Tag: US Debt

Government Shutdowns and Debt Ceilings

Craig Axford | Canada

Government shutdowns and flirtations with default by putting off raising the federal debt ceiling have become regular occurrences in Washington, D.C. I suppose we shouldn’t be surprised given the number of representatives and senators regularly expressing disdain for the very institution they were elected to run, but still.

Americans like to believe their nation is exceptional, and it is: it’s the only developed nation on the planet that doesn’t guarantee all its citizens healthcare, higher education is more expensive there than just about anywhere else, it has the only government that it’s possible to shut down without having to resort to violence, and it’s the only nation that flirts with suicide by requiring votes on its debt ceiling.

That’s right. No other governments have even one, let alone two, kill switches built into their system. And why would they? What’s the point? Unless the intent is to erode public confidence in government it makes no sense for elected officials to even contemplate closing down popular national parks or giving all the people in charge of enforcing our public health and safety regulations an extended unpaid holiday?

The habit of shutting down the government now and then (as well as the continuing resolutions passed to avoid them) is an unintended bug in the American system rather than a feature of it. So too is the necessity to authorize more borrowing periodically once the national debt has reached a predetermined threshold. Both of these bugs are extremely dangerous but, unfortunately, they are likely to remain unfixed for the foreseeable future.

America’s founding fathers were revolutionaries. As such, they were no fans of the British government, which by the late 18th century was already well established and quite recognizable to any citizen of the 21st century. Though King George III was the titular head of state, like his contemporary successor Queen Elizabeth II, he had very little actual power to match the privileges that came with his hereditary title. Parliament was already very much in charge.

Nothing like what took place in Philadelphia following the American Revolution had ever been seriously considered, let alone attempted, in London. To intentionally sit down and craft rules for a new government quite literally being built from scratch was a radical idea if ever there was one. To call America an experiment is not an exaggeration. As with any experiment, the outcome is unknown until it has come to a close. The American experiment hasn’t ended, but so far it certainly has produced some unanticipated results.

In creating the modern world’s first republic, America’s victorious rebels were faced with the task of establishing rules for a country that no longer had centuries of tradition to fall back on. The norms of the mother country they had just abandoned had evolved over hundreds of years of power struggles between the aristocracy and the crown, with a nascent merchant middle class increasingly making its own demands over the course of the 17th and 18th centuries. The newly independent colonies wanted to distinguish themselves from the nation they had just liberated themselves from, but how?

The US Constitution settled for a president instead of a monarch, while the House of Representatives took the place of the House of Commons and the Senate stood in for the House of Lords. Each elected member of these respective branches is subject to regular fixed terms of office, with the power balanced more or less equally between them rather than resting largely in the representative branch (i.e., parliament) alone. With the exception of the extremely rare and difficult case of impeachment, the US Constitution provides no opportunity to hold any single officeholder accountable for failure during the period between elections, let alone the government as a whole. Federal judges receive lifetime appointments, something else not seen in any other developed representative democracy to this day.

In a parliamentary system, the failure to pass something as routine as an annual budget triggers a crisis. Under the Westminster parliamentary model followed in the UK, Canada and several other members of the Commonwealth, this crisis brings down the government and forces the monarch or her designated representative to dissolve the government and call an election. In unstable periods when minority governments are common, elections tend to be relatively more frequent, while in less turbulent political times a majority government can persist for five years or so before facing a vote.

Likewise, when a parliament authorizes spending beyond the government’s anticipated revenues, it is understood they have necessarily approved an increase in the national debt. Therefore, there is no need to consider raising the debt limit independently. From the perspective of citizens living in parliamentary countries, it makes no sense that the same Congress that approved deficit spending one month can spend time the next flirting with a refusal to allow any borrowing. It’s like having a government that doesn’t know its own mind.

Unfortunately, the kind of crises that bring down governments in parliamentary systems has become commonplace in the United States. Budgets go years without being approved, with Congress lurching from one continuing resolution to the next while various factions hold federal employees and the citizens dependent upon their services hostage until some pet project or favorite policy or another is approved in exchange for keeping things running for a while longer. A Prime Minister Donald Trump would either be facing a vote of the people at this point in the budget process or a leadership challenge by members of his own caucus. One year in office would be unlikely, but four would almost certainly be impossible.

I’ve been living in Canada for the better part of a decade now. On most days I find myself feeling pretty ambivalent about the monarchy if I even think about it at all. That’s not because I can see equal merit in both sides of the argument regarding having someone born into the role of head of state. It’s because I recognize all societies require a sense of continuity and for some countries that can take the shape of a monarchy that has existed in one form or another for centuries. A woman that appears on our money while playing an entirely ceremonial role is harmless, if not for the actual person forced into the job by an accident of birth then at least for the rest of us.

I’m not feeling so ambivalent about having a parliament, however. I have strong opinions about the two Canadian prime ministers I’ve lived under so far. But the extent of my approval or disapproval aside, at least I know that the nearby Pacific Rim National Park will, weather permitting, always be open and that with the exception of national holidays at the local Services Canada office the door will never be locked. Even the UK Brexit debacle hasn’t convinced me parliaments are less effective or ultimately less democratic than the divided governments that have become the norm in the US.

