The President of the United States tweeted that with his administration's latest budget agreement, the worst economic crisis of all that we are facing will be avoided. They have put together a plan that will ensure the United States does not default on its debt payments. This bill is supposed to fix some of the recent economic problems we have been facing. It will keep us from not only going into recession but a recession so bad that it would melt retirement accounts, stop inflation from running rampant, and ensure opportunity for all. While he was correct in saying that defaulting would cause very long and difficult economic times, he was wrong in suggesting that this bill will solve any issues that it's supposed to fix. The Fiscal Responsibility Act of 2023 is only going to worsen the current state of the economy.
We are already in recession. When you look at effectively every major economic metric they're all nearing or have already surpassed the levels seen during the worst part of the 2008 financial/housing crisis. Retirement accounts are not melting, but they’re completely losing buying power because of the recent and current inflationary pressures. The value of the dollar is plummeting so even if retirement accounts go up, they need to be moving in the double digits just to maintain real value. It is policy like the FRA 2023 that continues to beat down and chip away at every aspect of our lives. The cost of everything is going up, the value of the dollar is going down, and congress looks at the numbers on the books with a willfully ignorant grin.
As stated before, the real underlying issue is inflation; printing money, increasing the money supply. That is what true inflation is. But, government agencies, politicians, and even news outlets push fictitious definitions of what inflation is and what causes it to mask the fact the government is the sole reason and contributor to inflation. Furthermore, the metrics they use to report inflation statistics are becoming more and more skewed as time goes on. When they try to look at how much prices are changing, the numbers they give are complete nonsense. The Bureau of Labor Statistics, who reports on inflation, has changed how it is reported over the past few decades.
Previously it was just a basket of normal goods every family would likely include in their monthly grocery purchases and expenses that they would go out and literally buy every year. Then they would just simply compare how much this basket of goods changed in price. Now not only has the basket changed so you can no longer accurately compare years but they’ve recently made a more drastic change. They have introduced “replacements” into calculating the basket. For example, say steak last year was $5 per pound and chicken was $2 per pound. This year steak increased to $10 per pound while chicken increased to $4 per pound. They claim that since most households would likely replace buying steak with chicken since steak is so expensive now, there is no need to include it in this year's basket. Now last year's basket may have shown that most households would buy 10 pounds of meat per month at an average cost (averaging steak and chicken) of $3.50 per pound, so $35 a month on meat. Now this year, since steak has become so expensive, households are only buying only chicken at $4 per pound. Since they are still buying 10 pounds, they're only spending $40 a month on meat now. Therefore they claim meat has only increased in price by %14 when in reality it doubled. They are likely correct in saying that households will adjust what they buy due to price increases. But, they use that to manipulate the true inflation rates. For a household that maybe doesn't eat red meat and was only buying chicken, they did in fact see a %100 increase in the cost of the meat they buy.
The FRA 2023 will only exacerbate the inflationary issues that we are experiencing. The FRE 2023 has many parts and pieces like any bill. From politicians desires and lobbyist/donors expectations, getting any bill passed is going to have loads of additional agreements here and deals there. The main point of it is to increase the debt ceiling. Increasing the debt ceiling in itself would be problematic enough for inflation as it would be the open door to printing more money for the government to continue to run. The FRA 2023 really takes it to the next level, the government has really pulled a card out of their sleeve with this one. This bill SUSPENDS the debt ceiling until January 1st, 2025 with the debt ceiling limit being set to whatever the amount of debt the government holds on January 2nd, 2025.
As Peter Schiff has always said, whatever the name of a bill is that congress is trying to pass, you can guarantee it will do the opposite. I don't think this has ever been more true. Inflation is already proving to be overwhelming the nation as a whole. Congress thinks that they should open a credit card with no limit for a year and half. I’m certain someone has said it by now, but here in this blog I am calling it out now. The Financial Irresponsibility Act of 2023 is going to shift our inflation related economic problems to an entire new level. They are going to use this open door to try and print and pay for everything they possibly can. In the 1920’s the Wiemar Republic tried to print their way out of problems and there was so much money, children would use ricks of cash as building blocks. They would burn money to heat their house. This is that serious, this can be that bad if it is let run wild.This time though it will be worse, you won't be able to play with it or use it to heat your house being it's all digital.
You may be thinking how or why is this even aloud. Finance and money management are not the most well taught classes in school, if they're even taught at all. It's getting to the point where even some of the most frivolous politicians are starting to throw some flags (though they still vote to pass these bills). It stems from 2 prominent economic theories. The first is that inflation and unemployment are inverse, they move in opposite directions relative to one another. So unemployment and inflation cannot go up together. Though this has been disproven many times using historical evidence and thorough economic modeling, for some reason it is still prevalent in government policy. They take this theory and say they’d rather have an employed population with money of less value than valuable money but less jobs to go around. Again, complete nonsense and it's been disproven time and time again. Until an economist with a brain that is capable of independent critical thinking gets power in the Federal reserve, this theory will never work its way out of fiscal policy.
The second theory is that so long as gross domestic product (how much stuff we make) is going up, debt really doesn't matter. This is the same perspective that has buried thousands of young adults in student loan debt. The idea that it's ok to take on tens of thousands of dollars of debt now for a few years because for the next 30 you'll make significantly more money. There is some truth to it, but yet again the policy makers apply it at the national level just as it has been with education with absolutely no critical thinking or logic to it and just run wild.
To really explain why this is so problematic, we can break it down simply to your household. Replace the United States debt situation with two you run a house. You are in debt, more debt than you have even been in before. You go to your creditor and say listen, Indeed just a little more credit. See, my output is increasing, therefore I can afford a little more debt. By using this new credit to stimulate my production capabilities, I’ll ultimately be making more money and will be able to pay off the debt. In theory, it makes sense, in practice it doesn't, and here is why. When we say we “make stuff”, our gross domestic product, a lot of that is service sector labor. Let's look at your house again. You uber (another country) your dinner home and pay someone (another country) to mow your lawn. Your card is maxed out again and what are you left with? According to your theory since you didn't have to do all of that stuff that left you with more time to make things. Your house is mowed and looks nice and your belly is full, you are happy! But you didn't have any resources to make things to sell back to other people (countries) to pay off the debt, there was no investment.
We are a service sector economy and we buy all of our stuff from other countries. If you took that same household scenario and instead of paying for services, opened up a lemonade stand then you could start selling your lemonade to other people (countries) and use that new increased revenue to pay back some of your debt. Even if the lemonade stand failed at least you would have all of the lemonade infrastructure (factories, supplies, resources) that you could sell or repurpose. But we don't do that. The government swipes the credit card on services; health care, social security, military spending, etc. That's not to say that that stuff isn't valuable or valid in an advanced country. But, so long as we continue to max out the card with nothing to show for it at the end of the day we will continue to run into the same issues over and over again.
There is a way out. The government has the capability to turn this country around and make it a global powerhouse while simultaneously affording the promises they've made over all these years. They have to allow us to unleash our productive powers. Unbind our manufacturing capabilities from all of the regulation, fees, and taxes that restrict our capability to actually make stuff, actual things, not just pass money around for services. We have a labor force in our country big enough, strong enough, and capable of pulling this country up out of the economic quicksand our politicians have blindly led us into. Not only would it drastically increase our economic health, well being, and standard of living but it would pay dividends on top of that. We would see a decrease in poverty like we've never seen before, crime rates would go down, we would attract the smartest and most driven people around the world and the United States would be a country of wealth and prosperity at every level. The problem is we need the government out, and now that being a politician is a career instead of a civil service, it's going to require us citizens to tell them no. We don't want or need them.
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