I did the following interview with Dow Jones columnist Al Lewis:
Tax man makes it hard to be an American / Commentary: Tough IRS rules hit the little guys hard
economy
The United States taxes foreigners via deficit spending
Cross posted at the Isaac Brock Society.
Americans keep repeating the meme that Federal deficit spending is borrowing from the next generation. This is not entirely true. Deficit spending creates more debt, and debt creates a larger money supply, and a larger money supply is the quintessential definition of inflation. Inflation soon results in increased prices for everything.
Henry Hazlett wrote in his important primer, Economics in one lesson (pdf), p. 19-20 (emphasis mine):
Everything we get, outside of the free gifts of nature, must in some way be paid for. The world is full of socalled economists who in turn are full of schemes for getting something for nothing. They tell us that the government can spend and spend without taxing at all; that it can continue to pile up debt without ever paying it off, because “we owe it to ourselves/’ We shall return to such extraordinary doctrines at a later point. Here I am afraid that we shall have to be dogmatic, and point out that such pleasant dreams in the past have always been shattered by national insolvency or a runaway inflation. Here we shall have to say simply that all government expenditures must eventually be paid out of die proceeds of taxation; that to put off the evil day merely increases the problem, and that inflation itself is merely a form, and a particularly vicious form, of taxation.
Tony Robbins video on USA Federal Solvency
Tony Robbins has made a video on the United States budget. The video serves to show how far out of whack the federal budget is, and more especially, how the plan of taxing the rich so that they pay their fair share, which is the rhetoric coming out of the Obama campaign, will not solve the problem. Taxing expats, US citizens living abroad, won’t solve the budget problems either. Basically, Robbins shows, using Iowahawk’s numbers, that confiscating all the profits and all the wealth of the rich and corporations would not balance the budget, unless the US were also to stop (1) foreign aid; (2) pull out of Afghanistan and Iraq, (3) etc., etc.
Meanwhile, Cullin Roche, the Pragmatic Capitalist, calls Tony Robbins’ video stupid; he claims to understand monetary policy and says that it is impossible for a money currency issuer to go insolvent (e.g., Zimbabwe, Weimar Germany, Argentina, Chile???); rather, he says that such an entity can cause inflation. He says that this is not merely a semantic distinction. Are you buying that? I have argued that the United States government is already insolvent, but that its money creation ability makes it able to extend and pretend, to kick the can down the road, until the dollar itself becomes a meaningless symbol of value, since measuring other assets in dollars is reification. The United States has already defaulted. So have many currency issuers in history. Monty Pelerin agrees. Here is Roche’s video:
But the United States government is much worse off so far this year than what Robbins projects; it is not borrowing 40 cents on every dollar it spends but 53 cents. The debt death spiral is at work. Expect a government that is so desperate to continue to put in place desperate measures. It becomes a predator, seeking food high and low, including expat food. It is currently cannibalizing its own expats, rather than facing the fact that it must both (1) cut its budget and (2) raise taxes on all Americans living in the United States. Raising taxes on the rich and those living on foreign countries will not solve the insolvency.
Hat tip: Business Insider.
October to March: US government borrows 53 cents on every dollar in “budget”
From Zerohedge, US Posts Biggest March Budget Deficit In History:
Following the all time record high February budget deficit of $232 billion, the US March budget deficit number is in, and in addition to being bigger than expected, coming at $198.2 billion on expectations of “only” $196 billion, the government outlay in the past month also is the largest March deficit on record. This brings the total deficit in fiscal 2012 to $779 billion, which is to be expected for a country gripped in total political chaos and which is unable to either raise revenues or lower spending. What is more disturbing is that over the same period (Oct 1 2011 – March 31, 2012), the US government issued $792 billion in debt, a trend that will continue. What is most disturbing is that the comparable tax revenues net of refunds, “matching” this increase in deficit and spending, are only $693 billion, in other words the US government is funding well more than half of its cash needs with debt rather than with tax revenue.
My math tells me that the US is borrowing 53.3 cents on every dollar in expenditures over the last six months. No government or any other entity (unless you can change water into wine) can continue to do this, not even the mighty United States, without eventually facing a day of reckoning.
Stuart Varney on why food prices have skyrocketed in past year
Monty Pelerin has a great post on how government statistics are lying to people about inflation. He makes an appeal to the real inflation in food prices. While the excessive creation (electronically not via printing) of fiat money results in high food prices, the EPA has just decided to increase the ethanol content of gasoline to 15% from 10%. This will not help food prices either, since it is more lucrative for farmers to receive a government subsidy to grow corn for ethanol than for food or for livestock feed.
The Bible treats agricultural growth as a direct gift from God himself. For us to take our grains a piss them into cars because of worry that God can’t keep the planet from turning into a ball of fire is something that will ultimately lead to His judgment of our society. It is immoral to burn food in cars. We have abundant petroleum products are for that purpose. Meanwhile, Americans (and yes, we in Canada) are feeling the pinch of inflation. This is just going to get worse, much worse, as central banks around the world solve their sovereign debt and other insolvency issues through the creation of more fiat money. Monty Pelerin has another excellent post (Why High Inflation Is Inevitable) explaining why the Bernanke must continue to ease–the US government is insolvent. If the Bernanke doesn’t ease, the politicians will fire him and replace him with someone who will. Food, energy and other costs of the real things people need will continue to pinch people’s budgets until it will cost one’s entire wages just to survive. That what happened in Weimar.
Hat tip: Monty Pelerin
The Righteous Investor 