Peegee

:D

"The act of balancing the budget WILL NOT get rid of the national debt regardless of who becomes/remains our President."The country is technically bankrupt. If you and I were in business, we would have to declare bankruptcy. Governments print money so they can get away with it. But we are insolvent and the debt will never be paid for. That’s a hard thing to accept. You can’t pay for this debt"

-Ron Paul 02/26/2010 CNN interview with Jack Cafferty

According to a study by The Cato Institute , “If one considers the unfunded liabilities of programs such as Medicare and Social Security, the true national debt could run as high as $119.5 trillion.”

Even though Ron Paul’s policies would likely put a dent in the national debt, the Committee For a Responsible Federal Budget notes that under President Paul, the national debt would still be approximately 76% of GDP. Even with $1 trillion in cuts and a balanced budget in the third year of a Paul administration, the national debt, and the accompanying interest, would still be unsustainable. But, other than Paul, every other candidate promises more unsustainable spending. Mitt Romney's proposals would actually increase the national debt to between 85% and 96% of GDP, depending on the level of new revenue his proposals could generate in addition to the new tax policies he announces.

[ed note: this post is out of date because IIRC the debt to GDP ratio is around 104% now]

[youtube]RlgWboXV4Vo[/youtube]

Ron Paul is the only candidate who wants to talk about this because the current policy makers are adherents to Keynesian economic theory. This teaches massive amounts of liquidity and government spending will help support long term economic growth. The idea is that these programs will stimulate the economy and encourage employers to begin hiring again. Once the economy has improved, the large tax revenues are expected to make up for the shortfall while the Federal Reserve slowly reduces the cash supply without causing a shock to the financial system.

The problem with this kind of thinking is historical evidence shows it doesn’t work. Liquidity hasn’t created sustainable greater demand. It does not create the financial environment for long term economic growth or translate into wealth creation. In fact, it has the opposite effect. It stifles private investment and makes the economy dependent upon Federal Reserve notes.

The Federal Reserve has been increasing the supply of dollars by an average of 5.9% a year since 2002. If you add these yearly averages together, the supply has increased by over 63% and the value has decreased proportionally. These inflationary pressures are not going away either. This happened in Germany during the 1920s. Their situation was fueled by massive amounts of debt, their central bank printing huge amounts of money, which soon became worthless, resulting in hyperinflation and a stagnant economy. The situation in the US is similar in many respects. With trillions of dollars of debt, a devalued currency, shaken confidence in the financial system, the economy continues to struggle. One of the main distinctions between Germany of the 1920’s and the US today is that the US dollar is the world’s reserve currency. The US treasury market is the most liquid in the world issued by the largest economy in the world, and is therefore “less undesirable” than most other currencies. BUT, growing debt and a slow US economy, continue to devalue the dollar. While interest rates are low, interest payments on our debt stay low. But, when interest rates return to their historical average of 4-5%, the interest payment alone on our debt will quadruple, the economy will stagnate and default will be very likely. If this happens, investors will unload a variety of US based assets. This will cause the declines to become even more severe, most likely plunging the US into another hyperinflationary depression. Only this time the rest of the world will crash right along with us. No safety nets included.

[url=http://www.huffingtonpost.com/robin-koerner/an-inflation-inflection_b_1771129.html]Robin Koerner: An Inflation Inflection and the Best Trillion We Shouldn't Spend[/url]

"Only now can you understand the real reason for all those U.S. govt. T-bill sales. The government isn't creating T-bills to fund its spending. Government spends regardless. Rather, by turning the cash it spends into the private economy into non-spendable Treasuries, it drains those spendable dollars from the economy to hold off the inflation and currency collapse that it would otherwise be causing. Indeed, the figures show the total amount of U.S. treasuries sold in the last three years far exceeds those bought by foreign sovereigns over the same period."