Politics

Authored by Daniel Lacalle,

«The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring temporary prosperity; both bring permanent ruin. But both are the refuge of political and economic opportunists.” 

– Ernest Hemingway

The United States federal debt has soared to $35.3 trillion. In less than a year, the federal government has increased its debt by $1.9 trillion. This occurred during years of record tax revenues and economic growth.

If the current administration remains in power, the Treasury’s own estimates predict an additional $16 trillion increase in debt by 2034, without accounting for any recession or slowdown in tax receipts. According to the CBO, the Kamala Harris economic plan would add another $1.9 to $2,2 trillion to the national debt.

The Harris campaign has not even bothered to discuss a plan to balance the budget. She just said that “efficiency” and the old fallacy of taxes to the rich would pay for the increase in spending—two things that have proven to do nothing to the ballooning debt and that do not even start to scratch the already unsustainable $2 trillion deficit.

This reckless increase in debt is happening in a growth period. However, if we adjust for government debt accumulation, 2021 to 2024 were the worst years of growth adjusted for debt since the thirties.

In a recent article, Claudia Sahm stated that you should not worry about debt.

“Debt is neither inherently good nor bad. As such, the question is not what’s the right level of borrowing, but rather what’s the economic return on the borrowing or the societal goals it advances.”

She continues to say that “the government can easily service its debt because of its unlimited taxing authority and ability to issue more U.S. Treasury securities to repay maturing securities”

(“The US debt is now $34 trillion. Don’t worry. Seriously”. January16, 2024).

Now you must worry. A lot.

Let us start with the benign idea of “economic return on borrowing and societal goals.”

The evidence from the United States indicates that the economic return is extremely low. Entitlement spending has not strengthened the economic growth path, and debt continues to rise faster than GDP. It is true that debt is not inherently bad, but unproductive borrowing is. It is a massive transfer of wealth from the productive sector to the bloated bureaucratic state. Furthermore, the societal goals cannot be unlimited. The government must administer and not just add expenditures to previous expenditures, particularly when there is no realistic analysis of the success or failure of government programs. The idea that a particular government program is beneficial is not enough to add it to the budget without reducing other expenses. Not even a benign view of government spending as Sahm’s can justify that every government expenditure item today is essential. Furthermore, we must always understand that governments do not give money for free. They tax the productive sector and borrow, which means printing a currency that is constantly losing purchasing power. Therefore, the government is not advancing societal goals by borrowing without control; it is implementing a profoundly regressive policy that creates a dependent subclass and makes it increasingly difficult for the middle class to thrive.

It is false that the government has “unlimited” taxing authority and the ability to issue more debt, i.e., print money. The government has economic, fiscal, and inflationary limits. Economic because constantly increasing taxation leads to stagnation and more debt; fiscal because expenditures are consolidated and annualized, while tax receipts are cyclical; and inflationary because the constant issuance of new currency, which is what happens when more debt is issued, leads to the loss of confidence in the currency and the erosion of its purchasing power. If what Sahm and Kelton state were true, the euro area and Japan would be examples of high growth and economic strength, but they are examples of stagnation, high debt, and rising social discontent.

The government does not set taxes to fund its incessant spending habits. Taxes should be set according to the economic reality of an economy. The fallacy of taxes to the rich and corporations does not even address the ballooning deficit and erodes economic growth and productive investment.

When someone tells you not to worry about record debt, you should be extremely concerned. When they say that the government has unlimited resources, they mean that you will pay by becoming poorer with more taxes, more inflation, lower growth, or all three at the same time.

When they tell you that $35 trillion of debt is peanuts compared with $142 trillion of American wealth, they are saying that the government will be pleased to absorb the wealth of the economy. You will pay.

When they tell you that tax cuts are the problem, it comes from the perspective that the private sector is an ATM at the disposal of governments. Tax cuts do not reduce revenues, just as tax hikes do not raise them forever. Tax cuts adjust the taxable base to the real economy in order to encourage more investment and growth. Tax cuts are not a loss for the government; they are a win for the economy. It is simply a return of funds to those who have earned them. The idea that funds are better in the hands of the government than in the pockets of those who earned them is confiscatory. It is ludicrous to think that the government knows better than the private sector where and how to spend money. Additionally, it is insane to believe that the government will not squander the funds and bloat the administrative costs. Furthermore, it is foolish to assume that corporations and the affluent will hoard unused funds. There is no such thing as idle money. Capital markets and the private banking sector invest all of their earnings in a productive economy. If Sahm is concerned about economic returns and social advancements, she should advocate for the private sector to retain a larger portion of the earned money, as they will allocate it to the most advantageous investments.

Inflation is a form of default in which the government transfers its imbalances to those who receive their salaries in currency. This is the most regressive form of taxation, primarily affecting the poorest. When governments ignore the real demand for the money they issue, confidence in the currency disappears. Developing countries do not issue debt in foreign currency because they are stupid, but because there is no international demand for their local currency.

