By John Tamny for RealClearPolitics
The debt limit discussion would be much more reasonable if it was widely understood that the government has no resources. And by extension he has no credit. Please think about who the government gets its “credit” from as you watch all the hysteria.
For example, Romina Boccia from the Cato Institute. She argues that “what is missing from the debate is serious consideration of the potentially catastrophic long-term scenario that the United States could face if spending and debt continue to grow unabated.” But isn’t it the “invisible” trillions upon trillions of wealth drawn from the private sector over decades that is really catastrophic?
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From there, let’s not forget what a bonus is: it’s a claim on future income streams. It is a reminder that the real debt ceiling “crisis” is one of too much revenue now and a market expectation of exponentially higher federal revenue in the future. Do they debate debt limits in Argentina, Guatemala and Zimbabwe? The question is rhetorical.
Boccia’s solution is to “raise the debt limit,” and the latter is bound to happen. Politicians exist to spend other people’s money, which means they will collect it; though only after both sides have sucked up as much political capital as possible by pretending they really care to spend (Republicans), or don’t care (Democrats). The important thing for the moderately conscious to understand is that while the bottom line is not in question (the debt limit is raised), neither side cares about spending.
Boccia adds that a “fiscal crisis” born of default “could lead to rapid increases in interest rates, inflation and unemployment. This could trigger a recession and severely reduce economic growth.” Actually? Because? If we ignore that politicians will never relinquish a position that gives them control over the allocation of trillions, we cannot ignore why the Treasury can borrow at such low interest rates in the first place. The answer is simple: it is not a Treasury loan.
The above is not a jingoistic statement intended for AM radio but basic market economics. The Treasury can borrow in size precisely because members of Congress have taken too much of the profits of the world’s most productive people now and in the future. Hopefully, to bring clarity to readers, Russian authoritarian Vladimir Putin isn’t constrained by a Kevin McCarthy equivalent in Moscow, but Russia’s total debt is “only” $190 billion. Is Putin a classical thinker in disguise, or do markets not trust the productivity of Russian workers the way they trust the American people? Rhetorical question once again.
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Importantly, none of this will change if the US “defaults” as it has on numerous occasions since 1933. The Treasury’s credit is with the American people, and it will remain unimpeachable no matter what. Keep this in mind with interest rates in mind.
From there, wealth never sits idle. Assuming that what won’t happen actually does happen, the worst-case scenario isn’t as dire as Boccia and others imagine. That is the case because public spending is the most real tax on the creation of knowledge that is the real wealth of the world. In other words, default would discredit a government that consumes too much wealth, not those who create it.
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None of this is a call for a default that won’t happen so much as a suggestion to libertarians to stop making the case for political class “catastrophic” debt: government is nothing without wealth always and everywhere. created first in the private sector. , so to assume that the private sector would be concerned about problems in the Treasury is that the self-proclaimed freethinkers turn logic on its head.
John Tamny is a Publisher at RealClearMarkets, a Vice President at FreedomWorks, a Senior Fellow at the Market Institute, and a Senior Economic Advisor at Applied Finance Advisors (www.appliedfinance.com). His latest book is The Money Confusion: How Illiteracy About Currencies and Inflation Sets the Stage For the Crypto Revolution.
Distributed with permission from RealClearWire.
Opinions expressed by contributors and/or content partners are their own and do not necessarily reflect the views of The Political Insider.
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