CBO – Still Pushing Deficit Scaremongering Propaganda

Yves here. We’ve written from time to time about the shameless partisan role that the Congressional Budget Office plays in stoking misguided and destructive concern about budget deficits. It’s important to recognize the CBO’s openly partisan stance on this issue, because it is supposed to make independent, apolitical budget forecasts and is widely and mistakenly seen as “objective”. In fact, the CBO’s regularly takes stances that put them in the same camp as billionaires like Pete Peterson and Stan Druckenmiller, who want to slash Social Security and other social safety nets.

In fact, as we detailed in a 2012 post, the CBO departed wildly from clearly stipulated procedures for preparing long-term budget analyses to cook up projections that showed Medicare costs continuing to grow markedly faster than is remotely plausible. This mattered because health care cost increases are the driver of long-term budget worries. The CBO’s analysis was so dubious that two budgetary experts at the Fed published a devastating paper on the CBO analysis. From our post:

A remarkably important and persuasive paper that calls into question the need for “reforming” Medicare has not gotten the attention it warrants. “An Examination of Health-Spending Growth In The United States: Past Trends And Future Prospects” (hat tip nathan) by Glenn Follette and Louise Sheiner looks at the model used by the Congressional Budgetary Office to estimate long term health care cost increases. Bear in mind that this model is THE driver of virtually all forecasts of future budget deficits.

This paper, although written in typically anodyne economese, is devastating in the range and nature of its criticisms….

The fundamental beef of Follette and Sheiner with the CBO model is that it naively assumes past growth in health care spending as the basis for its long-term projections. The result is that it shows that trees will grow to the sky. One of the things anyone who has built forecasting models will tell you is you come up with assumptions that look reasonable and then sanity check the output (for instance, does your model say in year 10 that your revenues will be 3x what you can produce given your forecast level in plant and investment? If so, you need to make some revisions). The Fed economists point out numerous ways that the model output flies in the face of what amounts to common sense in the world of long term budget forecasting. From the opening of the paper (emphasis ours):

Long-run projections of the U.S. federal budget have played a prominent role in discussions about fiscal policy and the design of major transfer programs for several decades. The projections typically show large fiscal imbalances owing to ramping up of retirement and health care costs relative to GDP. Health care costs are the key factor in these projections for two reasons. First, in current projections they are the prime source of growth of spending as a share of GDP. Second, they are the most uncertain part of the forecast. For example, the Congressional Budget Office’s most recent long run outlook shows spending on Medicare and Medicaid, the governments health programs for the old and poor, respectively, rising from 4.1 per cent of GDP in 2007 to 19.1 per cent of GDP in 2082.1 By contrast, Social Security benefits (the government’s main old-age pension program) increase only 2 percentage points, from 4.3 per cent of GDP in 2007 to 6.4 per cent in 2082. Another analysis by CBO suggests that an 80 per cent confidence band around the Social Security projection would be from 51⁄2 to 91⁄2 per cent of GDP.2 CBO did not present similar calculations for health spending; instead, they projected health spending under three different assumptions about the rate of growth of age-adjusted health care spending in excess of per capita income. Their projections show health spending ranging from 7 to nearly 40 per cent of GDP by 2082.

By comparison, defense spending as a percent of GDP peaked at 42% of GDP in World War II. A model that presents as a possible outcome that the US will devote nearly 40% of GDP to health care spending a long-term, sustained outcome, is ludicrous on its face. The CBO assuming public health care spending will sustain its growth rate of the last 50 years for as long as they do (see further discussion below) with no policy changes is like budget analysts in 1946 assuming that military spending will grow at the same rate it did during World War II without any policy changes. Yet they further assume that, having reached this crushing level, Medicare costs in 2082 will still be growing faster than GDP!

Back to the current post. This is far from the only example of the CBO operating in less than good faith. Back in the days when the Rogoff/Reinhardt “government debt/GDP in excess of 90% is really really bad” was taken seriously, the CBO produced a forecast showing that Federal debt to GDP reached 89.8% by 2022, enough to give the deficit hawks plenty of grist. But Tom Ferguson and Rob Johnson pointed out in a 2010 paper that the CBO had neglected to net out financial assets. If you did that, it took the debt/DGP ratio to a lever that the scaremongers could not depict as troublesome, 82%. As we noted in a 2012 post:

Having been alerted to the Ferguson/Johnson paper, “A World Upside Down: Deficit Fantasies in the Great Recession,” International Journal of Political Economy, Vol. 40 No. 2 (2011), has the CBO decided to deal honestly with the question? No. Like the mob faced with the prospect of a damaging witness testifying, it has done a hit job on the data. Its recent deficit discussions do not even reference this information. As Thomas Ferguson complained, “Talk about ‘Choices for Deficit Reduction.’ I finally found the numbers in an OMB report issued earlier this year. The CBO should be printing these right along with the gross debt; at least back in 2010, you could find them in the fine print of one or two CBO reports. Now not even a magnifying glass will help.”

Let us now turn to Scott Fullwiler’s latest sighting of how the CBO is playing an openly political role on this issue.

By Scott Fullwiler, Associate Professor of Economics and James A. Leach Chair in Banking and Monetary Economics at Wartburg College. Cross posted from New Economic Perspectives

The Congressional Budget Office (CBO) published its long-term deficit and national debt projections last week.  These are the projections most widely cited in policy discussions about long-term “sustainability” of the national debt and entitlement programs.  In this post I focus on a small but very important part of the report—the CBO’s discussion of the “Consequences of a Large and Growing Debt,” which can be found on pages 13-15.  This section can be found in past reports going back several years, and hasn’t change much if it has changed at all during this time.  It is also consistent with the thinking of most economists on these issues.  As readers of this blog will recognize, the CBO’s analysis is “out of paradigm” in that it is inapplicable to a sovereign, currency-currency issuing government operating under flexible exchange rates such as the US, Japan, Canada, UK, Australia, etc.

CBO presents four consequences of a large and growing national debt.  I discuss each in turn.

  1. Less National Saving and Future Income–Large federal budget deficits over the long term would reduce investment, resulting in lower national income and higher interest rates than would otherwise occur. Increased government borrowing would cause a larger share of the savings potentially available for investment to be used for purchasing government securities, such as Treasury bonds. Those purchases would crowd out investment in capital goods—factories and computers, for example—which makes workers more productive.

This would be laughable if it weren’t for the fact that most economists believe it and the dangers of following policy based on such a belief.  The analysis is based on the loanable funds market—which DOES NOT EXIST in the real world.  In reality, the funds that banks lend are created out of thin air, not constrained by saving, the flow of deposits, or fractional reserve requirements.  Even a 100% requirement changes nothing as long as the central bank is targeting the interbank rate that sets the banks’ cost of funds.  More reserves are always forthcoming via open market operations if the interbank rate starts to move above the central bank’s target, so there is no rise in interest rates of the sort that the loanable funds model supposes.

So there is no threat to funding available for private investment in capital goods, and no threat to the growth rate of future national income.  CBO’s analysis is simply inconsistent with how the modern financial system actually works.  (My post here from 2012 described the process of bank lending. For more detailed analysis of the interaction of banks and central banks, see here, here, here, and here.)

