God willing …

Trump on Coming Debt Crisis: ‘I Won’t Be Here’ When It Blows Up

Those close to Trump say that one reason the issue of debt reduction has never been an animating one for him is because he is convinced that it can be solved through means other than raising revenues or cutting expenses.

Say – he is a genius! Most budgets have only two dimensions – money in and money out. But he is playing three-dimensional chess!

Actually, his philosophy is true in business, where there is a third dimension. You just milk all you can out of a company, then declare bankruptcy, and your debts go away. I’m no economist, but I’m pretty sure countries can’t do that. Trump has, however, discovered a third dimension that works for him personally – ignore the problem until somebody else has to deal with it!

13 thoughts on “God willing …

  1. Forgot to mention, in regards to Bill Clinton and his ‘investments.’ He was advised to give them up for his 1993 budget (and most subsequent budgets) because:
    1.polling showed that most people didn’t understand the idea of both cutting spending on some things (like their entitlements) at the same time as increasing spending on other things (especially when they weren’t their entitlements.) This investment spending decreased the popularity of Clinton’s initial 1993 budget proposal which led many Democrats in Congress to reject it.

    2.he was convinced by Greenspan at the Federal Reserve, Robert Rubin at wherever he was at the time and Lloyd Bentsen at the Treasury that the deficit had to be cut significantly right away.

    Ultimately, Clinton did get some ‘investment spending’ but this is a reason that so much American infrastructure has degraded as much as it has.

  2. In regards to my knowledge of economics, two who I recommend who know much more than me: economics professor Mark Thoma has a website that aggregates economics stories he finds of interest. There is a discussion forum there as well.

    And, if you use twitter, a poster by the name of WonkMonk is highly recommended.

    In regards to Bill Clinton, I don’t think most people know this, but his undergraduate degree is in economics. Bill Clinton in 1992 ran on a platform that emphasized both spending cuts at the same time as increasing spending on what he called ‘investments’ but that are generally called ‘infrastructure’ (and were previously called ‘public works projects’, as well as a ‘middle class tax cut’ (which he came to regret ever campaigning on.)

    Neoclassical economics is a hybrid of classical economics, Keynesian economics and Monetarist economics (its philosophy can essentially be summed up as ‘whatever works’) so, it’s not a surprise that Clinton would be malleable as President.

    I think it would be fair to say that the Democratic President Bill Clinton and the Republican Congress effectively blocked each other when it came to demands for spending increases as well as demands for tax cuts – except when they reached agreements to do both, such as in 1995 or 1996.

    However, this was after the historic 1993 budget which passed without the vote of a single Republican, and, in the 2000 election, while Al Gore campaigned on putting the surplus in a ‘lock box’ (the surplus was really just a surplus based on excess revenues from social security taxes, so Al Gore recommended this social security surplus be put into a separate account where it could not be spent until it had to be drawn down when the baby boomers started retiring) George W Bush campaigned on tax cuts arguing that the surplus was ‘excess taxation’ that should be returned to the taxpayers, never mind the years of debt buildup or, presumably, insufficient taxation.

    So, Bush was elected (sort of), the Republicans were reelected in Congress, and now the U.S has ‘deficits as far as the eyes can see.’

  3. that is, I think about 25% is a fairly accurate estimate. However, I don’t think it would be accurate to say this was an attempt to monetize the debt. There was a large amount of pent up consumer demand following years of depression followed by World War II military production that limited the amount of consumer goods produced. Some historians and sociologists even argue that ‘consumer culture’ did not exist prior to post World War II.

    Also, due to the retooling of factories to military production, it took some time to retool the factories to making consumer products. So, on both the demand side and the supply side there were effects that led to a short term jump in inflation (CPI.)

    Interestingly though, despite this high inflation, there were still many people who continued to buy the 25 year War Bonds which paid interest of 2.5%

    1. Hah. Well, I try and separate my personal political views when looking over objective evidence.

      In regards to, for instance, academic economists, most academic economists in response to surveys indicate support for centrist to left leaning Neoclassical views. This is even the case in the United States, where there are a fairly large number of academic Monetarist economists (Chicago School.) Any other economic theory is considered heterodox economics and is not taught in any university except in specific classes that focus on them.

      Most Nobel Prize winners in economics are left leaning Neo Classicists if they are macro economists – including this year’s winner Paul Romer. Romer has several brothers and sisters who are also economists.

      In answer to your question, yes, there were high rates of inflation in 1946, 1947 and 1948 that greatly exceeded the 10 year Bonds (War Bonds 2% interest rate) and the 25 year bond 2.5% rate. With the exception of 1951, however the bond rates exceeded the rate of inflation. Multiplying the inflation rates for 1946 through 1948 provides an increase in CPI of about 33%, dividing that number by 2.5% for the 25 year bond, produces 25%. So, I think that’s a fairly accurate estimate of the percentage of war debt that was monetized.

  4. As a left leaning neoclassical economist, I disagree with a good deal of Monetarist fiscal policy theory, but one of the most unfortunate things about the failure of the George H W Bush Presidency was that he was the only Republican President who closely resembled a Monetarist.

