Wednesday, August 12, 2009

"Massive or not, demand for Treasuries remains solid enough to continue funding the Treasury's deficit. "

-A humorous line from the 'Highlights' of yesterday's treasury budget report.

How much, you may be wondering, was July's budget deficit? How much more could the government possibly spend, than that incomprehensible amount of taxes it already sucks out of the economy - in only 31 days?

$180,700,000,000.00 : $5,829,032,258.06 a day...

And that's just the DEFICIT!

"The full-year gap is expected to top $1.8 trillion." I think it's a safe bet we run a $2 Tril budget deficit this year.

And we don't just "owe it to ourselves" anymore. The US treasury is the de facto reserve security of the world. It's risk free; didn't you hear? It appears this way because the US Dollar is the reserve currency of the world, and therefore we can pay-off our liabilities at face value in depreciated currency, rather than having to bid up a foreign currency. As foreign monetary systems pyramid on top of their dollar reserves, the more dollar inflows they experience the more expansionary their monetary/banking systems can be, while those dollars eventually are sent back to the U.S. in exchange for mostly Treasury Debt and Agencies. Lending that money back to a "net consumer economy", thereby sterilizing it and keeping its value artificially high, will lead to expanded exports and more foreign exchange inflows, thus perpetuating the cycle. In this way, among others, our currency is dependent on the value of our debt, and our debt is dependent on the value of our currency. They are both claims, an order removed, on future American production/services.

Even the domestic share of the debt is not distributed equally. It's one section of the public financing the whim of a powerful minority, or more times than not in quasi-democratic countries(like here), an envious and bitter majority of half-wits. Diminishing the wealth of domestic bond holders, in a period after the benefit from the investment of said bondholder was felt, will be a net loss to purchasing power in the present. Imagine what these funds for domestic gov borrowing could be invested in, rather than bombing other countries; being doled out for political reasons; loss via corruption of all kinds; maintenance of an engorged bureaucracy and imperial empire; subsidizing nonsense; and overall waste/inefficiency. Imagine the potential gain in capital stock and productive capacity, the increased future purchasing power of the consumer and the added, desired goods/services to be purchased with it.

But no, we are just too stupid; many of us don't want to borrow against our future and spend what we don't have for things we don't need. Aggregate demand is dropping so of course the government must offer our future labor as collateral(steal it from us) for a loan to inflate a deflating bubble. It's not deflating because prices are too high, you see, it's deflating because it's deflating and we must stop the deflation immediately, or goods will get cheaper. And rather than buying more goods as things get cheaper the rubes will hoard cash and make things even cheaper. Heaven help us then! Lord, deliver us from this scourge of affordable goods! Elasticity and Utility be damned, let the food rot, we want these tickets(money); these resplendent claims on things we need and want, but don't want. Get it?

What happens when we don't have enough productive capacity to collateralize our policy of arresting greater and greater deflationary pressures? Remember: the value of the currency is dependent on the value of the debt(our promise to pay), which is circularly dependent on the value of the currency. Eventually one of those will get pushed past a threshold, kicking off the disintegration of the dollar-reserve, global monetary system. Maybe this has already started? You can only devalue the USD (via exchange rates AND price levels) so much before demand, for debt paying a fixed rate of return, disappears; you can only devalue the debt so much before demand for the underlying currency as a cornerstone of the global reserve system erodes.

The linchpin of the entire Empire is the dominance of and reverence for our debt and monetary system, our promises; or, at the very worst, our commitment to fulfill those promises through collective thievery and violence, assuming mass political plunder possible.

Without controlling credit(in the broadest sense) you can't control money. Without respect for a nation's credit, all the monetary expansion in the world can't save it as demand for the underlying currency will not keep up with it's growth in supply and prices will cause an immediate, pernicious feedback loop of inflation: price rises, increased inflation expectations, and falling money-demand.