As an aside, consistent with neoclassical theory in which factors of production receive their marginal product, CBO writes that “because wages are determined mainly by workers’ productivity, the reduction in investment would reduce wages as well [since the investment is driving productivity of workers in CBO’s analysis], lessening people’s incentive to work.”  Wow.  Apparently CBO hasn’t noticed that (a) wages and productivity have diverged for the past 40 years, with productivity far outstripping wage growth, and (b) low wages haven’t lessened the incentive to work at all (if they did, US workers should be working far less than there French and German counterparts while the opposite is true).  Three words—Cambridge Capital Controversies, which neoclassicals still haven’t actually bothered to understand.  Instead they hide behind a theory that suggests CEOs making exponentially more than the average worker somehow “deserve” this excessive pay even as anyone that bothers to look can see that these same CEOs have led the private sector to far slower growth rates of productivity than we saw in the 1950s and 1960s when the ratio of CEO pay to worker pay was far smaller.  But I digress.  (And apologies for the rather simplistic analysis here—I realize there’s much more going on with wages—but again, this isn’t the main point of the post.)

  1. Pressure for Larger Tax Increases or Spending Cuts in the FutureWhen the federal debt is large, the government ordinarily must make substantial interest payments to its lenders, and growth in the debt causes those interest payments to increase. (Net interest payments are currently fairly small relative to the size of the economy because interest rates are exceptionally low, but CBO anticipates that those payments will increase considerably as interest rates return to more typical levels.) 

In other words, when interest rates rise, they will take up a larger percentage of the government’s outlays, increasing the likelihood of future large deficits unless spending is cut or taxes are raised.  Similarly, a desire to raise spending or cut taxes in the future will be thwarted by projections of even larger deficits and require still greater cuts or taxes elsewhere.  CBO wants us to believe that it is just trying to protect us from the difficult political decisions this would bring.

In some ways this is a legitimate point, but I would say it differently.  Any increase in the government’s deficit can result in greater aggregate spending on existing productive capacity, so if the government is sending more interest to bond holders, ceteris paribus, this is creating the potential for inflation.  However, the issue here isn’t the larger deficits as much as it is the larger deficits relative to the inflation threat.  But CBO presents us with no analysis of the future inflation threat of rising debt service—in fact, its long-term analysis assumes both an economy at full employment beginning a few years from now and very modest inflation throughout even with the larger deficit and debt service projections.  In other words, the real danger of rising debt service or rising government deficits in general (aside from the obvious potential misallocation of the government’s spending) is assumed away by CBO from the start.

Furthermore, rising debt service for a currency-issuer under flexible exchange rates like the US is a monetary policy variable, as I explained here and here.  If rising debt service is pushing the government’s deficit too high, CBO should explain to us why an inflation-targeting central bank is raising the risk of inflation by raising the government’s debt service.

In any case, an economy reaching the point at which a central bank running a Taylor Rule type of interest rate targeting strategy will raise rates should also be precisely when the government is experiencing fairly rapidly declining primary deficits (the deficit aside from debt service)–which is the case in the US’s history—and probably shouldn’t be entertaining thoughts of increasing deficits at that point if low and stable inflation is a serious policy goal.  In most other cases, the central bank shouldn’t be raising rates and the government should be increasing its deficit.  CBO’s assumption of continuous full employment and low inflation mistakenly abstracts from the fact that the real world economy is always in the midst of some stage of a business cycle.

  1. Reduced Ability to Respond to Domestic and International Problems–When the amount of outstanding debt is relatively small, a government can borrow money to address significant unexpected events—recessions, financial crises, or wars, for example. In contrast, when outstanding debt is large, a government has less flexibility to address financial and economic crises—a very costly circumstance for many countries.  A large amount of debt also can compromise a country’s national security by constraining military spending in times of international crisis or by limiting the country’s ability to prepare for such a crisis.

This one’s pretty amazing—seriously, how can someone actually believe this stuff?  First off, as we know, government’s that issue their own currencies don’t need to borrow back their own money.  Second, even if you do think so, as above, the interest rate on this increase in the national debt is a monetary policy variable, not one that is set by markets.  There is no danger of a currency issuing government not being able to finance its deficits in a time of crisis.  And we know that times of war and financial crisis are in particular the times at which safe, default-risk free government debt is at its lowest rate of interest relative to the debt of non-currency issuers.  Third, such crises are also the points at which the central bank typically has its policy rate—and by extension interest rates on the national debt—set at its lowest.  In fact, it is the private sector that experiences such problems in these times, not the currency-issuing governments—just look back to how private credit markets responded to the global financial crisis of 2008-2009 for the most recent example.

The second part of CBO’s rationale here is even more ridiculous—did they not notice that times of war and financial crisis have been the times of most of the largest increases in the US national debt?  Indeed, the real danger is that in a time of such crisis policy makers will actually believe analysis like CBO’s here.  Thankfully, during WWII they didn’t.  They didn’t listen after September 11, 2001.  And they didn’t listen in 2008 (TARP) or 2009 (Obama stimulus—though the CBO-types did in fact keep the Obama stimulus insufficiently small, not that I was necessarily in favor of many of the spending priorities in the bill).  And in every case of policy makers not listening, interest rates remained low while the government ran the deficits it wanted to run.

  1. Greater Chance of a Fiscal CrisisA large and continuously growing federal debt would have another significant negative consequence: It would increase the likelihood of a fiscal crisis in the United States.  Specifically, there would be a greater risk that investors would become unwilling to finance the government’s borrowing needs unless they were compensated with very high interest rates and, as a result, interest rates on federal debt would rise suddenly and sharply relative to rates of return on other assets. That increase in interest rates would reduce the market value of outstanding government bonds, causing losses for investors and perhaps precipitating a broader financial crisis by creating losses for mutual funds, pension funds, insurance companies, banks, and other holders of government debt—losses that might be large enough to cause some financial institutions to fail.  Unfortunately, there is no way to predict with any confidence whether or when such a fiscal crisis might occur in the United States. In particular, there is no identifiable tipping point in the debt-to-GDP ratio to indicate that a crisis is likely or imminent. All else being equal, however, the larger a government’s debt, the greater the risk of a fiscal crisis.

Here we see the “US could become Greece” argument, with “we can’t say when it could become Greece, but we don’t want to find out!” added on.  In fact, the CBO in the footnotes links to its 2010 report, “Federal Debt and the Risk of a Fiscal Crisis” (in which it makes the same four points as here, by the way, regarding the consequences of large and rising debt), which analyzes recent fiscal crises in Argentina, Ireland, and Greece and then considers how their difficulties dealing with rising interest rates on the national debt, diminished access to financial markets, etc., could harm the US economy.

Again, though, a currency-issuing government under flexible exchange rates can’t have such crises because it doesn’t need to borrow its money; interest rates on its debt are a monetary policy variable.  The doomsayers have been at this for decades now, but have not explained why the US, UK, and Japan ran continually large deficits starting in 2008 at low interest rates while Greece, Spain, Italy, etc., could not.  Their only response is, “Just wait!  This time is NOT different!”  At least CBO doesn’t fall into the typical trap of citing the Reinhart/Rogoff paper on “tipping points,” which has been discredited (see here and here as well).  CBO simply notes here that as of yet “there is no identifiable tipping point”—this is true of course, since there isn’t a tipping point at all if it’s your own currency and you have the ability to set the interest rate on it.  At some point one would think the “US could become Greece” argument would be widely recognized as fraudulent, but if you’re in the wrong paradigm it’s difficult to accept even a simple explanation of why the paradigm is wrong.

