Finance

Far from sweaty salts, the Fed does not threaten Washington’s ‘solvency’

Far from sweaty salts, the Fed does not threaten Washington’s ‘solvency’

Russia’s total government debt is currently $190 billion. The United States can claim a total debt of somewhere north of $30 trillion.

Are the Russians “classic” in economic thought in relation to the Keynesian affliction of the American political class? Stop and think before responding.

The answer to the so-called conundrum about Russian and US debt is fairly straightforward: investors trust the US economic future more than they do Russia. While debt and government spending logically do not boost economic growth, the debt disparity between the United States and Russia is a loud signal that borrowing is a result of the actual growth of the private sector. The US Treasury can borrow huge amounts because debt buyers know they will be repaid.

This is something worth bearing in mind given the prevailing view that central banks enable government growth. There is something about central banks that really stands out and the very stupidity that lies within all of us. Although central banks are a creation of government, deep thought routinely tells us that the politicized innovations of the political class finance its spending.

To understand the extreme absurdity of such an opinion, consider again the debt gap between the United States and Russia. It is not massively widespread because Russian politicians are mean or because the Russian Central Bank is wise. Government spending is always and everywhere an unfortunate consequence of real economic growth. Central banks cannot enable it. The idea of ​​MMT put forward by the ignorant left is a myth, as is the right’s conspiratorial view in the Austrian school that central banks facilitate endless government expansion. The wasteful extravagance of the American political class is the result of the enormous wealth created by the American people, period.

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Which brings us to another myth about government: presidents’ tales of central banks as the source of government finance. Economists who are more likely to believe the presidents’ myth likewise buy into the ludicrous idea that central bank tampering with interest rates has an effect on government solvency.

One supposes there is nothing really surprising about this. If you believe against all the evidence that central banks incite political profligacy, why not buy back where central banks can take what you imagine they offer? Economist Brian Riddell is considered a true believer in magic.

In a recent Peter G. Peterson Foundation report, Riddell claimed that higher interest rates threaten Washington’s solvency. Obviously, it’s not just members of the left who have learned all the wrong things on campus.

Lest readers forget, central banks are government outsourced creations. Pretending then, as Riddell did, that the Fed can command through price machinations the level of interest that the Treasury will pay is not a serious matter. For example, no political class will ever create an entity capable of regulating them, and then the bigger fact is that central banks do not set interest rates.

It’s sad that something so obvious has to be mentioned, but we’re at a time when the obvious must be said over and over again. Central planning failed in a horrific, desperate and deadly way in the 1920sThe tenth century. When governments try to control property and prices, the result is a shortage of everything. Please keep this in mind with interest rates in mind.

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We borrow money for what it can be exchanged for, which is a disguised way of saying that interest rates are the most important in a reasonable and profit-inducing capitalist world. What this half-vigilant hopefully indicates is that if the Fed were to control the cost of borrowing as Riddell envisions, the US economy would be too devastated to underestimate the discussion, and certainly not support the centralization musings of academics. banks.

In other words, the US Treasury can borrow at the lowest rates in the world precisely because it is backed by the most productive people in the world. Central banks have nothing to do with that, logically. In the real world the markets are always and everywhere talking, and they do so out loud. Hence, assuming that the price decisions of individuals like Jerome Powell outperform the decisions of the world’s best investors operating in the world’s deepest markets is not at all serious.

Good or bad, the American political class can borrow abundantly because the American people produce abundantly. In other words, the only threat to the solvency of the United States is the productivity of the American people. nothing else matters.

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