Economists like Sahm and Kelton assume that the US dollar will have eternal and unlimited demand, and, as such, the US government can export inflation to the rest of the world through the loss of the purchasing power of the currency it issues. However, global central banks are reducing their holdings of US dollars (US treasuries). International demand is declining, and the limits I mentioned before are already evident.

The US is showing its economic limit, as evidenced by the significant slowdown despite a record deficit and government so-called stimulus. The US is also demonstrating its fiscal limits as the government persists in raising taxes, resulting in significantly lower tax receipts than anticipated and an interest expense bill that has escalated to $3 billion daily. Additionally, a 20% increase in inflation over the previous four years, a 30% increase in the price of basic groceries, and persistent inflation—exemplified by the ongoing decline in the purchasing power of the US dollar—make the inflationary limit clear.

What Harris is doing as vice president and intends to continue doing if she becomes president is to continuously test the patience of the world and national citizens when it comes to accepting a constantly depreciated purchasing power of the currency.

Saying that nothing will happen if debt continues to rise and deficits continue to drive government policy is, literally, like saying that an alcoholic should drink more vodka because cirrhosis has not killed him yet.

The US dollar is the credit of the US economy. If the US government loses its credibility, domestic agents will begin to reduce their use of the US dollar, while international agents will decline the currency due to its constant fiscal excess and its tendency to push the limits of global patience. Thinking that the US dollar will never lose its reserve currency status is simply reckless and ignores history.

Harris is threatening the US dollar, and you should be very concerned when someone says that the government has unlimited taxation and printing resources. It means it has unlimited ways of making you poorer.

Authored by Jack Phillips via The Epoch Times,

The Department of Justice (DOJ) announced that an illegal immigrant agreed to plead guilty to charges of stealing an American citizen’s identity, using it to vote in elections, and obtaining a U.S. passport.

Angelica Maria Francisco, 42, who had been residing in Alabama but is originally from Guatemala, was charged with making false claims of citizenship in connection with voting, aggravated identity theft, false statements to apply for a U.S. passport, and use of a U.S. passport obtained by false statements, said the DOJ in a news release on Sept. 5.

Francisco, described by the DOJ as an “undocumented individual,” assumed the identity of a U.S. citizen in 2011 before using her false identity to get a passport that same year. Subsequently, she used the passport to travel to and from Guatemala and the United States. In 2021, she used the false identity to renew the passport and used it to travel from the United States to Guatemala in 2022.

The indictment said Francisco allegedly registered to vote in Alabama using the same fake name and voted in both the 2016 and 2020 primary and general elections. Details about how she voted or whether she registered with a specific political party were not provided. Voters in Alabama, long a Republican stronghold, overwhelmingly voted for former President Donald Trump in those two elections.

The DOJ said the U.S. State Department’s Diplomatic Security Service, as well as Alabama state officials, investigated Francisco’s case.

In response to the woman’s arrest, Alabama Secretary of State Wes Allen, a Republican, said that “a top priority of this Office is ensuring only eligible American citizens are voting in Alabama elections,” according to a statement from his office.

“We will continue to assist law enforcement in every way possible as they prosecute individuals who vote illegally in Alabama elections to the fullest extent of the law,” he said.

It’s not clear if Francisco has an attorney or how she allegedly stole the U.S. citizen’s identity. A plea agreement filed in connection with the case indicated that the woman agreed to plead guilty to nine counts that she faced, according to court records.

Since the 2020 election, Republicans and the former president have expressed concerns about voter fraud and whether illegal immigrants and noncitizens could cast votes in elections.

About two months ago, the House passed legislation mostly along party lines that would mandate voters to provide proof of citizenship to vote in federal elections. The White House had expressed opposition to the bill, which has seen no movement in the Democrat-controlled Senate.

On Aug. 26, Texas Gov. Greg Abbott said more than 1 million ineligible voters, including about 6,500 noncitizens, had been removed from state voter rolls in the past three years. About 1,900 of those noncitizens have a voter history, which was sent to the Texas attorney general’s office for “potential legal action,” he said.

A left-leaning policy group, the Brennan Center for Justice, has said that noncitizens are largely not voting in U.S. elections. It said that casting a ballot during an election occurs only in “extremely rare instances,” citing its own study of the 2016 election.

“We found that election officials in those places, who oversaw the tabulation of 23.5 million votes, referred only an estimated 30 incidents of suspected noncitizen voting for further investigation or prosecution,” the center said in April. “In other words, even suspected—not proven—noncitizen votes accounted for just 0.0001 percent of the votes cast.”

A 2014 study published in Science Direct, however, found that during the 2008 election, “noncitizen voting likely changed” the outcome of Electoral College votes and the composition of Congress. The study authors also added that roughly one-fourth of noncitizens in the United States “were likely registered to vote” at the time.