If for some reason, it turns out parliament can’t do its job there will be an election lasting a little over a month while the people try to vote one in with a sufficient mandate to do it. In the meantime, things will go on pretty much as before without any nightly news reports about government employees unable to pay the rent because someone got it into their head they wanted to build a wall. I know it’s incredibly unAmerican to say so, but if you were to put me in a time machine and send me back to 1776, I would tell the founding fathers to get rid of the monarchy if they must, but at least keep the parliament.

Follow Craig on Twitter or read him on Medium.com


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President Trump, We Can’t Just “Print More Money”

By Dane Larsen | @therealdanelars

Donald Trump, as reported in Bob Woodward’s new book “Fear: Trump in the White House”, told Gary Cohn, the Director of the National Economic Council, to just “run the presses– print more money” when addressing the insurmountable US Federal Debt. Donald Trump, the same man who ran a campaign to the White House that pledged to “eliminate the [$19 trillion national] debt over a period of eight years”, thinks we can print our way out of this mess.

Bob Woodward, an investigative journalist and Editor at the Washington Post since back in the Nixon days of 1971, wrote a full book exposure of the Trump White House in comparison to the other administrations he’s seen in his tenure at WaPo. In the book, Woodward describes a back-and-forth between the National Economic Council and Trump that is truly telling of how out of the loop President Trump is. While the book dates the quotes and conversations back to 2015 and 2016 during his campaign, it is hard to believe the stances on this economic issue have changed in the slightest. With the signing of reckless spending bills and omnibus budgets that only increase the forecast of US government expenditures, it is clear that President Trump is all talk and no walk on the subject of the current economic crisis that is the National debt.

Whether or not it was already known that Trump’s words bleed insincerity when it comes to spending cuts or a balanced US checkbook, it is evident now that the current POTUS has no viable long-term solution for the issue, which could cause the worst depression yet. His “solution” if it could be considered as such, of printing more money to offset the effects of the ever-growing now $21 trillion national debt is not just infeasible, but is admittedly extremely popular in Washington D.C. and the White House itself, with past Presidencies.

We see in the Obama administration, the idea of printing more money caught wildfire throughout the EU and G-20 with direction by former President Obama himself. In fact, there was a specific occasion during a G-20 meeting where Obama and Biden called on Angela Merkel of Germany to start “pulling their weight in the global effort of economic stability” by “printing” more money. As much of an oxymoron as that sounds to even the most amateur economist, it is a legitimate belief that has spiraled many countries to insurmountable debt.

The Basis of Economics

The principles of economics rest on responsibility with the money you own. It would be foolish for the average person to go out and buy a $350 Xbox One when after my checkbook is cleared, I only have $150 to spend. Why do we not ask this much culpability from our Federal Government?

It all started back in the days of Woodrow Wilson, and the creation of the Federal Reserve as an entity itself in 1917. The overarching power of a central bank to be the authority on all things money related can be a powerful responsibility, and in most times, a detriment to the economy it attaches itself to. Before the creation of the Federal Reserve, only $20 billion in debt had accumulated in the years after the Civil War. When adjusted to inflation, this comes out to around $51.7 billion, just barely 25 percent of what the US National Debt is today. Since then, we’ve seen the ability to print money used as a weapon to over tax citizens, and justify wars overseas where the US frankly should not be involved in at all.

In the case of George W. Bush, the National Debt was increased 101%, tacking on $5.849 trillion to pay for the (ongoing) War on Terror in Afghanistan and Iraq. Military expenses rose to all-time highs, and when the US taxpayers couldn’t chip in the yearly $600-800 billion necessary to fund it, Bush and the Federal Reserve created the money out of thin air to respond to the 9/11 attacks over a span of 8 years that hasn’t stopped since. When will we be done with this intervention? The question has yet to be answered, and President Trump hasn’t made progress in that regard either.

Bad economic habits and fiscal irresponsibility is prevalent across the board, no matter party denomination. President Obama raised the debt 74% in his tenure in the White House, adding $8.588 trillion from fiscal years 2008-2016. Whereas Bush picked his poison with military spending, Obama focused more on tax cuts, unemployment benefits, and public works projects to recklessly spend more money than the US Government could even think about obtaining. That’s not to say that Obama didn’t have his fair share of military spending checks sent to the Department of Defense consisting of artificially printed money, because the War on Terror persisted throughout his Presidency as well. These bad values will lead us to the next depression at the expense of the taxpayer and common folk, while the people who got us in this mess leave untouched.

Hyperinflation

Hyperinflation is defined as the monetary inflation that occurs at a high. uncontrollable rate. When the economy sees an influx of money in circulation, prices rise as the natural tendency of the free market sets out to do. When the government steps in to pay for it’s mistakes or overspending by printing money out of thin air is where the problems really start to occur. As Kimberly Amadeo of The Balance describes: “Instead of tightening the money supply to stop inflation, the government keeps printing more. With too much currency sloshing around, prices skyrocket. Once consumers realize what is happening, they expect continued inflation. They buy more now to avoid paying a higher price later. That excessive demand aggravates inflation. It’s even worse if they stockpile goods and create shortages.”

The economy will crash in the event of Trump printing more money to stabilize the National Debt, and it won’t be a small recession. We will see the closing of businesses as the value of the US dollar declines, leading to lower imports and exports, and a shortage of goods in the US market. With all of this leading to a disaster, we beg the question: Why aren’t we holding these government workers to higher standards? After all, they clearly aren’t looking out for our best interests. On his campaign trail, Trump vowed to be the change in the government bureaucracy that is Washington D.C., but he clearly can’t live up to that.


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