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Posts Tagged ‘debt ceiling’

Billionaire Plutocrat Jamie Dimon Wants to Ditch the Debt Ceiling | Mises Wire

Posted by M. C. on October 15, 2021

Consequently, Dimon’s position is essentially this: “Abandon all checks and balances if it threatens Wall Street portfolios!” What Wall street wants is to know for sure that the regime will keep the money flowing. That leaves no room for meaningful opposition.

https://mises.org/wire/billionaire-plutocrat-jamie-dimon-wants-ditch-debt-ceiling

Ryan McMaken

At a meeting with Joe Biden and other CEOs last week, JP Morgan Chase CEO Jamie Dimon predicted a global catastrophe if the debt ceiling is not raised.

Dimon was echoing the words—nearly verbatim—of Biden’s Treasury secretary Janet Yellen in using the most extreme language possible, with words such as “complete catastrophe.” Dimon also repeated Yellen’s lie that the US has never defaulted, claiming a default “would be unprecedented.” Dimon then went on to demand that the debt ceiling be abolished altogether so that the US government would no longer be encumbered by inconvenient impediments to endless amounts of federal debt and spending.

This sort of thing, of course, is precisely what we’ve come to expect from billionaires and other captains of the financial sector who have made a living out of turning inflationary monetary policy into big profits for themselves and their fellow corporate cronies.

[Read More: “The Debt Ceiling: An Affectionate History” by David Howden]

Wall Street and the financial sector have become increasingly dependent on inflationary monetary policy to prop up their portfolios, and huge amounts of deficit spending have been key to this equation.

After all, as federal deficits (and the debt overall) have ballooned, the regime in Washington has relied more and more on deficit spending to keep paying the bills. Yet with more than $25 trillion in debt on the books, debt service would prove to be crippling to the regime were it not for the central bank’s monetization of debt.

[Read More: “How the Fed Is Enabling Congress’s Trillion-Dollar Deficits“ by Ryan McMaken]

In other words, the federal government would have to pay double or triple the amount of interest it now pays—thus forcing big cuts to popular government programs—were it not for the fact that the central bank is buying up enormous amounts of government debt. Indeed, the Fed’s holdings of Treasury debt have multiplied many times over during the past decade, rising from “only” a half trillion dollars in 2008 to $4.6 trillion today, more than half of the Fed’s total portfolio in 2021.

These assets have been purchased using newly created money, which when spent on Treasurys enters the economy through the financial sector. That means fat fees and a huge advantages for the financial sector, as it is able to spend newly created cash on assets and goods before prices adjust to reflect the realities of an increasingly inflated currency.

[Read More: “The Plutocrats of Wall Street and Silicon Valley Are Scamming America“ by Ryan McMaken]

Moreover, this need for low interest rates on federal debt drives an overall dovish monetary policy committed to ultralow interest rates. This, as shown by Karen Petrou in her book Engine of Inequality, has disproportionately benefited the financial sector and the ultrarich.

So we shouldn’t be surprised when representatives of the ultrawealthy Wall Street class like Dimon apparently don’t see much downside to having federal deficits continue to spiral upward. The deficit-spending game has been great for them. 

Nonetheless, their efforts at defending the status quo are remarkably ham-fisted at times. In his efforts to end the debt ceiling altogether, Dimon listed his three reasons why huge deficits must continue:

“Number one is really a morality point: We all teach our children that we are supposed to meet obligations and I don’t think the nation should be any different. Number two, we should never even get this close—there are huge economic costs already being borne … [and] it’s already affecting the stock market,” Dimon said, and “number three, we should get rid of this debt ceiling—we don’t need to have this kind of brinksmanship every couple of years.”

The first point, of course, is laughable coming from any representative of corporate America. Corporate leaders in America hardly eschew bankruptcy as a method of avoiding paying one’s debts—when it helps the bottom line. It’s standard practice, and one never witnesses much hand-wringing about whether or not we’re sending a good message to “the children” when a business declares bankruptcy. Dimon’s attempt to put a patina of moralism on paying debts should be regarded as cynical in the extreme. Moreover, by engaging in policies that lead to price inflation—whether in assets prices or goods prices—the regime is already embracing the schemes of a deadbeat. It’s paying off its debts in deliberately devalued dollars. 