In the end, what we see from these four points made by CBO is that the real danger to policymakers isn’t large deficits and debt.  The real danger is that they will pay attention to analysis done of large deficits and debt by CBO and others like it—such as most economists—and unfortunately they are all paying attention and echoing this same sort of analysis.  And here we all sit in a six year trough relative to potential GDP, continued high unemployment (particularly if you include underemployment, etc.) and low participation rates, and with even fairly decent job creation that however is focused on the low-wage end compared to previous recoveries (see here).  And this isn’t even to mention the Eurozone nations that are still in depression states.

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  1. Alan Simpson

    I am starting to lose the plot. Pete Peterson and Stan Druckenmiller’s agenda? Do you not recognize the ability of medical science to deliver new techniques to extend life faster than we as a society can pay for them? Do you wonder why we have no new antibiotics in the pipeline? Do you contemplate what the inevitable increase in interest rates will do to serviceable debt in developed markets? This Keynesian BS has been disproven over the last 5 years. With a barely palpable recovery, the call for ‘more debt’ to solve the leverage problem rings a bit untrue.

    1. Yves Smith Post author

      Did you bother reading the paper by the Fed experts, who BTW are vastly more qualified than you to render an opinion? They deal with the demographic question, in cased you missed that. And increased income inequality shortens lifespans, even among the rich. There’s ample data on that. And your concern re antibiotics contradicts your worry re ever expanding lifespans, BTW. Life expectancy is already falling among rural white women.

      And you are dead wrong about Keynes. The IMF, which has been a long-standing implementer of austerian policies, has been forced to admit that it is wrong, that as we have stated repeatedly, trying to cut deficits in a weak economy only makes the debt to GDP ratio worse, thus making the debt burden more severe than when the misguided exercise started. The economy winds up contracting even faster than the debt level. There is a denominator in these computations, lest you forget, and the denominator is affected negatively by cutting spending, and it contracts even faster than debt levels fall. This result has been demonstrated again and again, in Latvia, Ireland, Portugal, and Greece, among others.

      And the last five years have bupkis to do with “Keynesian” policies. What we have had instead is five years of ZIRP and QE which have nothing to do with Keynes. We and others said it would do pretty much nothing for the real economy.

      You have to do better than that if you are going to persuade anyone here. But it’s typical of deficit hysterics to rely on bumper sticker talking points, since they can’t muster evidence to support their views.

      1. Jim Shannon

        The purpose of ZIRP and QE was to allow ALL the TBTF banks Time to exit insolvency! TARP only kept them liquid, and the Economy continues to stumble because the Consumer was the source of ALL those $Trillion$!
        Financial corruption and Insurance Fraud was allowed to Milk the Cow dry, and now everyone is standing around in a big circle, wondering what the hell happened!

      2. Chris

        Yves as a long time admirer and fan of this blog I must respectfully disagree from some of the points raised here.

        First, as far as “Fed experts” being more qualified to speak on these matters vs. ordinary citizens, let me just remind you gently that those same experts completely missed the subprime meltdown and ensuing near-death experience of the global financial system in 08/09 (“it’s contained!”)

        Second, I am well aware of Modern Monetary Theory and having read some of that theory as a result of this blog I think I get the argument that the government can never default as long as it borrows in its; own currency.

        However until MMT is widely accepted including by these Fed “experts”, we live in a system where interest keeps accruing on debt to fund the basics of government. Martin Armstrong has quoted a figure of something like 70% of the national debt is do to interest which benefits nobody but the banksters.

        So in the current system we’re living under, these large deficits do represent a clear and present danger.

        As far as the CBO goes, I have no idea if they are tilting one way or another but will note that their deficit predictions have a sorry track record (remember the “surpluses as far as the eye can see” they forecasted back in the early days of the G.W. Bush Presidency?)

        1. Teejay

          I don’t think the Fed “missed” the meltdown. Greenspan acknowledged in a post crash interview
          (I think it was Dave Farber’s CNBC “Inside the Meltdown”). The Maestro had prima facie evidence of mortgage fraud (FBI,2004 and Robert Gnaizda from Greenlining Institute) was afraid of being blamed for ruining the party. It wasn’t until 08 that Bernanke agreed to clamp down on the types of loans that were being pushed through the machine. 2008! They didn’t miss the meltdown. Their ideology kept them from acting until it was way too late to make any difference.

        2. Ben Johannson

          If paying yield makes you unhappy then we can simply stop issuing yield-bearing treasurys, but the payment itself represents no fiscal barrier.

        3. Yves Smith Post author

          So you did not bother reading the bios of the experts nor their underlying paper. So much for the level of investigation you are willing to perform.

          The two people in question have spent their entire careers doing long-term budgetary forecasting. They are probably the two most qualified people in the US to take issue with the CBO. And the Fed in general has an orthodox bias, so for Fed senior staffers to take on the CBO, and document so many errors, as well as deviations from how the CBO is supposed to prepare these forecasts from a methodological perspective, is as close as you get among mainstream economists of an accusation of operating in bad faith.

        4. Ed S.


          I don’t mean to pile on, but you make the statement I think I get the argument that the government can never default as long as it borrows in its; own currency.

          It’s not an argument or an opinion: it is a fact. The only way that a government can default on debt in its own currency is to willfully refuse to pay the debt.

        5. MRW

          Chris, you wrote:

          However until MMT is widely accepted including by these Fed “experts”, we live in a system where interest keeps accruing on debt to fund the basics of government. Martin Armstrong has quoted a figure of something like 70% of the national debt is do to interest which benefits nobody but the banksters.

          Does a former Deputy Secretary of the Treasury count as an expert? If so, Frank N Newman in his short, informative 2013 book Freedom from National Debt writes:

          An analogy between Treasuries and a government (Fed) bank has been used by Warren Mosler, in “Seven Deadly Innocent Frauds of Economic Policy.” That book and Six Myths [Newman’s first book] take different approaches to reach some similar conclusions. This author recommends Mr. Mosler’s book, as well as various writings by academic proponents of “Modern Monetary Theory” or “Neo-Chartalism,” including L. Randall Wray (The Levy Economics Institute of Bard College,), James K. Galbraith (University of Texas), Scott Fullwiler (Wartburg College), and Bill Mitchell (University of Newcastle, New South Wales, Australia). (p. 14).

          Look up the Table of Contents of Newman latest on Amazon. He addresses what concerns you and Martin Armstrong. According to Newman, you’re both wrong. The interest on the national debt (treasury securities) is not an issue, and it benefits the holders of those securities: pension funds, university trusts, businesses, individuals, your grandmother if she has government savings bonds, and the foreign sector. From Newman:

          Interest paid on Treasury securities is fundamentally different than the vast majority of government expenditures: interest does not consume economic resources. . . . If the economy is running with substantial unemployment, then it is better for the government to issue more Treasuries to pay for its needs rather than raise taxes. That includes paying interest on existing Treasuries by issuing new Treasuries. There is no more or less money in the system, on a net basis, and no need for additional taxes. . . . Interest paid by the Treasury is income to the public holders of Treasuries, who have financial assets and are often trying to build wealth, rather than spending most of it in the year it was earned.

