Posted on 05/10/2016 7:18:01 AM PDT by SatinDoll
"Donald Trump's Economic Plans Would Destroy the US Economy!" screams the headline in The Atlantic.
Of course to go with the headline they find a very unflattering picture....
I do give The Atlantic one bit of credit: They didn't bury the lede.
"I've borrowed knowing that you can pay back with discounts," he told CNBC. "I would borrow knowing that if the economy crashed, you could make a deal.”
"This policy would be so disastrous that even its suggestion is dangerous."
Oh really?
The article goes on to say that suggesting that one might haircut the debt would collapse markets -- and the economy.
But let's be serious, shall we? Does anyone actually believe the United States can borrow more and more money at a compound ~7% rate forever while the economy itself grows at 1-2% and that said debt is "money good" and will be paid in full?
I remind you that such a premise is mathematically impossible and anyone with more than a middle-school education either knows it or should -- therefore, anyone buying said "debt" today, and in fact for the last decade and a half, knows damn well that at any longer maturity you are not going to get paid in full.
In other words: When has said debt ever been "money good" and actually paid in full? Could the United States, today, pay in cash (from accumulated surplus) all of the borrowed funds as they came due without rolling any of it over, even right now if there was no new debt taken on?
That's a big fat NO.
Indeed we could not even pay 10% of it "as it came due" right here and now.
This is very much like the following situation:
You have an annual "all source" income of $30,000. Your free cash flow, after paying your rent, electric bill, water and sewer, mandatory transportation expense (so you can get to the job where you earn that $30k) and groceries (so you don't fall over dead from lack of food) is about $3,000 a year.
Unfortunately you're $150,000 in debt, you're adding about $10,000 a year to said debt and the only reason you can make the interest payments is that the rate is 25 basis points, or 0.25% -- $375 a year.
The outcome of this little exercise is not in question. You're bankrupt -- here and now -- and the idiot(s) who continue to extend you more and more credit at the rate about one third of your annual gross income not to mention at an interest rate lower than the economic (and thus monetary) expansion of the economy + new issued debt (economy-wide) are eventually going to be fighting over the scraps. It is simply a matter of when, not if. This is arithmetic, not politics, and the outcome is certain; only the timing is in question.
The problem with this article is that it underlines exactly how many "hacks" the US Government has made over the years in an attempt to hide this fundamental, mathematical truth. For example, the claim that putting a stop to illegal immigration would "crash" the economy is a bald lie not because it wouldn't happen (it might) but because said illegal immigration "funds" phantom earnings that are in fact exceeded by expenses. In other words allowing this crap to go on, when one adds up all of the cash flow on both sides is a horrifyingly bad economic decision. Not only are the direct expenses (e.g. ESL, food stamps, subsidized housing, etc) in excess of the benefit the indirect costs (e.g. crime, fraud via identity theft, the drug gangs, etc) are ruinous.
The so-called McCain economic adviser objection is specious, but you have to understand where it comes from: It's far more important to maintain the illusion of solvency than to actually address the issue because addressing the issue means enforcing the law and ending the rip-offs in our economy that have grown an entire industry -- the medical "industry" -- from 3% to 19% of our GDP over the last few decades.
Here's the bottom line folks: The entire problem from a debt and budgetary perspective rests in medical expense expansion and that has been entirely caused by acts within that industry that are by any reasonable reading of 15 USC flat-out unlawful.
If you stop it then the entire problem goes away, but so does 19% of the economy -- for a while.
But it won't go away for long, and in fact we know what happens when the government doesn't interfere with bubbles -- and frauds -- blowing up. In point of fact what The Fed should do into the face of such a bubble being recognized is to raise rates and what the government should do is balance the budget, refusing to spend one penny in deficit.
Why do we know this is the correct set of actions? Because exactly one time in the relatively modern economic and monetary structure of America that is exactly what was done in response to a debt-based bubble (which in turn led to crazily-inflated expectations for production) inflating and then bursting.
That would be 1920-21 -- which would have been the worst economic Depression ever recorded in American history but for one tiny little detail that nobody seems to mention:
The recovery was so fast and so violent off the bottom, in fact notching the greatest increase in industrial production ever recorded in American History, that the economists didn't have time to call it a Depression and still don't do so to this day.
Let me repeat that: In less than two years both the crash and recovery were complete; the economy was in fact not only back to full employment within about 18 months the largest rate of increase in industrial production ever recorded in American history occurred at the same time.
In fact today that episode barely manages to receive a mention in contemporary economic discussions!
The reason?
It shows conclusively what happens when you yank the rug out from under people who do stupid and even illegal things, refusing to protect them with government force:
The market clears on its own, it re-allocates resources very rapidly and with ruthless efficiency.
Driven by the profit motive you wind up far better than where you were before by all reasonable metrics, especially those that matter to the common man such as employment and economic output.
Of course all the schemers that thought they were "protected" by the government wind up bankrupt as well, and the prospect of that happening makes them very, very unhappy.
Is it any surprise they bury history lest we choose to repeat it?
Out for comments.
Ronald Reagan had a degree in economics.
It’s gonna crash. Would be nice to have a President who wouldn’t hide and go seek shelter when it does. One who has more knowledge about economics than 0 does.
Oh, I did not know that. When the two of them chatted, they must have had a lot to talk about.
George H. W. Bush, Former US President (Yale)
Ronald Reagan, Former US President (Eureka College)
Gerald Ford, Former US President (University of Michigan)
Here is a list of famous people that have degrees in economics.
Some in the list will amaze, while others will make you laugh (the ones that obvious learned from the wrong professors).
Both have valid points. It will hurt our standing economically, but it probably will be necessary. Credit standing can be rebuilt though once you have taken the necessary steps to prevent getting right back into trouble.
The only way out of this is to pull back all of the physical wealth creation that we have moved offshore over the last three decades.
The free traitors have been systematically looting the equity of the US economy for at least that long, well over one entire generation. This involves leveraging out US companies, loading them up with debt, declaring that offshoring them is the only way to save the company, and then cashing in on dumping said company on some foreign buyer.
I know of people who have made an entire career (30+years) of doing this.
Those same assholes are also behind the wall st./k street/fed/regulation mill, designed and implemented solely to enrich a few players, consequences be damned.
I saw Hillary on the news this morning. She she said she would let Trump run his own campaign.
She would “let”?
I bet Trump did not realize he has to get Hillary’s permission on how to run his campaign.
Only those that subscribe to the Austrian Philosophy of Economics have a grounding that avoids wishful thinking.
If I knew that by proposing cutting the deficit the “left” would do everything in their power to obstruct that effort I might instead suggest that borrowing and bankruptcy could be a good thing. Predicatively the left will scream and yell and advance an argument that borrowing and bankruptcy is the worse possible plan. I could than use that argument against them to advance my plan for cutting spending.
That is negotiation Trump style...
True, because it lacks the emotional element that is present in Keynesian. One believes in the free market and the other in government intervention at times. Government intervention has of course caused the near ruination of most economies thus far. Of course we know which works best and most equitably, because once you start intervening based upon emotion, then runaway excesses usually results.
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