Budget Deficits | timiacono.com - Part 30

Whatever Gets You Through the Day…

When documenting the early-21st century decline of the American Empire, future historians are surely going to have a good time poking fun at the conventional wisdom at the time that a pure-fiat money system was sustainable and the increasingly tortured rationale provided to justify that belief, in the process, perhaps recalling the words of Michael Gold in the Big Chill who famously said, “I don’t know anyone who could get through the day without two or three juicy rationalizations. They’re more important than sex.”

Said tortured rationale these days seems to revolve around the idea that debt, deficits, money printing, and all sorts of other activity that is either ill-advised or illegal for American citizens is just fine for the U.S. government, that is, so long as the consumer price index stays low. In this interview at The Gold Report, Marshall Auerback explains:

As far as government deficits go, what we argue is that there are no financial constraints—there is a real resource constraint. In other words, inflation is the ultimate constraint. We shouldn’t be constructing fiscal policy with some sort of vague, undefined notion that it’s fiscally sustainable. Nor should we define “fiscal sustainability” via some arbitrary number as Kenneth Rogoff and Carmen Reinhart have done in their recent book, This Time Is Different: Eight Centuries of Financial Folly, wherein they say if a debt-to-GDP ratio gets above 90%, then bad things start to happen.

Under the type of regime we have in Canada or the U.S., there is no inherent reason why any level of government spending should be fiscally unsustainable over a longer period.

It’s counterintuitive to the extent that we normally compare government spending to household spending. People say we can’t spend beyond our means, and that way of thinking fits into people’s own intuitive experience. But you and I are not the same as a government. A government is a monopoly. It’s controlling the currency. If you and I had printing presses in our basements and we were able to print $20,000 whenever we needed, we wouldn’t be debt constrained in the same way that private businesses or individuals are today. Clearly, a government is in a unique position because it’s the only entity that issues currency and, in effect, creates new net financial assets. The household analogy breaks down because we fail to distinguish between users and issuers of currency.

I’ll never come around to this way of thinking, the most important reason being that I understand how fatally flawed the U.S. consumer price index is in this context, namely, that it has been artificially low for two decades or more as a result of cheap imported goods and other factors that make it a particularly dangerous basket to put all your eggs in.

Does Anything Ever Change in California?

Yesterday, on the same day that California Governor Jerry Brown reinstated the “fiscal emergency” for the Golden State amid a $25+ billion budget gap, the University of California announced some $4 million in bonuses and pay increases, the details of which are provided in this report at the San Francisco Chronicle.

Finances are so dire at the University of California that it might have to turn away qualified students, but UC has still found a way to reward hundreds of employees with more than $4 million in incentive pay and raises.

At the regents meeting Thursday in San Diego, UC officials reported giving rewards of $150 to $41,205 to nearly 1,500 UCSF employees who met performance targets, raising the pay of some campus executives to above market rate, and providing 10 percent raises of about $20,000 a year to three executives at their Oakland headquarters.

The executives, who have various financial responsibilities for the UC system, will earn between $216,370 and $247,500 in base pay.

“Whether there is a budget crisis or not, the university still has to be able to pay competitive salaries and incentives consistent with industry standards,” said Steve Montiel, a spokesman for the university. “The university has no problem paying incentives to be competitive.”

While the $4 million is just a drop in the bucket, especially when compared to the $1 billion budget gap that the UC system is facing for the year ahead, it certainly sends the wrong message about public sector employees in the state.

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Bill Kristol Ponders a New Gold Standard

I’m not a big Weekly Standard reader (in fact, I think I’ve only read it a couple of times at airports back when they used to give them away) and, while Bill Kristol’s Sunday morning musings may not always ring true, this recent commentary did (hat tip NA).

And it’s worth further asking–as more and more people are beginning to  ask–whether a modernized international gold standard, which anchors  currencies to a standard outside government manipulation, wouldn’t  better serve the interests of free and limited government both at home  and abroad. After all, it’s the dollar’s status as a reserve currency  that has allowed the U.S. government to amass huge debts, debts which  the legislatively imposed debt ceiling has been unsuccessful in  limiting. Fiat currency seems to be related to bloated and unlimited  government, and to speculative bubbles, and to international  instability. Do we just to have to live with this, or simply hope for  better Fed chairmen?

Yes and yes. Amassing huge debts seems to be the one thing that, up until last November, both parties could agree on and it remains to be seen whether election year deficit rhetoric turns out to be anything more than that. As for better Fed chairmen, as long as the big banks keep getting bigger, that seems to be a lost hope.

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Camden Lays Off 45% of Police Force

Having grown up not too far away from that Garden State Gem of Camden, New Jersey, it doesn’t strike me as an area where cutting back on law enforcement would be wise but, according to this story in the Philadelphia Inquirer, that’s what’s happening.

Dave Seybert, a nine-year veteran of the Camden police force, handed in his gun and badge Monday afternoon at police headquarters.

“They shook my hand and told me good luck,” said Seybert, 32, of Audubon, Camden County. “The hardest part was walking out the door.”

Seybert, who thought he would survive the cuts until a layoff notice two weeks ago, was among the first wave of officers turning in their equipment.

Hope for a last-minute solution to the city’s budget crisis steadily waned Monday. There was still some uncertainty about what the final numbers would be, but it was expected that about 163 police officers, 60 firefighters, and 150 non-uniformed city employees would lose their jobs.

Police Chief Scott Thomson said he would have about 200 officers to police one of the nation’s most dangerous cities. Still, he said, the department will maintain the ability to proactively fight crime.

Apparently, union leaders and city officials couldn’t come to an agreement on labor negotiations and this was the result, part of the ongoing saga of strong public unions pitted against a cash strapped state where, “you can’t get there from here” ought to be their combined motto. Hopefully, California is watching to see how this sort of thing works.

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“Euroskeptic” Nigel Farage of the UK Independence Party comments on the meetings now underway in Brussels to expand the size of the European bailout fund.

Highlights include the characterization of Estonia’s continuing desire to join the euro being akin to “boarding the Titanic after it hit an iceberg” and that ECB and EU actions over the last year or so are simply “reinforcing failure”.

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