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Jim Cook

 

RUNAWAY SOCIAL SYMPATHY

Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

 
Best of Michael Pento
June 17, 2010
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A Treasury Department report to Congress last week stated that total U.S. debt will climb to $19.6 trillion by 2015, as opposed to the 2019 date previously estimated. Treasury also estimated that total U.S. debt will top 13.6 trillion this year and would rise to 102% of GDP by 2015 as well. And most astonishingly, the report projected that the publicly traded debt (debt excluding intragovernmental obligations) would rise to $14 trillion by 2015, up from last year’s debt of “just” $7.5 trillion.

The official government report was promulgated with the same enthusiasm and fanfare as a grade school child announcing to his parents he has received his first “F”.

Perhaps most disappointing for U.S. taxpayers are some robust assumptions made in the report. For example, the report estimates that GDP will reach $19.1 trillion in 2015, which would cause the public debt to GDP ratio to only reach 73%. But just to achieve that undistinguished level, nominal GDP would have to grow at 5.52% each of those 5 years. Putting that growth into perspective, from Q1 2006 thru Q1 2007 nominal GDP grew at 4.6%. Between Q1 2007 and Q1 2008 GDP grew at 4.1%. Nominal GDP contracted in the recessionary time frame between Q1 2008 to Q1 2009. And from Q1 2009 thru Q1 2010 nominal GDP advanced by just 2.9%.

In order to get nominal GDP up from the previous year’s levels, government can seek to either grow real GDP or inflate nominal GDP. The problem is that growing GDP when debt levels are so high is extremely difficult. Precisely because high debt levels require onerous spending cuts to be implemented, this (in the short term) can directly lead to a contraction in the private sector of the economy and a decrease in total output. Delaying that fiscal responsibility only makes the eventual debt reconciliation much more difficult and is not a viable option.

Inflating your way out of the debt situation seems too often a tempting solution. However, inflation decreases economic growth and sends interest rates higher. The result is rising debt service along with decreased revenue from a faltering economy. That pathway doesn’t balance the books either.

The best solution would be to cut taxes in order to stimulate private sector growth and at the same time to reduce spending in order to bring down public sector obligations. However, the exact opposite method is currently being employed.