Political Economy

Why US spending cuts and deficit reduction does not matter

The reason spending cuts do not matter is no one is serious about them. The Democrats will push the debt to 20 trillion by 2016 and the Republicans to 19 trillion. Is there any real difference in the political philosophy of these two parties? Both sides are afraid to cuts spending. Rather they make nominal changes, shake hands and then congratulate themselves for being masters of the universe.

  • S&P lowered the US rating on Debt. They did this despite political pressure from Washington not to. Government is not interested in stopping its growth. GDP to debt limits or threat of a government shut down does nothing, except allow more political trickery to continue the growth of government.
  • I do know for fact that the people holding our debt in foreign countries are not so naive.
US debt and spending
It does not get me excited when people talk about spending cuts. Cut the budget 50% or more this year and then I know people are serious, everything else is just political smoke and mirrors.

What is the problem with politics and US spending?

The problem is the Republicans support the industrial military complex (we are in 135 countries around the world in some form) as much as the Democrats support corporatism (subsidies and bailouts under the guise of Keynesian economics). Whether it is foreign spending to support our foreign empire or domestic spending to transfer your wealth to another man’s wife, it does not matter, it has to stop. When interest rates go higher the interest on the debt by 2016 will be higher than military spending. Then what?

Is America doomed? Not yet, but eventually the dollar could collapse under the weight. If foreign countries like China or even domestic holders of US bonds and currencies start to panic, then the US will not longer be able to finance its government, no matter how many hand shakes and smiles in Washington. I do not think America will collapse economically, but I would not put money on it either.

What is inflation? Even if this does not happen the devaluation of the dollar and a return of inflation is apparent. Inflation is a tax on the poor and working people at the expense of the wealthy who have the ability to hedge with investments.

My recommendations are:

Vote for the right person on the 2012 US elections. I do not know who I will vote for at this juncture. Maybe if Ron Paul runs I will be for him.

Obama wants a budget that by 2016 we’ll have $20 trillion worth of debt, Republicans want one where there’s only $19 trillion worth of debt in 2016. That’s not much of a reform as far as I can see. – Ron Paul

 

 

 

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Mark Biernat

This is my Youtube Channel: EconLessons

Comments

3 responses to “Why US spending cuts and deficit reduction does not matter”

  1. Greg

    Perhaps serious spending cuts would put people in the streets. And add to the unemployment. I don’t know if there is an answer to these woes. Private sector wages are losing its buying power. While gov’t sector employment grows. And spending to fuel growth seems to be ineffective since inflation is the net sum of this new growth policy.
    Perhaps a spring of rejuvenation will set upon us and reason may be resurrected where the fog of uncertainty can be lifted.

    Reply
    1. Mark Biernat

      Greg, you make a good point about the US economy. However, the reality is there is a solution. A clear simple one. That is markets would take off and we would all get rich if capitalism was brought back. This includes no income tax, no military empire building, and no Federal reserve taxing people through money creation.
      Private sector is weighted down by the public in ways that are not seen, via the crowding out affect and taxes allocating energy from the job creators to people who take by sitting in government.
      Look at it this way, if you were to start a company would you hire people who sit in government jobs? Most of them could not function in the private sector.
      The government has a responsibility to protect your liberties but where in the constitution does it say they should protect your job.
      If you let the markets work, jobs will be created. What we will have now is years of declining wages and low growth because of government. If people are slightly negative towards capitalism it is because they do not understand we have not had it yet. Obama is not a socialist he is a corporatist.

      Reply
  2. Thomas Oliver

    The true nature of business is to sell trade and produce. We need to stabilize the the stock market by restricting quick traiding (72hr hold before a stock can be trained again) and restrict speculators from raising stock prices thru increasing the percentage required to hold a stock, now only pennies on the dollar.
    Remove extra taxes form all business. Incentive tax relief to business needed in local communities. Taxes are payed by the people they employ. Tax all businesses as you do the people, property, income ect.. Flat tax everyone except the very poor and the people over 50 so they can save for retirement. This will remove the deterrent of moving into a higher tax bracket.
    Job training for everyone that receives welfare and dependence treatment for those with substance abuse. The State already is paying for their actions anyway. If they are unable tobe trained after a short time they should be working for the State doing menial labor to pay the State back in some way for the money they are recieving. Provide State child care if needed.
    The system should encourage personal profit for people that work for it and make people that live off the system accountable to the people that are supporting them.

    Reply

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