No Such Thing As Debt!

For a national economy debt is a meaningless concept. Deficits are a figment of a small mind’s imagination. An unlimited government budget is the only road to prosperity!

Yup, its the Keynesian truth.

Therefore our protracted and divisive national arguments over an arbitrary debt ceiling, a ginormous national debt, skyrocketing deficits and limited budgets are meaningless as well.

So why have them? Why put ourselves through unnecessary misery?

Those things don’t matter. They can and should be ignored during desperate times of joblessness and a weak economy just like we have right now.

We don’t have a spending problem, we have a demand problem!

Fix that with massive spending and we all live happily ever after.

That is the dream world where Keynesians like academicians Robert Reich, Nobel Laureate Paul Krugman and President Barack Obama live.

In their twisted vision they deny the existence of debt in order to justify unlimited spending to attack the Keynesian Great Satan – a demand problem!

That is likely what the Keynesians will propose to do next month to create jobs and fix the U.S. economy.

What they need is a lesson in reality.

Today’s Lesson: Europe

Quiet down now and pay attention class; especially you three in the back of the room… Barack, Paul and Robert!

Students… read this article from today’s paper:
Pledge for Euro Unity May Not Be Enough to Satisfy Markets“-Steven Erlanger, New York Times, 8/17/2011

Here is the lesson of the day…

We have a demand problem because we ignored our spending problem!

Meeting at the Élysée Palace

President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany had a much-anticipated meeting in Paris Tuesday.

At that meeting they discussed the European Union’s growing economic crisis and how to deal with it. Their purpose was to calm the European Markets with assurances things will be fixed.

Did they call for massive government spending to increase demand? NO!

In their announcement, according to the NYT, they called for “all euro zone states legally bind themselves to working toward balanced budgets and reduced sovereign debt”.

Heresy, the purist Keynesians say!

Chancellor Merkel said there is “no magic wand” to solve problems with the Euro and that they “must be met over time with improved fiscal discipline, competitiveness and economic growth among weaker states.”

Like Europe, the current U.S. GDP growth is nil.

Sarkozy and Merkel committed themselves, once again, to something called The Stability and Growth Pact (SGP). It is part of the treaty that first established the euro zone economic union in the first place.

The stability pact commits its members to keep fiscal deficits to 3% of yearly GDP and total sovereign debt under 60 percent of GDP.

That is Europe’s problem… member states have pretty much ignored the stability pact.

Now they are unstable. Imagine that!

According to English economist, Lloyd Barton, “The longer the sovereign debt market remains stressed, the greater will be the damage to the wider economy”.

In short, the lesson from Europe is that debt is as damaging to their sluggish economy as a lack of demand and must be reduced to fix the problem.

Conclusions

Just like the rest of us, nations do have such a thing as debt!

Debt does damage national economies and must be fixed for there to be economic stability. Debt can’t simply be denied.

Sluggish economic growth in the U.S. is almost a mirror image of Europe and brought on by the same causes – the Great Recession of 2008 and massive government debt.

Like Europe our GDP growth is miniscule. The U.S. deficit in 2010 was 10.9% of GDP and our nation’s debt is nearly 100% of GDP, well over the stability pact standards set by Europe in creating the euro zone.

U.S. federal government spending already is well over 20% of GDP. Increasing it further has the same aggregate effect on demand that the wealth gap does. They are a one-two knockout punch to any nation’s economy.

But all that might be totally ignored when the Keynesian-in-Chief, President Barack Obama, proposes his jobs plan next month.

If his jobs plan is just another Keynesian massive spending solution it should be rejected outright.

Should we raise some revenues and spend some money to create jobs? Yes, but without serious debt reduction it will be all for naught.

Learn from Europe. Don’t spend our way out of a recession. It won’t work this time. Europe has already figured that out.

And so ends the lesson of the day.

Class dismissed!

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About azleader

Learning to see life more clearly... one image at a time!

Posted on Aug 17, 2011, in Barack Obama, Debt, Economy, euro, euro zone, Europe, European Union, GDP, Gross Domestic Product, Job Creation, Jobs, Keynes, Keynesianism, Keynesians, National Debt, Obama, Politics, President Obama. Bookmark the permalink. 2 Comments.

  1. So, the Old World finally admits that they can’t spend their way out of this on. Listen up, New World!

    AZ, this article was linked at another blog today. It is the best debunking of the Federal Reserve and its Keynes monetary policies I have ever read. I think you will enjoy it. I will be linking it tomorrow.
    http://www.realclearmarkets.com/articles/2011/08/12/the_aura_of_the_fed_is_gone_good_riddance_99185.html

  2. I read the article… it is pretty extensive.

    Originally, The Fed was created to be a moderator of the money supply to prevent the economic panics of the late 19th century. Those are short term wild fluctuations in the money supply. For that function it was well designed. It has worked well for 100 years.

    For its original purpose it has worked well and can continue to work well in the future.

    The problem with The Fed is that it has taken on other functions which now threatens its existence and more is expected of it than it is capable of doing.

    For the Great Recession it has exhausted all its capacity to moderate the economy and has applied its action of last resort – quantitative easing – twice!

    More is needed to recover the economy than The Fed can do.

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