          The payment of interest does not consume any resources, or directly change GDP. These are key reasons why economists have often focused on the primary deficit [deficit minus interest; unlike gross deficit]. Interest on Treasuries is different by nature from real government spending on goods and services, and should not be included in the economic computation of government expenditures; interest does not pay for production, or pay doctors or hospitals for medical services, or provide cash for people who are likely to spend most of it, such as those living on Social Security or on unemployment benefits. The primary deficit, which excludes interest paid, is a more meaningful economic measure of deficits in the US.

          Interest payments also do not affect the money supply. (pp. 48-49).

          Newman says that once a year, the US Treasury determines interest owed on existing treasuries and just issues new treasuries to ‘pay’ for it.

      3. Jacob

        “And the last five years have bupkis to do with ‘Keynesian’ policies. What we have had instead is five years of ZIRP and QE which have nothing to do with Keynes. We and others said it would do pretty much nothing for the real economy.”

        The Fed could raise interest rates, of course, but ZIRP indicates, and is a consequence of, a demand-starved economy; it’s not a policy arbitrarily chosen by the Federal Reserve. The prime cause of weak demand is in the private sector, not Federal Reserve policy. And in regard to the main subject of this article, the Congressional Budget Office has obviously been appropriated by Pete Peterson and the rest of the fascist ideologues, much the same way most government regulatory agencies are captured by the industries they’re supposed to regulate.

        1. MRW

          And in regard to the main subject of this article, the Congressional Budget Office has obviously been appropriated by Pete Peterson and the rest

          Seems so.

      4. Erick Borling

        Go Yves! I want to add the point that what determines our ability to pay — as a society — for things isn’t the amount of numbers/paper (money, that is), but the ability to do the work and render the service. When the dilettante has the moment of enlightenment and realizes that money is nothing more than numbers, then there is no reason to fear numbers. Every number has an implicit opposite ( a negative number i.e. the Nat’l “debt”). Again, our ability to work and our need to convert our work into purchasing power is the only fair means of determining what we can afford and what amount of aggregate demand should be driven by fiscal policy.

      5. Linus Huber

        Without going into the details of this discussion, I like to make a general observation.

        Any system organizing society is prone to self-destruct over time as those that benefit the most of the system will gain additional power and influence its further development in their favor. It is human nature to try to increase safety and security but when those tasks are increasingly delegated to a bureaucracy whose attributes include the aim to grow cancerously on its host, we not simply infantilize a large part of the population but create some form of grand Ponzi scheme. The complexity is simply too high for even the most highly educated person to comprehend. Monetary policy is just one but an important aspect of this whole system that serves to the detriment of the population at large to the benefits of those moneyed and well connected interests.

        1. Jim Shannon

          How much we can consume is determined by the value of our work to other consumers!
          But never forget it is not how much you make but how much the Tax Code allows you to keep!
          If you really want to know why our economy is struggling its because of a Tax Code that refuses to recognize that consumers drive employment and not Hoarders of Cash!
          The already welthy are hoarding CASH waiting for and in fact causing the next crash! It is happening on a Global basis!

    2. Ben Johannson

      Do you contemplate what the inevitable increase in interest rates will do to serviceable debt in developed markets? This Keynesian BS has been disproven over the last 5 years.

      I understand this is a hit-and-run comment and we’ll never here from you on this again, but 1) if you think interest rates can rise uncontrollably you didn’t read Scott’s post and don’t understand the banking system, and 2) As Yves has already stated, Keynes has been absent from policy in the last five years. Never have I read anyone whose work has been so misunderstood that the average person thinks Keynesian economics = whatever government is doing.

      Keynes work was far more subtle and complex than you comprehend, but like everything else American economists managed to bastardize it into the jumbled and incoherent mess you take it for. Do yourself a favor and read Skidelsky’s Keynes: A Very Short Introduction.

      You’ll be glad you did.

      1. Linus Huber

        Keynes represents the idea of increasing the government’s influence on society and economy by using superficially logical arguments whereas one has to distinguish between the original ideas and its abuse by the political establishment as a fig leave to enhance their own power and influence. There is no reason for a government to really maintain longterm debt except in order to have more power over its subjects. It therefore becomes a rather philosophical question whether one believes that government is there to serve the people or the people to serve the government. I personally prefer the right to individuality, freedom and peace.

        The aim to increase safety and security and to fight volatility on a systemic level by centralization and transferring problematic issues on an ever higher hierarchical level is sold as progress but creates new unpredictable stress points that may at some point in the future create far larger and potentially disastrous dislocations than when we adopt the idea of welcoming a certain degree of chaos and instability that serves as a valve the release built-up tensions on a regular basis. Or in other words “fire 50% of the system managers”.

        1. Ben Johannson

          Keynes represents the idea of increasing the government’s influence on society and economy by using superficially logical arguments whereas one has to distinguish between the original ideas and its abuse by the political establishment as a fig leave to enhance their own power and influence.

          And I see you haven’t read Keynes either.

  2. John

    The CBO makes it a habit to appease the hawks. They are always on a crusade to tell everyone the sky is falling on government spending, especially when individual Americans are the receiver. They do so to justify their own jobs and budgets. Case in point is military compensation (others exist, like military health care). Their latest scare in recent years is troop compensation have gotten out of control. (Obama’s Grand Bargain failed for the general public, but he has been very aggressive at going after active duty military pay. The CBO have stepped up to help him out).


    What is going on is the WH & DoD want troops to pay for the deficit. Their is a huge lobbying effort to make sure congress listens to them. Naturally, the CBO is there to lend a helping hand telling the world to reduce the deficit is to cap troop pay. Capping is the same as cut.

    To make a very long story short the CBO was asked to calculate the cost of the Iraq war back in 2002. They used the same rosy picture scenarios the ‘cons used to march in — greeted as liberators, and Iraqi oil could be used to help pay for the effort. In other words, the CBO helped make the argument for war, used phony, low-ball estimates, and long-term budget concerns were not cited. Of course now, they are asking active duty troops to pay for their own ginormous mistakes.


    The CBO needs to be put out to pasture.

    1. John

      The Lexington Institute (DoD industry paid think tank) recently cited CBO to bolster the hawks argument to slash active duty pay and benefits. The Lexington Institute is just one cog in a much bigger Washington web to shield and protect the police state.

      The CBO knows the ways of the Beltway crowd (easy hint: be on the side of the hawks) and are using it to their advantage to stay a viable ‘Non-partisan Analysis for the US Congress’ (yeah, right) office. Rather than question the obvious bias, Lexington uses CBOs report as gospel, sacrosanct.

      Unfortunately, CBO’s awful summations and recommendations plays into the argument of moving wealth to the 1%. They rarely call out contractors as way to save money (last estimate I saw was $400B in DoD weapon cost over-runs). Sure, CBO cite obvious weapon system over-runs like the F-35 to show balance but it is used a straw-man compared to personnel costs because they know cutting hardware is not in the cards. They know congress is not going to go for slashing programs that keep their district employed. So what if the Army does not need anymore M1-A2 Abraham tanks? Just keep making them!

      DoD contractors (.001%) win even in a sliding budget with the help of CBO, while active duty troops and the tax paying public lose. CBO helps the very rich keep the money gravy chain rolling.


