Tuesday, March 31, 2009

Perpetual Deficit Spending Is Evil And That Is Not A Myth

John Kennedy once said ““The great enemy of truth,” he said, “is not the lie—deliberate,
contrived, and dishonest—but the myth—persistent, persuasive and unrealistic.” Kennedy spoke these words during his 1962 commencement address at Yale University in relation to the concept of deficit spending. Kennedy attempted to denounce the myth that deficit spending is always evil and balanced budgets are always in the best interest of the public. I must agree with Kennedy’s initial claim. Deficit spending is not always evil and sometimes deficit spending is in the best interest of the public. However, this philosophy must be examined for what it means and not taken entirely at face value.
Today in an opinion piece by Bob Shrum, deficit spending was used as a battering ram to denounce the Republicans who are against the current administrations massive deficit spending and the Federal Reserve’s policy of printing another trillion dollars on top of the two trillion in deficit spending Obama and the democrats enacted in the first 50 days of the fledgling administration. On Sunday, George Stephanopoulos read a viewer’s complaint to Treasury Secretary Tim Geithner: “How do you justify printing money out of thin air?”. According to Bob Shrum “Geithner calmly rebuked the cliché by pointing to the Federal Reserve’s capacity to counter inflation by raising interest rates once the economy is back on track.” Unfortunately, Mr. Shrum misses Kennedy’s point entirely. The point is that perpetual deficit is inherently evil. Perpetual deficit spending is the root cause of the economic condition we are currently facing as a nation. Personal indebtedness outweighed the personal ability to repay the principal and interest incurred by the private sector and the housing and financial markets came crashing down. There is no doubt that deficit spending created a bubble that could not be sustained. The private sector was unable to afford the debt load and personal deficit spending crushed the economy. The current economic crisis is reality and not a cliché. The point that the Federal Reserve can raise interest rates to stem off inflation is laughable. That is what happened in the 1970’s under the last failed administration. By June of 1980 America was facing 7.6 % unemployment, 14.38% rate of inflation, and the prime interest rate was 13%. Obviously Mr. Shrum in his rush to defend Obama and push the current administration down the “path to greatness” is nostalgic towards Kennedy but severely lacking in judgment when it comes to the tax and spend era under Carter.
If anything an analysis of deficit spending will yield both positives and negatives. In times of recession budget deficits will increase GDP and set the standards for recovery. However, continual deficit spending will yield the same results we are currently facing. Borrowing in the short term will get us back on track, but in the long term continued deficit spending will collapse the economy. It is as simple as counting to three. No rocket science required. Continuing to borrow money will lead to bankruptcy. That is what is happening in the housing market. People borrowed more than they could afford to repay. The juggling act consumers attempted came crashing down like a house of cards. When foreclosures started to increase the financial institutions tightened money supply. The Federal reserve raised interest rates to stem off inflation while the economy was growing. The bubble burst and now the economy is on the brink of failure. This we caused by massive deficit spending that was unsustainable at the micro level.
Now we have an administration that is predicted to have trillion dollar deficits into the foreseeable future (2019). By the administration’s own admission the predicted deficit levels are unsustainable and yet Bob Shrum is cheerleading for the very proposals that got private citizens in trouble in the first place. Bob Shrum’s cheerleading is an ill advised opinion using an example from when for the most part America balanced its annual budget. In Shrum’s, Kennedy example cited it was an easy simple fix. Raise government spending to include deficit spending when the economy is in decline. However, as the economy expanded the idea was to lower the deficit spending and eventually balance the budget and pay down the nation’s debt. Shrum’s irresponsible opinion forgets to mention that Obama plans on doubling our Nation’s debt load in his first term. History has shown printing money will lower long term interest rates in the short term, but in the long term, inflation will tighten the money supply and interest rates will rise. We are adding an unsustainable debt load onto our children. The excesses of today will be paid in full be generations that have nothing to do with the problem.
The problem is not the myth that ALL DEFICIT SPENDING IS EVIL, the problem facing America is a crushing debt load caused by continual deficit spending. A short term deficit may help in a recession, but perpetual debt causes bankruptcy. What Bob Shrum is advocating is the destruction of America. The 1930’s destroyed Europe with hyperinflation. Obama’s plan will destroy America with the same hyperinflation caused by artificially supported low interest rates caused by mass printing of the American dollar.

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