The second point merely illustrates the tunnel vision with which Wall Street operates. Ever since the early days of the Greenspan Put in the late 1980s, central bankers and Wall Street have increasingly all agreed that asset price inflation in the stock markets is somehow synonymous with American prosperity overall. Yet, as repeatedly shown by David Stockman in his book The Great Deformation, Wall Street and Main Street are absolutely not the same thing, and we ought not treat them as such. Moreover, a disproportionate amount of these “huge economic costs” that would be borne in case of default would be largely felt by the regime itself and by the investor class. While default would finally rein in government runaway spending—while freeing up much of the budget for things other than debt service—holders of government debt would no doubt suffer. But, as Rothbard notes, these people took that risk willfully. The taxpayers, on the other hand, have no say in the matter and ought not be forced to endlessly pay the bills which they have never consented to. 

And finally, there is Dimon’s condemnation of “brinksmanship.” Yet, what Dimon here calls brinkmanship is what opponents of monarchical tyranny once called “dissent” or “freedom.” After all, parliamentary government—so far as it was a check on executive power—was created in practice for purposes of brinkmanship. That is, the legislative’s body control over government spending was there precisely to hold the executive—usually a monarch—accountable by withholding tax revenues until the monarch agreed to concessions of various types. Usually, the executive would attempt to force some sort of crisis—often a war-related crisis—to frighten the legislators into caving to his or her demands. It’s a time-honored political tactic. Much of the time, however, only by refusing to blink during periods of ”brinkmanship” do opponents of executive power succeed.  The fact that the current crop of legislators is largely motivated by goals of partisan advantage is immaterial. Thus has it always been. That’s not a reason to straighten the regime’s path to yet another round of ripping off the taxpayers.  

Consequently, Dimon’s position is essentially this: “Abandon all checks and balances if it threatens Wall Street portfolios!” What Wall street wants is to know for sure that the regime will keep the money flowing. That leaves no room for meaningful opposition. 

Also an Ideological Problem

It is unlikely, however, that Dimon is motivated strictly by the prospects of a bigger payday. Supporting runaway spending is simply the dominant ideology today in financial sector boardrooms and in business schools. While conservatives were shortsightedly obsessing over “electing the right people” or winning the next election, interventionist ideologues were taking over business schools and university faculty offices. They ensured that the next generation of business leaders and economists would embrace the ideas of endless spending, large-scale government intervention, and inflationist monetary policy. So, when the Jamie Dimons of the world push for abolishing the debt ceiling—or having the central bank monetize another trillion in government debt—its likely not just a cynical ploy. This is especially unsurprising for someone like Dimon, who sat on the board of the New York Fed from 2008 to 2013. The thinking here is likely far more nuanced than a mere scramble for profits.  In other words, these people are probably true believers. This is, after all, what they learned from their economics professors. Author:

Contact Ryan McMaken

Ryan McMaken is a senior editor at the Mises Institute. Send him your article submissions for the Mises Wire and Power and Market, but read article guidelines first.

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Why Americans Would Benefit from a Government Default | Mises Wire

Posted by M. C. on October 11, 2021

Of course, reducing the debt ceiling would force the government to stop borrowing so much money from credit markets. This would leave significantly more credit available for the private sector. The shortage of capital is one of the most often cited reasons for the failure of the economy to recover.

Lowering the debt ceiling would force federal-government budget cutting on a large scale, and this would free up resources (labor, land, and capital) and force a cutback in the federal government’s regulatory apparatus. This would put Americans back to work producing consumer-valued goods.

https://mises.org/wire/why-americans-would-benefit-government-default

Ryan McMaken

The Biden administration’s rhetoric on the debt ceiling has become nothing short of apocalyptic. The Treasury Department has announced that a failure to increase the debt ceiling “would have catastrophic economic consequences” and would, as NBC news claims, constitute a “doomsday scenario” that would “spark a financial crisis and plunge the economy into recession.”

Apparently, the memo went out to the debt peddlers that they are not to hold back when sowing maximum fear over the thought that the US might government might pause its incessant debt accumulation even for a few days. 

The reality, however, is quite something else.  While a failure to raise the debt ceiling would no doubt cause short-term disruptions, the fact is the medium- and long-term effects would prove beneficial by reining in the regime’s chokehold on the American economy and financial system. 

This is explained in a recent column by Peter St. Onge in which he examines just how much of a problem default really is:

In 2021 the US government plans to spend $6.8 trillion. Of which about half is borrowed — $3 trillion. So if they can’t raise the ceiling, they’d have to cut that $3 trillion.