      1. flora

        yes, it’s funny how those deficit hawks insist, *insist*, that we’re going to hell in a hand basket unless troop pay is cut, military retirement pay is cut, education and cdc funding is cut, ss is cut, but…. um… roll back some of their tax cuts? No. Never. And more tax cuts for those deficit hawks if you please. Paid for by above said cuts. Whenever the VA admins go to Congress requesting more funding the deficit hawks go into hysteria over the deficit and refuse on high moral ground to increase VA funding. Whenever new tax cuts or making tax loopholes permanent are considered, why sure, no problem for these same deficit “hawks”. Not just the VA, of course; the CDC, transportation, all govt agencies whose purpose is the general welfare are in the same predicament. The “hawks” high moral outrage over deficits is entirely situational.

        1. cnchal

          yes, it’s funny how those deficit hawks insist, *insist*, that we’re going to hell in a hand basket unless troop pay is cut, military retirement pay is cut, education and cdc funding is cut, ss is cut, but…. um… roll back some of their tax cuts?

          Or rolling back the outright theft by big business. Walmart and McDonalds employees on food stamps, so the executives and owners can increase their pay and what they take.

          Boeing, after getting millions in subsidies, handing wing production for the Dreamliner to Japan. That will show the union who is boss!!

          Philips getting millions in subsidies while at the same time closing the Sparta Tennessee lighting division. Losing buckets of money for stupidity doesn’t cost them a dime.

          Volkswagen getting millions in subsidies from the state of Tennessee to locate their factory there. Ironic.

          The list is practically endless

          Where is Capitalism? Wasn’t it murdered by Socialism for the benefit of big business?

  3. Schofield

    These days I tend to think of the Neo-Conservative ideology that organisations like the CBO “push” as being the “one goose ideology” of a declining society as opposed to the “two goose ideology” or Functional Finance approach of countries like China. The use of the term “goose” is in reference to the story of the mythical goose that can lay a golden egg. Our societies are heavily monetized but few fail to understand that expansion and continuation of our well-being as a society is dependent upon finding a means of creating additional money (golden egg) that isn’t fully subject to a “balance sheet accounting process” and which only a sovereign government is in a position to achieve. Private banks might on the face of it appear to also have that facility but given the fact that their loans (golden egg) neither contain the interest sum, or the taxation to be levied on deployment of its loans in the economy, relying on additional loans at compound interest to fund these two “redemption” requirements is pure Ponzi.

    Randy Wray has written an excellent exposition of the “two goose ideology” in his recent article in Economonitor:-

    1. financial matters

      Yes, Joe Firestone has also proposed a different way to look at it. I think this is a good start. Then questions can be better formed such as ‘who are these assets going go?’ The questions aren’t so much can we afford it but is it a socially useful thing to do. A better question is can we afford not to do it as we see austerity and privatization squeeze our society of employment, basic needs such as water, healthcare, education, etc.

      “”So, here’s another proposal for renaming/ re-framing key terms in monetarily sovereign government accounting.

      — When a monetarily sovereign government spends more than it taxes during a specific time period that is Government creation of Net Financial Assets (NFA) in the non-government sector. Let’s call it “the addition.”

      — The accumulation of net financial assets created over time is national net financial savings. Let’s call it “the National Credit.” The current total of debt instruments subject to the limit is equal to “the National Credit.”

      — When a monetarily sovereign government taxes more than it spends during a specific time period, then that is Government destruction of NFAs in the non-government sector. Let’s call it “the government destruction.”

      Accumulated NFAs destroyed by Government taxing more than spending is national net financial “depletion,” not “national savings.”””

      Firestone, Joseph M. (2014-01-13). Fixing the Debt without Breaking America: Austerity, the Trillion Dollar Coin, and Ending Debt Ceiling, Sequester, and Budgetary Crises (Kindle Locations 723-725). EIS WebPress. Kindle Edition.

  4. bkrasting

    A flaw in the CBO report is that is does not include intergovernmental debt. The ‘scary’ chart CBO provides shows current debt to GDP at ‘only’ 74% of GDP. But when you add in those pesky IOU’s to the Trust Funds the debt level is already well in excess of 100%. And of course, it will rise every month. Does debt in excess of 100% matter? We shall see.

    For a different perspective on debt and what it means read Senator Portman’s WSJ OpEd today:


    1. diptherio

      Oh yeah, all those pesky IOUs that the government owes to itself…whatever will the government do? And isn’t it horrible that our government is providing essentially risk-free financial instruments that, last time I checked, were a pretty important part of lots of people’s nest-eggs.

      Try your ludicrous talking-points somewhere else…[yawns]

      1. Jim Haygood

        Whatever will the government do? They just told us what they will do:

        The projected combined OASI and DI Trust Fund asset reserves increase through 2020, begin to decline in 2021, and become depleted and unable to pay scheduled benefits in full on a timely basis in 2033. At the time of reserve depletion, continuing income to the combined trust funds would be sufficient to pay 77 percent of scheduled benefits. However, the DI Trust Fund reserves become depleted in 2016, at which time continuing income to the DI Trust Fund would be sufficient to pay 80 percent of DI benefits.


        Existing law mandates benefit cuts when the intragovernmental debt runs out. Since 2010, when Soc Sec went cash flow negative, trust fund redemptions have been replaced with new public debt.

        Thus, it is conservative to assume that intragovernmental debt will be replaced with public debt.

        1. stf

          You don’t seem to understand that this is what they would do even if the trust funds were >0.

          When the time comes to begin to “cash in” the trust funds, the govt will “cover” these by issuing bonds to the pvt sector if revenues aren’t sufficient to cover.

          With trust funds > 0, government spending (including entitlements) = revenues + bond sales
          With trust funds < 0, government spending (including entitlements) = revenues + bond sales.

          1. bkrasting

            I disagree. Based on current law, when SSTF=0, then SS benefits (government spending) must be cut by 25% across the board. In 2014 dollars it would mean a reduction of $220B in total government spending.

            Now you could fix this problem by passing a new law. All you would need is a revenue bill to raise payroll taxes by 4% ($1,800 on a 50K salary). This would have to be originated and passed in the House, passed in the Senate and signed by the Prez.

            This would be the largest tax increase in history. It would be regressive – meaning it would hurt those on the bottom of the pay scale the most. This would exaggerate the already huge income distribution problem the country faces. Republicans would not let it out of the House. If the Senate had a vote, it would say “no”. Elizabeth Warren would never let this happen – and she’s got the clout to block it.. Good luck passing that legislation – I would give it 100 to 1 odds.

            This line of thinking is all to the benefit of the Boomers. They (all 70m of them) would get a free ride, while 150m current workers would foot the bill for the rest of their lives. I just don’t see that happening.

      2. bkrasting

        Yes, the TF assets are a significant portion of lots of people’s nest-eggs. The debts to SS are just as valid as as the bonds owned by China.

        So why are they not included in CBO’s definition of debt?

        1. stf

          1. The comment you are referring to said that privately held tsys were the nest egg, not the trust funds, so you misinterpreted.

          2. Bonds owned by China = who cares? interest on the debt is a policy variable, so aside from increased govt spending on debt service (potential inflationary impact, which CBO doesn’t estimate unfortunately), doesn’t matter since there are no bond vigilantes.

          3. You missed the point of CBO’s forecasts–in the future, the trust funds will be “cashed in” by the SSA, at which time deficits will increase if tax revenues are not sufficient to cover on budget + entitlements. So, the future rise in debt held by pvt sector as a result of current trust funds is already baked into CBO’s analysis.

