incoming Federal Tax base to pay for the maintenance/interest on the debt. This is not happening currently and recent announcements from the Fed state that the policies currently in place will continue.
Possible Solution 2 - Cut government spending to the bone!! This is my favorite path forward. Defense spending, foreign aid, corporate bailouts, war on drugs and a lot of other things can go away. We need to run budget surpluses in the range of $1 trillion per year in order to pay off the debt inside of 30 years. This would include maintenance/interest on the debt as part of the budget (not part of the surplus) and would include paying back both public-held and government-held debt. Right now we are running budget deficits in the range $1-$5 trillion per year. Note, that federal revenues are only $3-$3.8 trillion per year. Mandated benefits (Social Security, Medicare, Medicaid, welfare, unemployment, etc.) account for $3 trillion per year, so cuts in all areas must be considered. In order to run a budget surplus in the $1 trillion range we have to budget for a surplus of $1.5 trillion and hope nothing crazy (like a pandemic or multiple hurricanes or giant earthquakes or a supervolcano eruption or the reversing of the earth’s magnetic field) happens. This is not happening currently either and the incoming administration and the outgoing administration are both all for deficit spending continuing at current levels.
Possible Solution 3 - Raise taxes. Don’t hide what you are doing from the American people and stealth tax them by devaluing the dollar. Go through the Representatives and Senators in Congress. Pass your expenditures, pass your tax hikes and face the music in the next election. This also will never happen. Politicians can’t take this tactic because they want to keep getting re-elected and they have to run the fine balance of funneling money to their own interests and those who helped get them elected while also being able to be re-elected because they didn’t propose something dumb like raising taxes.
What else can we do? - Those are the only pathways out of this issue that I can see, though others may have different ideas that they can comment. It is also possible that the US economy skyrockets and increases the tax base widely, which could allow for budget surpluses at current levels of spending. However, considering everything the Fed is doing to prop up the economy in its current state, I don’t believe that to be likely. Additionally, with the current set of politicians in place, the odds of a budget surplus of any kind actually going to pay down the debt is ludicrous. Though these are our only pathways out of this issue, odds are they will not be implemented until it is obvious that the crisis is on the horizon and inevitable and at that point it will be too late.
My opinion on the matter . . . if that matters –
The best path forward is actually a combination of all 3 items listed and some honesty in the upper levels of the government and the Federal Reserve is needed.
Statements from the Fed like “we are no longer going to monetize Federal overspending, though we will keep interest rates between banks low until we are out of this crisis. We realize that we cannot create inflation by printing unlimited dollars and also not be able to fight it by keeping interest rates low. We have to choose.”
Statements from Wash DC like “we are cutting the Federal Budget to only spend 75% of the projected tax intake for the fiscal year. The 25% will be used for emergency funding only and any remainder will be put towards the principal of the national debt by buying back US Treasuries. If in a given year, the 25% of the budget is not enough to have a remainder of at least 10% to put towards the deficit principal, then both spending will be cut AND taxes will be raised, because if we aren’t putting at least 10% of the budget towards payoff of the debt, we won’t pay it off in less than 100 years. Interest on the debt is included in the 75%. Please write/contact your Congresspeople and let them know which direction you prefer to be larger, cutting or taxing.”
Transparency like this is never seen in government, but it should be demanded by the people. Elected officials acting like adults and treating their constituency as adults should not be a rarity, but it definitely is. Explain to us what is really going on, give us the bitter pill to swallow, let us make our decisions and vote for our choices and take a path forward that improves the country as a whole.
If we get away from centrally planned solutions and cut the spending of the Federal government drastically, we can start to dig ourselves out of this hole and we may be able to do it at current tax levels. I’m not saying that hard choices won’t have to be made or that our standard of living won’t decrease at all, but that may be what is necessary for our economy and our country to survive.
It starts with understanding what is happening in the world at large and demanding honesty from those that are distributing that information and making the decisions at the upper levels.
It starts by not looking to the Central Planners and the Federal Government to solve every problem that we perceive in our lives.