    Monetarists, via Milton Friedman and others, are genuinely greatly concerned about deficits and government debt. Republicans use Monetarist arguments whenever a Democrat is in the White House, but especially under W Bush and Trump, they have adopted the false ‘tax cuts pay for themselves’ arguments whenever a Republican is in the White House.

    I’ve read that Republican economists who continue to promote the ‘tax cuts pay for themselves arguments’ helped developed this Modern Monetary Theory which argues that, as Dick Cheney said, ‘deficits don’t matter.’

    (The left wing version of MMT, Chartalism, claims that government deficit spending is the only long run driver of economic growth. I don’t know if the likes of Alexandra Occasio Cortez has embraced this.)

    I don’t know about all of the rest of the world, but here in Canada, at least up to now, Conservative governments both federally and provincially have resisted the temptation to pass massive deficit growing tax cuts and have continued to embrace Monetarist Principles.

  5. Thank you, Adam Tondowsky. Your knowledge of economics is remarkable and benefits this forum.

    My statements on paying debt with inflated dollars was intended to be more general than perhaps I stated it. You have the numbers, but weren’t the Truman years in high inflation? Also, I would assume government debt is rather mixed in its sources and the Carter years certainly must have leaned in the inflated dollar direction. But you are the teacher.

    I’ll make a political observation, though. Clinton, who has no ideology and was under severe duress, signed much of what Gingrich sent him; he didn’t want more criticism. In that way, the “Contract with America” fulfilled most of its goals. But, of coarse, Clinton took the credit.

    In general, I really don’t like politicians.

  6. “You can google CPI by year and the website from the Minneapolis Federal Reserve Bank with all the numbers from 1993 will pop up.” Should say ‘1913.’

    Using inflation to pay of the debt is known as ‘monetizing the debt.’ It’s done by the Federal Reserve printing up a whole load of excess money in order to cause inflation to rise. Given the independence of the Federal Reserve, I highly doubt they’d go along with this. If Trump tried to get them to do so, and if he had any authority to do so, I think this would bring about another “Saturday Night Massacre.”

  7. The Clinton/Gingrich team may have worked, with Clinton deserving nearly all of the credit via the 1993 budget, but the all Republican team of Bush/Hastert clearly didn’t.

    Sam O’Connor, I find that a bit hard to believe. From 1952-1965 the annual inflation rate (CPI) never exceeded 2%. I don’t know what the interest rate on the government bonds were, but I’d be surprised if they hadn’t exceeded 2%.

    You can google CPI by year and the website from the Minneapolis Federal Reserve Bank with all the numbers from 1993 will pop up.

    Bill Deecee, unfortunately, Jimmy Carter does not really deserve any credit. First, before making that Fed Chair his Treasury Secretary, the rather hopeless Arthur Burns was the Fed Chair until 1978. It was only in August of 1979 that Volcker took over.

    Second, the Federal Reserve had not established its independence by then, and if you check the Federal Reserve rate with the inflation rate (CPI) you’ll see that the Fed rate dropped significantly starting around March or so of 1980 ( from March to April of 1980 the rate dropped from 20.0% to 11.5%) even though the inflation rate (CPI) had not declined. The only explanation I can think of for this is the political interference from President Carter who was concerned with his reelection.

    Ford’s button was WIN (Whip Inflation Now.) I always try and make a reference to it whenever I discuss the economy during this time period.

  8. If you keep a lid on it (inflation) . LBJ didn’t. He wanted a big war and a Great Society w/o raising taxes. Nixon, Ford, and Carter ineffectually tried to cope with the result. Ford wore a button; Carter said that he was more interested in “human problems like unemployment”. But give the Little Georgia Fellow credit, He took G. Miller Miller (Treas. joking name) away from the Fed (and stuck us at Treasury with the clown!) and put Paul Volcker in at the Fed. Which finally did the job (and probably hurt his reelection chances).

  9. Another HUGE reduction in national debt is inadvertently offered to us by inflation. As much as 50% (by most estimates) of the WWII debt was paid by a decrease in the value of the dollar through inflation. The economy of the fifty and sixties helped immensely in this manner. Of course, the debt will never be paid because politicians know they can be re-elected by providing the expensive coddling they have promised their constituents. History is busy repeating itself.

    1. Yup. Many Presidents have also claimed that economic growth will increase revenues without raising taxes. And yet we keep getting further into debt.

      The Clinton/Gingrich tandem worked out poorly in some ways, but between them they did balance the budget, so a tip of the hat for that.

  10. One morning while he was campaigning in 2016 he tossed out the concept that the US could pay it’s obligations at a discount. People immediately noted that this would kind of mess with our historic credit record and be illegal under the Uniform Offering Circular (I helped write that sucker) which governs securities issuance. They also noted that this would make us like Botox Evita’s Argentina – no more cheap financing for us. Then finally someone told Miss Petunia in Peoria that her nephew’s Savings Bond wouldn’t be fully paid off. And that Broadway Star Alexander Hamilton was going to be pissed.
    By that afternoon Our Doofus was denying that he had ever said such a thing.

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