          4. Every neoclassical macro graduate text on monetary economics says that the debt held by pvt sector is the correct measure since that’s what you can default on. Can’t default on debt to yourself in any economically meaningful way.

          1. bkrasting

            1) Actually, I was responding to a comment about “those pesky IOUs that the government owes to itself”. When he refers to ‘debt owed to itself’, he is referring to the Intergovernmental debt, not the Debt to Public. Sorry if you misunderstood.

            2) No, no bond vigilantes around today. But do you really want to give them an excuse to raise up their ugly heads? Interest is not a ‘policy option’ they are market driven. The Fed can’t (and won’t) continue to control the yield curve for much longer – Ask Yellen…

            3) Yes, Social Security bonds will get cashed in, but other TFs are projected to grow. The IG debt is $5T today, CBO says it will be $5.2T in 9 years. The link to the CBO numbers:

            4) Neo classical economics aside – there is no option of default for the US. To ignore the IG debt (that ranks parri passu with the Debt to Public) and its economic consequences is off base. You make a neo-classical point about a hypothetical that does not exist. But if you do believe that a default for either the Debt to Public, or the IG is our future, then you better be looking over your shoulder for those vigilantes.

            1. stf

              1. Wrong. His “nest eggs” comment was clearly describing tsys, not TF. Go read it again.
              2. Again, don’t care. You’re wrong. There are no bond vigilantes–keep telling us to “just wait,” though. And in the meantime don’t offer an explanation why it happened to Greece, Ireland, Spain, Italy, but not to US, Japan, UK, because you don’t have anything but “just wait.”
              3. Missed the point AGAIN. CBO in this report is looking at everythign that will be “cashed in” over next 75 years. EVERYTHING. If you are projecting deficits for 75 years, that’s what you do; adding trust funds to THIS report would be double counting. If they are cashed in after 75 years, then you don’t count them because, uh, the analysis was for 75 years. Your only argument would be that they should go to the infinite horizon.
              4. Don’t care. Kotlikoff, et al have been warning for 20+ years the sky was falling on TFs. Again, you’re adding nothing here but “just wait.” That’s not analysis. The neoclassical textbook point was to show that virtually all economists agree that CBO’s method is right–that’s why CBO did it that way whether it’s right or not. But the point is, as above, it’s double counting to include TFs and also what you’re cashing in. CBO’s analysis is what they are cashing in, so TF’s aren’t in it, but are in fact “there” because cashing in is the more important point as that’s when the govt will actually issue debt to the pvt sector to finance the cashing in.

        2. MRW


          Yes, the TF assets are a significant portion of lots of people’s nest-eggs. The debts to SS are just as valid as as the bonds owned by China.

          So why are they not included in CBO’s definition of debt?

          The bonds owned by China are nothing more than their payments from Walmart and Best Buy in their Fed savings account earning interest (like a CD). They belong in the CBO definition of debt as much as your savings do.

          As for “debts to SS.” What debts? The numbers for Social Security and Medicare in the Intergovernmental debt column are just accounting entries. There are no treasury securities in them. As former Deputy Treas Sec Newman (see my post above) writes “The trust funds do not hold any Treasury bonds that were bought by investors or could be sold in the market. Both the Congressional Budget Office and the Office of Management and Budget have recognized, in various publications, that the trust funds are ‘accounting mechanisms, not assets of the government, and not relevant for the overall federal budget.'(p. 39).

          There’s nothing in the Social Security fund. Newman again:

          The Treasury also makes a bookkeeping entry, according to a formula, reflecting the legal requirements of Social Security legislation. The trust fund accounts provide a way to view actuarial estimations of future cash requirements for payments . But the trust has no real assets. . . . The payments to be made by the government for each program are determined by law, not by the amounts recorded in the trust funds, and concerns about trust funds “running out of money” do not make sense. (pp. 87-88)

      3. ewmayer

        Talk about “ludicrous…”

        Nice to hear from you, Bruce.

        For NC readers not familiar with him, Bruce Krasting is one of the 2 regular ZH guest posters I follow – the other is Wolf Richter, who regularly guests on here o NC as well. Having followed Bruce for a number of years, I rank his words at least as highly as I do those of “Fed experts”, who after all, whatever their credentials and personal ethics, serve their government masters.

        Using the wording “debt the government owes to itself” to describe intergovernmental debt is exceedingly – and I suspect in many cases deliberately so – misleading, because it makes it sound as though things somehow “net to zero”. In fact the debt is owed by the government to the present and future beneficiaries of the trust funds from which their paid-in money was borrowed. With the massive ongoing demographic shift from the retirement of the baby boomers, rest assured that those trust funds will be running persistent current-account deficits which necessitate conversion of the “assets” or “holdings” (weasel-words for IOUs) into marketable debt which must be issued into the same markets as have been absorbing a $trillion-plus per year in new debt issuance plus a much larger amount of constantly rolling-over “maturing debt” (a weasel-term for “IOUs which just came due”.)

        We frequently see harsh criticism of various off-the-books accounting gimmicks used by big banks and corporation around here – why should the government get a free pass? Can we please cut the bullshit and require all discussions of government debt be based on the Treasury’s own long-running “debt to the penny” data series?

        Lastly, “expert economists” like to make a persistent habit of extrapolating near-term trends to infinity when it comes to “groaf and jawbs”, so why should the CBO be singled out for criticism on this score? I’ll see CBO’s “medical costs as fraction of GDP” extrapolation and raise you a Keynesian/MMTers’ “expanshun will allow us to grow our way out of any amount of debt, if we just print enough money.”

    2. Schofield

      Oh dear oh dear if only people would wake up and realize we can’t have government not paying it’s own IOU’s back to itself and balancing it’s balance sheet like all good Neo-Conservative citizens!

      In such a way, however, just a little investigative thinking would reveal there’d be no money to expand the economy for new goods and services unless we go Ponzi crazy as the Banksters would love and they, of course, want to retire to the oblivion and minimal social responsibility of a sun drenched island as fast as their sociopathic brains can figure out the fastest route. Indeed a Ponzi collapse is the fastest route to a “no goose society” or rather once having two decided to eat them! No two goose (golden) society for NeoCons as opposed to the mindless Holy Fail of balancing the books wherever they encounter them!

  5. diptherio

    After reading Bill Mitchell’s piece on the BofE the other day, I was explaining to my work compadre why I felt like demanding my money back for all those econ courses I took in college. I gave him a quick version of the loanable funds theory and the quick version of the debunking–“if I spend all of my income, rather than save some of it, that money just ends up in someone else’s bank account–it doesn’t leave the banking system and it doesn’t reduce the amount of money to available to be loaned.” And he was all, “Well, no duh.”

    And as a small business owner, he understands perfectly well that it’s better for business to have your customers spending their money on your products/services rather than saving it so that you can borrow it from them. One semester of college and my buddy already understands econ better than most economists…definitely better than the CBO. Perhaps economics training should include some intercourse with the real world (as compared to right now where economists look at the real world and say, “ahh, f*ck it…”)

  6. Jim Haygood

    ‘The CBO model naively assumes past growth in health care spending as the basis for its long-term projections.’

    CBO’s report (p. 10) shows Medicare spending rising from 3.0 percent of GDP now to 4.6 percent of GDP in 2039.

    Meanwhile, the Medicare trustees report shows (p. 66) HI (Hospital Insurance) expenditures rising from 3.48% of payroll this year to 5.18 percent of payroll in 2040.


