So much nonsense is being talked about the fiscal deficits in the media, by our elite rulers and by those with a vested interest in showing free markets work oh so well. I therefore liked Peter Radford’s piece in Real World Economics that introduces some common sense into the debate:
It’s unavoidable. It’s inevitable. It was reckless. The burden was just too great. We promised too much. It’s the freeloaders. We can’t afford it anymore. The debt is crippling. If not now for our children. It was the government and those moral sapping social programs.
Somehow it’s always the government.
The absurdity is that these so-called causes of the crisis are still reverberating through media and elite channels. These same people have been warning us for years now that inflation is about to explode into Weimar like chaos and that our profligacy will be punished any day now by the astute players in the credit markets. Our constant need to borrow, so the story goes, will result in an adverse reaction: we will be forced to pay extreme rates to keep the cash flowing in. And all that money we have printed? Well that will certainly bring down the roof. Civilization is about to end. At least as we know it.
Unless we all behave like grown ups, swallow our medicine, however evil tasting it is, and slash spending, debt, deficits and anything else that moves.
If I have heard this apocalyptic yarn once, I have heard it a thousand times. It sticks. It hangs around when it ought not. It grabs the headlines, and it makes so much intuitive sense to the unwary that they repeat it as if it were a timeless truth. Balancing our books seems so right. After all that’s what we all have to do in times of financial stress.
That this monumental error lingers on is the primary reason we are mired in depression. It is wrong. Massively wrong. Hurtfully and painfully wrong. Yet it lingers on.
This morning, fully four years into our crisis, and many many months into the printing of money and run-up in borrowing, the US Treasury went to the well once more. It borrowed $21 billion worth of ten year debt. Was it punished? Was the rest punitive? Were creditors vexed, concerned, worried silly, or otherwise upset over the government’s need to issue more debt?
On the contrary.
The rate was a record low. A smidgeon below 1.5%. Yes, read that again. The US can borrow at 1.5%. Given that inflation is above 2.0%, this means people are parking their cash with the US and are willing to lose. In effect they are paying us to take their money. Not only this, but for every dollar issued this morning we could have sold 3.5 as much. The deal was oversubscribed. Heavily oversubscribed.
And the crisis? The apocalypse?
Nowhere to be found.
Yet those stories linger on.
As does the notion that our debt is a recent phenomenon. It isn’t. But then you all know that don’t you? Our debt problems began when Reagan spent wildly on defense without paying for it via an increase in taxes. He established the modern Republican fiscal credo: something for nothing. Spend, but don’t tax. Oh. And according to Dick Cheney deficits don’t matter. Those debt problems shrank markedly under Clinton – lets’ face it he was lucky as well as smart – and then ballooned under Bush. Indeed, Bush was so worried about the strength of the government’s surpluses that he argued we were all paying too much in tax. So he slashed taxes. Not once, but twice. He removed the bottom from our boat and then watched us sink.
The absurdity of it all is that the very same people who voted for that fiscal cataclysm are, by and large, the very same people wringing their hands and moaning about the impending doom that awaits us because of our debt.
Funny that. How much they must have changed their minds.
Well, not funny, just absurd.
Even more absurd is the plight of poor Spain. Having been a paragon of fiscal virtue, having narrowed it budget deficits and managed its debt levels far more effectively than, oh, say, Germany, it finds itself being mentioned as the poster child of irresponsibility. Conservatives point to it as being emblematic of the fiscal wreckage resulting from social democracy. All those social programs. Tsk. Tsk. We all know how they undermine fiscal rectitude.
Well not really. Not at all.
Spain suffered a housing bubble, and has no currency to devalue. It made the common error of taking the debt crisis in its private sector and, by bailing it out, moving it onto the government’s books. It thereby created a budget crisis for itself and its taxpayers. In order to wriggle out of the budget crisis it is busily slashing away at spending. It announced yet another round of cuts today. None of the previous rounds have worked. Unemployment has soared to the low 20% range, or more depending on which part of the population you’re counting. Revenues are declining as the economy tanks, making each successive wave of austerity less effective than the last. As part of the latest cash injection to bail out its defunct banks, Spain has had to agree that the preferred stock and subordinated debt holders of those banks will have their holdings wiped out. By a quirk of Spanish savings ordinary folk are the most affected. That preferred stock and so on was sold as a savings vehicle for retail savers. So Spain is draining its ability to recover faster than the medicine delivers recovery.
The absurd gets more so every day.
None of the standard story is correct. The evidence refutes it clearly. Yet that story persists and frames our discussion. Informed people seem to be happy being misinformed. Perhaps they hope the solution is simple. Perhaps they are tired of the debate. Perhaps they’re confused.
None of which is an excuse for the absurdity that surrounds us.
And which is steadily strangling the lives of millions.
These are callous times.
And that’s absurd.