If we do that, then maybe we won’t get Federal budget proposals that say we will spend $4.829 trillion from Oct 1 2020 to Sept 30 2021 when the project tax revenues from all sources is going to be $3.863 trillion. That is what is proposed and it does not account for emergencies or unforeseen issues of any type before spending 125% of the estimated yearly income. Could you run your household like that? Then why do we agree to let the government run our country like that year after year?
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Commenter #1 - How do we motivate the "powers that be" to be transparent with the American people and be fiscally responsible? That's what I want to know. What can WE do? Without term limits, politicians get more powerful, more entrenched, and much less concerned with the people they represent. I am trying to better educate myself on issues(and these posts of yours help, lol), but other than making my voice heard with my vote, I don't know what else we can do. Also, do you see the lack of transparency as something potentially more insidious, say working toward globalism? If the US economy and/or goverment collapses, I feel there will be nothing else to stop it.
My Reply - As stated above, I'm not sure what to attribute these decisions/policies to, but I'm not ready to rule out intent on globalism either. What we can do is what you are doing. Inform yourself for voting. Do your best to distribute the information that you find as widely as you can. Be prepared for some to confront you for doing so, treat them amicably, listen and never close your mind. There may be additional solutions outside of your frame of reference. Show people that we don't have to stand for the government we have allowed to grow in our collective distraction/absence. We can reverse it, either through widespread informed voting and within the system as it stands, or by forcing their hands in the Central Planning State by having a Convention of States and modifying the Constitution around them. These are not easy things to do, but outside of electing actually civic minded people or forcing those that refuse to shape up by going around them, I do not know what else to do. Suggestions are welcomed.
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Discussion between myself and Commenter #2:
Commenter #2 - Get your alternate digital currencies now because gold is just silly and paper money is going out of style. Decentralized finance can’t be stopped at this point. The more people research, understand and transact in digital the fewer misconceptions people will have. This is the future. This is the way. I have spoken.
Me - The problem with digital currencies (Bitcoin and the like) is two fold in my eyes. First, there is no intrinsic value as there are with commodities. It can't be used for anything outside of currency and its value is agreed upon by buyers/sellers. How is that any different than digitizing the dollar or the Euro except minus the government backing? Why not just do that? Secondly, I do agree that cryptos are a threat to the current monetary system. As soon as governments realize this, they will outlaw them or make it prohibitively expensive to use. India is already proposing an additional 18% tax on all Bitcoin transactions. Bitcoin is also very hard to use directly, you have to exchange Bitcoin for dollars or Euros and then spend the dollars or Euros. There is also a centralized location/entity that has to track and verify every Bitcoin transaction, no better way to get tracked and audited once the government turns its eyes to focus there. For myself, I'm still on the precious metals and commodities side as safe havens/good investments as the dollar and market collapse. Look carefully at silver, copper and uranium ETFs and commodities. Those have double whammies of having intrinsic value and also being necessary and scarce when the Biden administration starts to convert the country to electricity and upgrade the grid for less fossil fuel use. Uranium in particular expects severe supply shortages in the next 2 years unless the commodity price rises enough for mining company to restart production and exploration. Good luck with your investments!