Mainstream media, naturally, claims this is the end of the world. CBS estimates it would cost 6 million jobs and $15 trillion in lost wealth—comparable to the 2008 crisis, which was also caused by the federal government. CNN, more colorfully, claims cascading job losses and “a near-freeze in credit markets.” They conclude, falsely, that “No one would be spared.”

Considering the source, we can guess these predictions are overblown. So what would happen?

Well, $3 trillion is a lot of money—roughly 15% of America’s GDP. But we have to remember where that $3 trillion came from. The government, after all, doesn’t actually create anything, every dollar it spends came out of somebody else’s pocket. Whose pocket? Part of the $3 trillion was bid away from private borrowers like businesses, and the rest was siphoned from peoples’ savings by the Federal Reserve creating new money.

This means that, yes, GDP would decline sharply. But wealth would actually grow, perhaps substantially. The businesses would be able to buy things they need, while the savers keep their money that was doing useful things like paying their retirement.

So GDP drops, wealth soars.

See the rest here

Author:

Contact Ryan McMaken

Ryan McMaken is a senior editor at the Mises Institute. Send him your article submissions for the Mises Wire and Power and Market, but read article guidelines first.

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What We Have to Gain from a National Default | The Libertarian Institute

Posted by M. C. on October 6, 2021

The reality, however, is quite something else. While a failure to raise the debt ceiling would no doubt cause short-term disruptions, the fact is the medium- and long-term effects would prove beneficial by reining in the regime’s chokehold on the American economy and financial system.

Ultimately, when a media pundit or Janet Yellen predicts the end of the world if debt doesn’t continue to skyrocket ever upward, they are simply calling for a continuation of the status quo.

https://libertarianinstitute.org/articles/what-we-have-to–from-a-national-default/

by Ryan McMaken

The Biden administration’s rhetoric on the debt ceiling has become nothing short of apocalyptic. The Treasury Department has announced that a failure to increase the debt ceiling “would have catastrophic economic consequences” and would, as NBC news claims, constitute a “doomsday scenario” that would “spark a financial crisis and plunge the economy into recession.”

Apparently, the memo went out to the debt peddlers that they are not to hold back when sowing maximum fear over the thought that the U.S. might government might pause its incessant debt accumulation even for a few days.

The reality, however, is quite something else. While a failure to raise the debt ceiling would no doubt cause short-term disruptions, the fact is the medium- and long-term effects would prove beneficial by reining in the regime’s chokehold on the American economy and financial system.

This is explained in a recent column by Peter St. Onge in which he examines just how much of a problem default really is:

In 2021 the U.S. government plans to spend $6.8 trillion. Of which about half is borrowed—$3 trillion. So if they can’t raise the ceiling, they’d have to cut that $3 trillion.

Mainstream media, naturally, claims this is the end of the world. CBS estimates it would cost 6 million jobs and $15 trillion in lost wealth—comparable to the 2008 crisis, which was also caused by the federal government. CNN, more colorfully, claims cascading job losses and “a near-freeze in credit markets.” They conclude, falsely, that “No one would be spared.”

Considering the source, we can guess these predictions are overblown. So what would happen?

Well, $3 trillion is a lot of money—roughly 15% of America’s GDP. But we have to remember where that $3 trillion came from. The government, after all, doesn’t actually create anything, every dollar it spends came out of somebody else’s pocket. Whose pocket? Part of the $3 trillion was bid away from private borrowers like businesses, and the rest was siphoned from peoples’ savings by the Federal Reserve creating new money.

This means that, yes, GDP would decline sharply. But wealth would actually grow, perhaps substantially. The businesses would be able to buy things they need, while the savers keep their money that was doing useful things like paying their retirement.

So GDP drops, wealth soars.

Now, there will be near-term pain, simply because the GDP drop comes before the private borrowing ramps up, while those retirement savings are no longer being siphoned to pay for parties at strip clubs or, say, another trillion for farting cows.

So, yes, it will be a sharp drop in GDP. But so long as government stays out of the way, choosing the prudent 1920 response of doing nothing, the recovery will be very rapid. Why would they do nothing? After all, governments don’t like staying out of the way these days. Because a government that suddenly loses half it’s budget is going to find a lot of things not worth doing. Given a choice between defunding government workers’ pensions or defunding economy-crushing Green New Deals, governments will choose their own.

