Sunday, July 3, 2011

A rational government?

Our faces are being smothered with the same curtain of misinformation. (Pay no attention to the men behind the curtain.) Continue to believe that we are in dire straits because of our terrible debt and unbalanced budget.

The country must face "hard time"; all the while feeding the men behind the curtain huge sums of money.

Does the country owe money to bond holders? Yes. Is that debt payable in anything but our own currency? NO!!!

Is there any fundamental economic principle forcing default on our bond payments? None at all. (Actually, the 14th Amendment makes laws limiting such just payments unconstitutional.)

The government buys and sells bonds as a way of controlling interest rates AND THAT'S ALL!! It doesn't need the money.

The Federal Reserve Governors set a target interest rate. The Fed then buys (to raise interest rates) or sells (guess why) bonds on the open market to move toward that target.

(This is a bit arcane but bear with me.) Deficit spending also tends to raise interest rates so the Fed has to sell bonds to balance that spending.

Deficit spending can also trigger inflation. I don't think that is a problem now. Why? Look at the unemployment numbers. Unfortunately, the only thing we don't control is fuel prices and that can pose a problem. However, every thing else in our economy is subject to rational control.

"Rational control", ahhh, a consummation devoutly to be wished. Cut spending we hear, just when the economy needs an influx of money. Raise taxes, just when the economy needs people to spend on goods and services to raise the demand. Default on paying the just returns on our bonds. I can only think of checking gasoline level with a match.

Either the politicians are that badly informed or they hope to keep us that way. Think about it and, perhaps, we can hold their feet to the fire and get some governance that makes sense.

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