As a consequence of loose monetary policy with a fiat currency, the United States is rapidly descending into an economic reality of Modern Monetary Theory, or MMT. While MMT (also known as Chartalism) is typically associated with its Keynesian predecessor and the policies of the Left, new developments reveal that both parties are responsible for the slip into a brave new economic world.
Essentially, there are four preconditions in Modern Monetary Theory:
1) Money enters the economy through government spending, as the total amount of money is constrained not by gold but by the total output of the national economy;
2) Government spending is speculative as it prints as much money as it needs to control production and, as a byproduct, employment, and spending beyond productive capacity leads to inflation;
3) Taxes do not pay for expenditures but are instead a way to throttle private sector demand; and
4) The government is the issuer of the currency, sovereign governments that issue their own currency are never insolvent, so debts essentially don’t matter.
Schiff points out that civil unrest is coming if the government continues to focus on the symptoms of inflation and not the solution.
Since the middle of the 20th Century, when the Federal Reserve started compiling this measurement of non-borrowed bank deposit reserves there has been little short term deviation from its normal levels. Long Story short - Bank reserves, other than those achieved through loans (usually FED funds market, or discount window) have evaporated.
Buried in yesterday’s news of President Obama’s press conference, where he brow beat Republicans over the debt ceiling and called for even more tax revenue, was word that the White House would break the law by not submitting a budget for FY 2014 to House Budget Committee Chairman Paul Ryan (R-WI) by the required date:
The White House has informed House Budget Committee Chairman Paul Ryan (R-Wis.) that it will miss the legal deadline for sending a budget to Congress.
Acting Budget Director Jeff Zients told Ryan (R-Wis.) in a letter late Friday that the budget will not be delivered by Feb. 4, as required by law.
In the letter, Zients says the administration is “working diligently on our budget request.”
The letter blames the late passage of the “fiscal cliff” deal for the delay, saying that because tax and spending issues were not resolved until Jan. 2, “the administration was forced to delay some of its FY 2014 budget preparations, which in turn will delay the budget’s submission to Congress.”
“We will submit it to Congress as soon as possible,” Zients writes.
The Hill notes that, since taking office, the White House has met the deadline only one time. The last time Congress passed a budget was April 29, 2009, which was also the first year of Obama’s administration. And while the White House likes to blame Republicans for the impasse, Obama couldn’t even get a budget through in 2010 when Democrats had complete control of Congress.
Like a number of libertarian-leaning voters I am planning to cast my ballot for Gary Johnson in a few weeks. There are a couple of reasons for this, but none more important to me personally than the fact that America is in dire need of an alternative to the Republican and Democratic parties. Every four years these two behemoths go at each other’s throats over mostly fringe issues, and we’re all supposed to pretend that we are really choosing between two different people. In reality, on most issues, there is scant difference. So given the chance to vote for a legitimate contender like Johnson, it is simply too good a chance to turn down.
But I also realize that no-third party candidates will be President this year, so I decided to take a look at who was running in several lower-level elections for my county in Pennsylvania. In four elections — specifically Attorney General, Auditor General, State Treasurer and U.S. Senator, there is a Libertarian Party candidate. But when I began to search for information on these candidates, not a single one had a website beyond a bare-bones Facebook page. As much as I would like to vote third-party in these elections, I can’t really do so because I don’t know anything about the people running. And I simply cannot take any candidate seriously when they don’t have a website in 2012. That to me represents the bare minimum in promotion and makes me extremely wary.
We’ve been constantly told by Barack Obama and his apologists in Congress that government spending is good to get the economy growing again. It’s not. In fact, as Ramesh Ponnuru notes, that the 2009 stimulus bill really only grew the national debt, not the economy.
But in a new video from Economic Freedom, Professor Antony Davies of Duquesne University explains the reason why so-called “stimulus” spending only contracts the economy by taking dollars away, either by borrowing or taxing, from the private sector and individuals:
In recent weeks, the debate over the the retention of tax cuts initiated during the George W. Bush administration monopolized the political discussion, aside from a few politicians showing us that they care nothing for the First Amendment as they condemn Wikileaks and its founder, Julian Assange. What Congress and President Obama seem not to grasp is that regardless of tax policy, the underlying issue for our economic situation is spending, specifically our affinity to borrow money to pay for spending beyond revenue.
No matter what the Presidential Budget Commission recommends with regard to taxation, a value-added tax (VAT), a broader-based income tax with few exemptions, or a switch to a consumption-based tax system, the Federal Government has an addiction. That addiction is to spending taxpayer money.
Whether it is funding for our imperial efforts to expand the American reach across the globe in the name of democracy and fighting terrorism, to continue to fund Medicare, Social Security, and other entitlement programs, or a variety of other government programs, substantial cuts to spending MUST crop up in the debate over how to “right the ship.” The addiction to spend is not a Democrat problem, and it is not a Republican problem; it is a bipartisan problem, and the only answer lies in a nonpartisan solution to break the addiction.
I understand that there are significant obstacles to breaking any addiction, and the Federal Government committed funding to many people and programs. Currently, we are at a point that difficult choices must be made NOW to avoid necessary, drastic, and clumsy choices when the funding is no longer available.
Given the debt situation our country is in, long-term debt projections present serious cause for concern, the International Monetary Fund has analyzed whether or not lenders will stop supplying our habit:
[E]conomists at the International Monetary Fund are paid to ponder the improbable, and in papers published on Wednesday fund staff examined where the U.S. and other developed countries fit on a continuum between easy living and disaster.
We’re farther along than you might think.
Using a concept known as “fiscal space” - basically how much latitude a country has to borrow before markets will shut off the spigot by demanding unsustainable interest rates - the IMF staff drew a bright red line through five nations it considers to be running out of room: Greece, Iceland, Italy, Japan and Portugal. Of the 23 developed nations it analyzed, four others, including the U.S., received a yellow caution flag.
Does it mean default is imminent or inevitable? Hardly - and in companion articles the fund discussed the steps being taken to control public debt, and broadly discounted the chance of an outright sovereign default among any of the advanced countries.
But consider the U.S. The IMF estimated a series of probabilities regarding the amount of increased debt a country might be able to sustain without hitting its projected point of no return.
In the case of the U.S., the fund said the odds were roughly three out of four that the country could increase its total debt to some degree without being penalized by investors — logical considering that the debt is steadily increasing and interest rates remain low and steady.
This Youtube commentary on the state and future of the United States economy with emphasis on the consumer and the future of a new international monetary system was quite interesting. Although the commentator presents no new news or data he does tie the different aspects of our problems together well.