So that’s short-term: pain, but less than it seems. And that’s where the magic begins. Because ending deficits fundamentally reduces governments’ long-term ability to prey on the people’s wealth.

This is because debt and money printers are much less obvious than taxes, which are painful and make more enemies. So a default becomes a “back door” to move government back towards its traditional “parasite” role rather than the “predator” role it’s taken on since Nixon unleashed the money printers. Especially since COVID-19, when lockdowns were bought with fresh money and deficits. I wrote about this predatory evolution a few months ago, but the bottom line is government default is a tremendous investment in our future prosperity.

Ultimately, when a media pundit or Janet Yellen predicts the end of the world if debt doesn’t continue to skyrocket ever upward, they are simply calling for a continuation of the status quo.

And what does the status quo mean? It means a world in which the U.S. government continues to spent trillions of dollars it doesn’t have, made possible through monetizing massive amounts of debt and forcing taxpayers to devote ever more of their own wealth and income to paying off an ever-more-huge chunk of interest.

It also means more government spending, which—regardless of whether it’s funded by debt or by taxes—causes malinvestment and, through the redistribution of wealth, rewards the politically powerful at the expense of everyone else. In other words, its keeps Pentagon generals and Big Pharma executives living in luxury while the taxpayers are lectured about the need to “pay America’s bills.”

Rather, as Mark Thornton noted in 2011, the right thing to do is lower the debt ceiling. Thornton explains the many benefits, ranging from effective deregulation to freeing up capital for the private sector:

If Congress passed legislation that systematically reduced the debt ceiling over time, the economy could be rebuilt on a solid foundation. Entrepreneurs in the productive sectors would realize that an ever-increasing proportion of resources (land, labor, and capital) would be at their disposal, while companies that capitalized on the federal budget would have an ever-declining share of such resources.

Congress would have to cut the pay and benefits of its employees (FDR cut them by 25 percent in the depths of the Great Depression) as well as the number of such employees. Real wage rates would decline, allowing entrepreneurs to hire more employees to produce consumer-valued goods.

Congress would have to cut back on its far-flung regulatory operations, which are in fact one of the biggest drags on the economy due to the burden and uncertainty that Obama and Congress have created in terms of healthcare, financial-market, and environmental regulations. A recent study by the Phoenix Center found that even a small reduction of 5 percent, or $2.8 billion, in the federal regulatory budget would result in about $75 billion in increased private-sector GDP each year and the addition of 1.2 million jobs annually. Eliminating the job of even a single regulator grows the American economy by $6.2 million and creates nearly 100 private-sector jobs annually.

Under a reduced debt ceiling, the federal government would also have to sell off some of its resources. It has tens of thousands of buildings that are no longer in use and tens of thousands of buildings that are significantly underused—about 75,000 buildings in total. It also controls over 400 million acres of land, or over 20 percent of all land outside of Alaska, which is almost wholly owned by the government. There is also the Strategic Petroleum Reserve and many other assets that could be sold off to cover short-term budget shortfalls.

Of course, reducing the debt ceiling would force the government to stop borrowing so much money from credit markets. This would leave significantly more credit available for the private sector. The shortage of capital is one of the most often cited reasons for the failure of the economy to recover.

Lowering the debt ceiling would force federal-government budget cutting on a large scale, and this would free up resources (labor, land, and capital) and force a cutback in the federal government’s regulatory apparatus. This would put Americans back to work producing consumer-valued goods.

Unfortunately, the public has been fed a steady diet of rhetoric in which any reduction in government spending will bring economic Armageddon. But it’s all based on economic myths, and Thornton concludes:

Passing an increase in the debt ceiling merely perpetuates the myth that there is any ceiling or control or limit on the government’s ability to waste resources in the short run and its willingness to pass the burden of this squander onto future generations.

This article was originally featured at the Ludwig von Mises Institute

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Default Hysteria: No Time To Panic; Time To Plan

Posted by M. C. on October 1, 2021

The usual “debt ceiling” theatrics have reappeared. We’re again greeted with the propaganda that if the most indebted government in the history of th

e world doesn’t continue to go deeper into debt, the world would grind to a halt. But economic “crisis,” which is really a painful return to economic reality, is inevitable. The real “crisis” is continuing to dig a deeper hole. So it’s certainly time to think about getting one’s own person financial house in order.

The default is already happening via devaluation of money.

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A Free “Baloney” Lunch

Posted by M. C. on July 20, 2011

Gary North does some math with respect to the debt limit debate

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