    While these reports can and should be reconciled with each other, they agree that spending will rise at roughly similar magnitudes.

    If this is seen as ‘political,’ then evidently one’s complaint should be directed to the seven ex officio Obama administration trustees who issued the Medicare report.

    1. Yves Smith Post author

      So I see you didn’t bother reading the paper in full as to why that is not a realistic assumption. Might help if you did. Medicare costs do not = the hospital component.

  7. Teejay

    To the retired senator from the great state of Wyoming: Respectfully, your views on economics of sovereign
    countries using a sovereign currency need adjustment. Academics has been captured by idealogues for decades, shutting out any ideas different from theirs. A great place to start: http://www.amazon.com/DIAGRAMS-DOLLARS-Modern-Money-Illustrated-ebook/dp/B00HUF6POI/ .
    Also: http://neweconomicperspectives.org/modern-monetary-theory-primer.html
    Global economies found out the hard way that the equilibrium theory Alan Greenspan so embraced was off a tad. “It’s easier to fool people than to convince them that they have been fooled.” – Mark Twain
    Please Senator, dig in to this information with a fresh set of eyes, you’ll find you’ve been misled like many others. And yes keep reading Naked Capitalism and posting comments.

  8. Garrett Pace

    “First off, as we know, government’s that issue their own currencies don’t need to borrow back their own money. Second, even if you do think so, as above, the interest rate on this increase in the national debt is a monetary policy variable, not one that is set by markets. There is no danger of a currency issuing government not being able to finance its deficits in a time of crisis.”

    So long as there’s always ample demand for your nation’s instruments? Or do you mean they can always print new money.

    How is any of this affected by the risk of the dollar losing its reserve currency status?

    1. stf

      As we’ve seen in the US and Eurozone, if CB doesn’t want rates on govt debt to rise, it can buy them. And unlike the Eurozone nations vs. ECB, US govt can tell the Fed to buy govt bonds if the Fed doesn’t want to (like it told it to during 1940s into 1950s).

      At any rate, it won’t come to that in US (or Japan, or the UK or Canada or Australia, etc.) because unlike Euro nations, US tsy’s will arbitrage with the Fed’s current and expected target rates. Even Krugman gets this now. http://www.imf.org/external/np/res/seminars/2013/arc/pdf/krugman.pdf

      In other words, it’s not about “ample demand for your nation’s instruments” if you’re a currency issuer. Interest on your debt is a policy variable.

      As for reserve currency status, also doesn’t matter–Japan, Canada, UK, Australia aren’t reserve currencies and the same goes for them as the US with respect to interest on national debt.

      1. Garrett Pace

        I really don’t care about interest on debt. I am more interested in the idea that people accept the creation of a trillion dollars worth of new wealth every year, without anyone lifting a finger. As long as a notional chit in a computer server = wealth, I suppose the music will keep playing.

        Anytime I read an MMT article I freak out. What if it’s all true, and we’ve discovered financial anti gravity?

        1. stf

          “As long as a notional chit in a computer server = wealth, I suppose the music will keep playing.”

          Apparently you’ve never understood any of the MMT articles you’ve read if that’s your interpretation.

  9. impermanence

    You can not buy good health. Instead, you must earn it through adhering to those practices known to mankind for thousands of years, that is, proper diet, exercise, and some method of mental/spiritual balance.

    Having stated the above, if the society wishes to invest in the processes of curing, repairing, and extending, then it will certainly test the theory that an unlimited amount of products/services can be purchased by a sovereign in their own currency.

  10. Big Picture1

    I have a different take on the deficit issue, one that’s never recognized. Let’s have a look at one firm, Lockheed Martin, a well known defense contractor. I was stunned to find a while back that for FY 2011 (from fedspending.org) Lockheed had huge contracts with the likes of–
    EDUCATION, Department of $1,865,281,084
    ENERGY, Department of $25,064,881,346
    HOUSING AND URBAN DEVELOPMENT, Department of $1,678,933,307
    Bureau of Engraving and Printing $300,939,682
    Dept. of Labor $38,424,354
    Federal Election Commission $12,465,436
    National Endowment for the Arts $2,730,377

    The list goes on…and on…and on. So where are the deficit hawks on the far right, and the corporation haters on the far left when it comes to THIS spending? Nowhere to be found. As with the votes on the 2003 Iraq invasion, on TARP, and others, I can only conclude this fits into our bought and paid for Congress’ “go along to get along” category.

    I have no doubt that LMT has its army of lobbyists making sure that any piece of legislation affecting any of these agencies keeps the gravy train of gubmint money flowing, and that they use however much $$ is needed to get the “right” politicians re-elected.

    And what about other firms, like IBM, or GE, or ATT? Do ya think they are any less interested in riding the gravy train? Or that it’s just a happy coincidence (for them) that the corporate-owned “lamestream media” goes nowhere near any of this? All I ever hear over the airwaves is that “it’s all the Dem’s fault” and “it’s all the Repub’s fault”. The term “divide and conquer” comes to mind.

  11. kevinearick

    Intermittence: Building the Human Bridge

    DC electronics, solving problems that do not exist, creating problems, has merely buried ignorance, debt as income, further in the hole, to proliferate extortion. And employing it to drive real estate inflation, debt as asset, breeding a university medical complex of zombies, renting rooms at $1k/month, mortgaging $60k cars, and replacing the food chain with corn and soy, to skew rates, isn’t helping.

    You could solve the problem by inverting the extortion interest rate gradient, but the so-normalized majority will go ballistic either way, at this point, because war of, by and for zombies is their economy. Shutting down the hospital and the school system, and building infrastructure locally, with local resources, to rebuild education, is more effective, and is already happening, at the community level that matters.

    Debt as money depends upon easily exploitable natural resources, and a demographic ponzi stupid enough to participate. Sustainable development depends upon the brain in your head, adaptation. The planet is a much higher authority than any government, which itself is a speck in the universe. War is an extreme derivative of misplaced perspective, and America is just the latest part of the empire to subsidize the past.

    You are born on a ship, populated by a majority living in ignorance, fear and superstition, the status quo, diverting the ship’s energy systems to entertainment, always attempting to extort more power from a few old-timers, the only ones who can swim and build another ship. Getting angry because the old-timers keep you in the engine room, and intermittently throw you in the water, is self-destructive.

    The passive until aggressive majority, practicing group extortion, penalizes aggression, instead of employing it productively, learning to practice individual initiative, leaving it subject to its own irrational aggression. They don’t practice making decisions so they don’t make decisions, and they have built a computer to make decisions for them, the ultimate scapegoat. If you want gravity, the dc computer is your man.

    Birth rates are falling and the so-entitled aging are increasing, blowing up the entitlement ponzi fueling the process, the worst possible scenario for the borrow all you can and die before the debt is called majority, which is now a de facto call on currency, globally. Neither P&G selling more adult diapers, nor erasing the mythological barrier between civil and military technology, is going to kick-start the economy. The insurance companies are not feverishly building warehouses, to store dead derivative inventory, by accident.

    Troubleshooting, predicting and, heaven forbid, preparing intermittence is way beyond the empire psychology of fear and extortion driving the demand for fixed-cost automation, replacing humans with machines, to extend the status quo. Ignoring the problem until you can’t, and replacing parts at random, only to replace the entire system, faster and faster, doesn’t work, but it does create a lot of economic activity, GDP, until war becomes inevitable.