Commenter #2 - I like to keep it simple. I can’t whack off a chunk of gold to buy a sandwich. Commodities are subject to market manipulation in countless ways. Meh on commodity; this is pre-boomer strategy. Markets evolve and change, especially payment markets. Digital payment and currency is a great equalizer. Allows people to stop paying banks for stupid stuff like transfers, overdrafts, and pulling cash of an ATM your bank does not like. None of that contributes in anyway to society or our monetary system stability. Second, you are right, everything blockchain is tracked, that’s the point. You can’t hide from the ledger and you will pay taxes, but at least a bank won’t grift off you. Third, Wall Street is an absolute mess right now pumped up by speculation and cheap cash form the fed. The US stock market is no longer a global safe zone for investors, everyone knows the clock it ticking until the next corrector, or worse total collapse of the current systems (remember 2008 and collateral debt obligations?). We are one step away and have no backstop because the value of the US dollar is plummeting at the same time inflation is rising because of horrid fiscal policy for my entire lifetime and outdated monetary facilities. Crypto is simply better money. It’s immune from many of the risks about but also not without its own risk. If you think it’s just bitcoin, wrong. It’s a huge ecosystem full of rug pulls, moon boys, and venture capital software types all shilling each other on the next big thing. But, again, it’s evolving very quickly and many countries are moving to adopt. Lastly, the most fascinating thing going in DeFi right now is Seigniorage-based algorithmic decentralized stable coins. I could go on but I probably already sound like a kook at this point. Some people are into Q/conspiracy and some people are into crypto
Me - I like many of your points, but you can't exactly go into that sandwich shop and pay directly with Bitcoin either. If the system really does collapse, you are more likely to find people willing to trade you food for gold dust than for digitized currency, but that is my opinion. For me, the biggest issue is the tracking. You see it as a way for everyone to make sure everyone else is paying their fair share of taxes. I see it as another way for the government to enforce and enact even more control over our lives. If it's made (unconstitutionally) illegal to buy weapons of any sort and all transactions are tracked digitally, then where is the recourse against the central planners who are violating the Constitution? But maybe you are anti-gun or whatever and don't have a problem with that, there are many who agree with you, however, let's get more insidious. The government decides to outlaw Austrian schools of economic thought because it flies in the face of their Central Planning, Deficit Spending, Debt building Keynesian agenda? If all monetary transactions are tracked, how can one learn or do anything that is not government approved without risk of sanctions/fines/imprisonment? Freedom of choice in spending has been removed from the agenda in exchange for assuring government funding is properly paid. That's a win/win for the central planners and you know they would run as far as they could with it. Just like they are doing with COVID.
Commenter #2 - this is not a bad read of the situation. Govt f’d up Covid in countless ways but the Orange “businessman” /mobster/ friend of dictators presided or all of it and sold voters on “drain the swap” as he and his family literally grifted more any any administration in history. I digress. Proud gun opener here, for hunting birds and deer, not people or antifa/fascist alike.
The government already has a huge influence on our lives, if this one is so terrible maybe we can try a different way? This debate is as old as this nation itself. Balance liberty and stability with capitalism is tricky business. Long term we have done well, just looking forward we are deer in the headlights rn, frozen and lost because the nation is run by a bunch of boomer lawyers on both side who think they’ve seen it all and know best for us spoiled youngsters. Notwithstanding the sacrifice the greatest generation made and the situation the boomer inherited when they came of age. We’ve come along way with equity and environmental protection (although it’s slowed considerably lately). Next step it to fix the broken dollar/deficit/out of control spending situation. Part of that situation is equitable distribution of tax burden, when rump claims he’s rich and I pay more taxes than him, one of us is lying. Blockchain ledger is about as transparent as it gets. Not without issues but it’s good step to weed out the banksters who help the 1% evade taxes from our system. If folks don’t like it, they can vote. But, we should not suppress a technically better system of money because the old outdated system is most beneficial for the boomers. Once they are gone, the system will be rebuilt; too much upside potential for the evolution vs the status quo.
Me - It's not a bad path forward and, as is typical, when open-minded adults talk civilly about issues they find they are more in agreement than in disagreement. It surprises me (and doesn't surprise me at the same time) that the divide has gotten so deep. Something I just heard about and was going to be looking into deeper is this - Tax-Free Wealth by Tom Wheelwright. When I heard him talk, he was speaking about building wealth by taking actions and directing investments like the government wants you to. By working, earning, saving and using a 401k, you are subject to the highest tax rates there are. By taking advantage of government subsidies and programs there are ways to reduce your tax burden to near zero. I was interested in reading up on it to see if it was really bankers and shady accountants reducing the 1%'s tax burdens or if it was the government doing it all along and then putting them up as cheaters to the masses. Sounds like some background that might interest you too.