Friday, August 5, 2011

The National Asset Base

Is this really the best Washington can do? It is pathetic.  So hopelessly lost in the mythology of neo-classical economics is our cult of Mammon in DC that they can not see past their own greed, what they see as their greatest virtue.  The US is the fiscally sovereign issuer of a floating fiat currency.  This means it can afford whatever it wants that can be purchased in the dollar economy any time it wants.  This includes Social Security, unemployment benefits, infrastructure, education, banker bailouts, multiple wars, etc, anything that is available to purchase that can be purchased with dollars. 

This also means that the very conceptualization of “the national debt” is an archaic relic of the expired gold standard era.  In that bygone world, for the government to spend beyond tax receipts it was in fact required to borrow in the international market from other hoarders of gold, and as it did so interest rates went up because those external creditors got to set the rate at which they would lend.  

In the world we now inhabit, when the government sells bonds it is by so doing taking dollars out of the economy, the money it takes from bond purchasers.  At the same time it is injecting in an interest bearing asset of equal value, the bond.  But the government had first spent the money it took from investors in the bond sale so the bond sale and prior government expenditure cancel each other out.    However the net wealth of the system has been increased by the value of the bonds.  They are an interest bearing asset that is a dollar equivalent because anyone who holds such an asset can borrow against it at the best possible rates: markets consider the bond to be equal to money. Period.  The outstanding issue of US bonds should be referred to as the National Asset Base rather than “the national debt”.

A US government bond is not a debt in any conventional sense.  In a floating fiat currency system, ours, a federal bond is functionally a cash equivalent.  The more of these there are in the world, the harder it is to budge the interest rate in the floating fiat system from its natural repose at ZERO.  The markets turned to excrement yesterday implying an ever larger build up of US bond issues to pay for unemployment and food stamps for those deprived of income by our folly.  The bond market responded with a dramatic DROP in the interest rate: the prospect of increasing “debt”, that is bond issues, to neutralize prior expenditures for benefits, CAUSED the markets to anticipate LOWER future inflation and thus LOWER the current interest rate.

Jacob Weisberg, provoking this rant, bless his heart, is spouting the standard talking points of the corporatist wing of the Democratic party: that Obama is a weak negotiator and those wicked Tea Party Republicans have done this to the nation.  Core bunkum: Obama, unsolicited by the TPRs, put cuts to Social Security, Medicaid and Medicare on the table.  This is something he HE WANTS TO DO and is TRYING VERY HARD to accomplish.  I think he actually believes this is good and necessary, but that is just testimony to the religious fervor of the cult of Mammon.  

There are a half dozen ways a president who did not want to gut Social Security or default could have gotten around congress.  Obama CHOSE  not to.  Obama as the leader of the corporatist wing of the Democratic party is the natural ally of the Tea Party, itself a creation of the Royalist wing of the Republican party.  What both splinters have in common is that they see the American population as a Hobbesian “body of the state” which means that if they, as the state, want to loose weight (cut the “deficit”) those little fat cells that make up the surplus body should just die and be metabolized by their greed.

There is not a debt crisis, there is an unemployment crisis.  By pretending there is a debt crisis the Corporatist/Royalists make themselves feel pious while the absolute decline in living standards they are imposing on the contemptible poor prove to them the justness of the poverty into which they think the poor must sink deeper to discover the true virtue of their own greed.  Japan has not cut its pension and medical benefits to its population in the course of its 20 year “slump”.  It has actually presided over increasing standards of living for its population in its “lost decades”.  It now has a “debt” multiples of ours as a percentage of GDP: its interest rate is LOWER than ours and there is no looming threat of it not paying its bills and it is managing to reform itself in the wake of the natural and man made disasters of the spring even as it issues more bonds, assets into its asset base. It is doing so because however special its elite feel at a basic level they do in fact care about the nations people enough to put their well being ahead of absolute wealth preservation for themselves.

No such patriotism here.  The neo-liberal mythology, the worship of Mammon that our politics have become since the Supreme Court decided that money is speech, insists that there is simply nothing to be done except starve that portion of the population that has chosen to not work: there is no place in their model for mal-distribution of wealth causing a lack of demand.  We peasants aren’t spending money because we don’t want to work because, well who knows why peasants don’t want to work except that they are lazy and ignorant and deserve their execrable fate.  Dammit, where’s my pitch fork!

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