    The Fed has told Congress in the clearest terms possible, for decades, that a particular demographic segment is required to get the economy producing again, for everyone else. Who do you suppose that is? And what do you suppose is going to be required to get those people back into an economic circuit, that the empire can see?

    I can tell you with reasonable certainty that it is not more of the same – digital fiat, Internet editors, anyone working on planes, trains or automobiles, or import/export financing, notwithstanding Dubai, Panama and Tesla. You are a battery, far beyond anything the critters can invent. Pulling the hook, and rebooting with a better derivative battery, is not the answer.

    You, as a couple, procreating the future, are your children’s authority, a temporary frame of reference, a fulcrum about which they learn to make decisions for themselves, and they are born assuming that you are the heroes of the story, which is true. Without parents, there is no past, and without children, there is no future.

    It is that quantum switch that makes the perpetual motion of the pendulum appear. Without you, time is irrelevant, and time is only relevant to the extent you choose it to be. Space travel is about collapsing spacetime, between where you are and where you want to go, filtering the noise of the clock, preparing to be successful until you are.

    Getting up with nature in the morning, with a productive attitude, is the first test, only the beginning, and most fail, because their parents failed. The majority tries and fails to replace common sense with superstition, falling further behind with each non-decision. Being human is not a competition, to avoid personal responsibility.

    The critters do not want to make decisions, and will not listen to you when it matters, which leaves them no choice but to steal from you, creating the mythology of government for the purpose. Don’t waste your time; the zombies cannot learn, because they only choose to see an empire penalizing work and rewarding busy-work extortion, seeking a scapegoat for outcomes, other than themselves.

    Production is not a choice between conspicuous consumption and capital starvation, bipolar religionism confirmation, boom or bust, rotated in circles by SMART technology, to the end of perpetual FILO natural resource extortion, anywhere other than in the psychology of the majority, seeking relevance, status, in each other’s eyes, and preyed upon accordingly.

    Linking the entitlement systems together with MAD global security dominoes, and employing SMART chips to systematically eliminate leakage, wasn’t such a bright idea after all. If you fear, what you fear, your focus, becomes reality. If you do not fear, you become what God meant you to be, yourself, the true basis of supply and demand.

    Funny, what happens with increasing climate variability, caused by critters seeking security from change. Did you ever figure out why the brake switch caused acceleration, and the ignition switch turned the car off, while you were driving in heat under nR compilation? How many Boeings do you have to see fall out of the sky?

    What is the relationship between P,V & T and V,I & R and a conductor, an insulator and a ground? Fundamentally, what is energy transmission? You can always rely upon consensus, to apply force behind the curve.

    Advertizing an offer to give people back their licenses is not giving people back their licenses is not eliminating licensed extortion.

  12. nohomehere

    The interest on the Debt, The cost of social security w/ medcare, medcaid just through in all social safetynet programs and still all you have is internal debt that can be payed off with another IOU this also considered is actually considered a positive income or set me straight. just the external debt thats a problem right? and that is only its interest payments . and selling more debt helps pay that sand if the sales stop because a lack of buyers then oops! but they just had 3.? trillion dollars of buyers for 1.? trillion of treasuries . sounds good so far right? the scare mongers say there won’t be buyers soon and thats where trouble starts right? while europe is losing its battle with debt and fraud and japan too is hurting as well this could end up leaving the US as the Last Man Standing but who in the ___ will support an economy when there is the rarified air reality that it was a confidence game all along . trust is the key and you can’t earn such things by leaving behind the people who are footing the bill . so yeah! you can see dow 30,000 So What! if no one can sleep at night watching their backs because of the lack of rule of law. So , this has to be addressed! no other point is preeminant . some say the fed has painted itself into a corner a ( liquidity Trap) but europe and many other countries are busting a gut to support the US debt ,so no end game yet! There should be a greater effort to connect the individual to control levers and get people power to start fixing things and all the talk can stop remove politics and cronyism from the street . this Greed will destroy us all sooner than later . So if the CBO plays fear card a real economy should have no fear as in the old days ” market shrugged it off” anybody can see thru this shell game . My selfish opinion is, quit playing the blame game and get to work fixing what so far hasn’t even been touched ,systemic corruption and just maybe people might try to invest in building something instead of scalping a quick profit for there future security when the SHTF

  13. financial matters

    Hopefully the CBO is paying attention to the Mission-Oriented Finance for Innovation conference occurring now in London. http://missionorientedfinance.com/

    “”Conference organizer Mariana Mazzucato, RM Phillips Professor in the Economics of Innovation, SPRU, University of Sussex, said: We have focused on fixing finance, while leaving the ‘real’ economy as sick as before. This is setting up the next bubble. Financial reform and innovation policy must go hand in hand because innovation requires more long-term committed finance, and a de-financialized private sector. We should not just talk about ‘eco-systems’ of innovation, but specify concrete ways to make those eco-systems more symbiotic and less parasitic.””


    Mission Finance: starting to think big again – Mariana Mazzucato

    “”Next week the conference will bring together public agencies from across the world that are facing up to this mission oriented role of the public sector. It will provide a forum to hear about the challenges they face today and to think big in a world that asks governments to think small.

    They will meet with academics working to transform economic theory in such a way that it not only can describe what has actually happened in the past (rather than the ideological position of assuming it was all market directed), but also how to evaluate such investments in the future.””


    Mission Finance: why money matters – Randall Wray

    “”The biggest challenge facing us today is not the lack of finance, but rather how to push finance to promote both the private and the public interest — through the capital development of our country.
    That is the main topic of our Mission Oriented Finance conference.””

    Great Leap

    “” in recent decades finance has retreated from serving the real economy: the financial sector serves itself, and companies in the real economy have become ‘financialised’.

    As we will argue, financialization is rooted in predation; Matt Taibbi has famously argued that Wall Street behaves like a giant blood-sucking vampire squid.””

    1. Schofield

      Mission Finance: why money matters – Randall Wray

      “”The biggest challenge facing us today is not the lack of finance, but rather how to push finance to promote both the private and the public interest — through the capital development of our country.
      That is the main topic of our Mission Oriented Finance conference.”

      Or what’s the matter with you NeoCons that your brains can’t figure out that you and your nation would do a great deal better with two golden geese instead of one!

      1. stf

        Exactly. And somehow the haters interpret MMT as saying “print more money and everything will be ok.”

  14. Paul Tioxon

    I like how simple questions as possible solutions are considered against the laws of physics or something worse, not currently provided for in the law. So, if the Social Security bonds, which are piling up, and will most likely become a surplus for the Trust Fund in excess of $3Trillion by the time Obama leaves office, if these bonds are placed on the Fed’s balance sheet, in exchange for cash as need sometime in the future, just as the QE is providing cash now, can I get to coin the phrase that names this? I am thinking “Temporal Anomaly Easement”. No laws will be broken in this cash for SS bonds, because a crack team of legal experts from Harvard will rewrite all appropriate laws with appropriate language, in a careful, deliberative process of quality control. There, see, how hard was that?

    1. Jim Shannon

      Laws which are ignored and not enforced by government make a mockery of the Law! We as a nation are where we are because the Law CLEARLY has never applied to the Ultra Welthy, who clearly have contempt for the law and ALL forms of government, regulation or taxation!

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