How the Deficit Depresses Our Economy

Our national debt, financed by treasury notes, bills, and bonds, depresses the economy by destroying private investment

The political class insists that we can’t cut our massive, $1,600,000,000,000 Federal deficit, because it would depress the economy and cost jobs. Their excuse is that the private economy is not creating jobs and wealth, so the government must take up the slack.

But what mysterious burden, on our economy, is preventing the basic private investment that creates wealth, allowing the economy to grow, jobs to be naturally created, all of us to prosper?

Ironically, it’s that very deficit.


It’s because of the way the deficit must be financed:

The government has to raise every penny of the deficit it spends, by issuing treasury notes, bonds, and so on. Private people buy these, imagining they are “investing” by doing so. But real investment creates wealth, while government securities just finance deficit spending, as a debt that will be paid back by your grandchildren, as gigantic tax burdens.

This year, the Federal government will have to convince people to “invest” 1.6 trillion dollars in government notes and bonds, to pay for its deficit. Every single penny of that would, otherwise, have been invested in private enterprise, to create wealth.

Imagine if the private economy got an “extra” trillion-plus dollars of investment, next year. The massive growth in wealth and jobs is almost unimaginable.

Now imagine if, instead, the private economy had a trillion-plus in investment REMOVED from it by government. The massive loss in growth and jobs is entirely imaginable, because it’s what we’ve been suffering since the deficit increased almost one trillion dollars in 2009.

Every dollar the government spends steals one dollar from the private economy…either directly, by taking it through taxes, or indirectly, by financing it through a bond or note that steals that dollar from private investment.

The Fake Spending Cuts

If they're so interested in balancing the budget, why are they increasing spending and calling it a cut?

The Federal government has not had an actual, official budget for many months.

When it was time for a new budget last year, the one proposed had so much pork and needless spending hikes in it that even the Democrats who controlled both houses could not get it passed.

And neither they nor the Republicans have succeeded in passing a budget, to this day. They have instead, kept the government funded with “Continuing Resolutions”, temporary agreements to “continue” spending at current rates while the budget is debated.

In 1995, such continuing resolutions actually helped reduce the National Debt, because they held to current levels of spending for months, instead of the next year’s increases.

And people assumed that this is what was going on this year…but they underestimated just how corrupt the Congress has become. Last year the Democrats controlling Congress did not agree to traditional Continuing Resolutions, maintaining current spending…their “resolutions” were actually based on the proposed budget that most members of Congress were rejecting.

Flash forward to the last few weeks:

The Republican leadership has made a big deal about having made two billion dollars in “cuts” from the Continuing Resolution…and when that one ended, six more billion from the next CR.

They have been claiming credit for “ten billion dollars in cuts”. This would, if it were true, be the first time in something like 60 years that the budget was actually cut, instead of the rate of increase simply being adjusted.

Even the 1995 Republican Revolution only cut the amount spending was increased. This was called “cuts” by the most ridiculous Liberals of the time, because they seriously think that increasing spending the “planned” amount is not an increase, at all. So if you plan to increase spending 3%, and then increase it 2%, that is a “cut”.

This is what I had feared the “cuts” in the Continuing Resolution actually were; just reductions in the increase.

But it’s worse…as I noted above, the CRs were actually based on the rejected, larger budget. And the Republican leadership is corrupt enough to reduce only those proposed super-increases, leaving the temporary budget still higher than last year, then claim credit as if they’d actually cut spending.

This explains more clearly, to me, why 54 Republicans, mostly TEA Party types, refused to vote for the CR.

We Need MORE Snow in DC

The thing about the government shutdown that should worry bureaucrats the most, is that we might realize we don't need them.

Watching pundits worrying about the shutdown of DC because of record snowfalls, and debating who to blame, asking whether this meant it is vulnerable to shutdown by other disasters, I found that they were entirely missing the point:

Aside from providing the perfect background for the fall of the global warming myth, it has illustrated for us how absolutely unimportant the Federal bureaucracy is for the nation’s well-being.

The “government shutdown” has proved as completely irrelevant to the rest of the country as it did in 1995, and 1990, and several times in the 1980s. For the most part, the Federal government…especially the expensive, or restrictive, aspects of it…is nothing but a burden on the backs of the American people.

Snow it in, or cut off its funding, and the real, productive people in the rest of the country not only do just fine, but are actually better-off.

What we need is for this kind of thing to happen more often.

Perhaps we could at least spare the innocent (albeit largely non-productive) DC locals the suffering, and have official, planned government shutdowns. We could start with the precedent of the December-to-April shutdown in 1995, caused by Clinton vetoing the fiscal restraint proposed by the Republican Congress; a shutdown that saved enough money to jump-started the move to the first nominal government surplus in decades.

We shut down much of the Federal government for four months, and tally up the savings. Next year, we increase it by some modest amount…say five percent. And we do that each year, until we find the point of diminishing returns. I figure it’ll be around the 364-day shutdown mark.

Washington, you’d better figure out you are doing us more harm than good, before it’s too late.

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