The Federal Reserve has been quietly printing money (well, not so much printing as issuing electronic credit) and buying US debt, which is the equivalent of me printing money to pay for my wife's spending. However, the Fed is going to sharply increase quantitative easing (a nice euphemism for 'printing money'') with a planned outlay of $600 billion dollars. This is angering out creditors, which is just about everybody (China, Japan, UK, South Africa, Germany,...). The reason of course is that printing money without a corresponding increase in GDP (Gross Domestic Product) results in a devalued dollar, which not only devalues the debt owned by other nations, but also devalues the dollars in our own pockets. In addition, I learned something shocking that I never knew before. While the US Government pays interest on the money it borrows, it doesn't pay anything to reduce the principal. In other words, we pay interest only! No principal. The idiocy of that needs no explanation.
So what is the answer to our problem? Bring spending under control. No more bailouts, no more too big to fail (too-big-to-save should be our policy), no more handouts to political constituency groups. In fact, I advocate a Balanced Budget Amendment to the Constitution. It's been tried before, but the politicians lacked the political will to finish the job. We need it now more than ever.
Addendum: As I have previously stated, no matter the type of government each of us desires or envisions for this country, it must be founded on sound fiscal principles to survive or to succeed in its goals. One cannot defy gravity forever.
4 comments:
Although a balanced budget is a great idea and obvious part of the solution, it will not suffice. There is already incomprehensible debt that must be paid back. We will have to re-prioritize our funds: can we continue to be the policemen of the world? Must we continue to be the greatest donor of foreign aid in the world? Must we continue to keep Israel afloat as our biggest foreign aid disbursement? We all seem so intent on domestic spending and nearly unaware of foreign spending.
Republicans will now assume well over 20 chairmanships in the House: what will they do? Will they use the excuse that the Senate will not support their initiatives so why bother? Or that Obama will veto everything so why bother? Will they target domestic spending and ignore foreign spending? Will they decide that foreign guerrilla warfare is a non-winning proposition and abandon the patriotic facade?
Will they refuse to raise the debt ceiling without doing which the government will begin to shut down (vote for this ought to occur in January)?
Both parties. Will they cooperate with each other?
I am continuing to lean toward a third party that would force both parties to understand the importance of coalitions and of being pragmatic.
You are right to include foreign aid as being subject to cuts. Many of these foreign-aid-receiving nations are rife with fraud and outright thievery of US aid, both material and monetary alike. Other cuts should include defense, NASA (the one agency I really like), and most importantly, all entitlements. However, I seriously doubt the politicians it either party have the guts to do it. Any proposed cut will be used against the proposer as a tool to score political points. My cynicism is quite high.
The only other way around this impasse to get the economy roaring again. Taxation is a serious damper on economic activity, so what we need is not higher taxes, but rather more taxpayers, i.e., more working people in a strong economy.
Propping up the economy via tax reductions is a difficult cycle to start...how long before it begins to work and generate more revenues for the federal government? Will improving the economy suffice to balance the budget and pay off the debt at the same time? Will voters be patient enough?
I have no answers to all your questions except to say that cutting taxes has always spurred the economy. Keynesian policies have demonstrable failed, so let's do what has always worked: Free markets without government meddling.
However, I really getting the sense that there are those in this country who are perfectly happy with the slow economy and our fiscal dilemma because it will lead to the socialist revolution they so desire. Such are sorely delusional.
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