I am rubbed the wrong way everytime somebody says the word deficit. And the phrase paying down our debt infuriates me to no end. This is trying to apply a consumers perspective to a far too large of a system. Deficits are used to scare people. Medicare and social security are used to scare people. If you make enough people believe that we need to pay down our "debt" then they'll vote for those politicians that promise to.
But the truth is the United States does not have debt. Not since we were on the gold standard did we have debt. By the way our monetary system is set up it is impossible for the United States to have debt actually affect its operation. With such an incredibly large system the momentum of it keeps the system going, by having money moving out you end up sucking money back in.
Lets think about it this way, the entire planet is a closed system so to avoid breaking any conservation principles there has to be something put into the system from outside for it to stay energized and moving. But in terms of this analysis we have a chicken and egg problem. Which comes first debt or production? I would say that debt would definitely have to be the first because to produce you have obtain energy to invest and extract a good. We then follow a long trail of trades throughout the entire system. When all is said in done the only debt that makes sense would be an energy debt to the world or the sun whichever way you choose to view it. That is for a goods based system
The problem here is that we don't base our monetary system directly off goods or a ratio between goods. We base our system off the perception of the strength of our system. Uh what? Yes our money is only as strong as we can convince the world it is. How do we accomplish this? To have something that everybody else wants, to be a supplier instead of a consumer. Typically the exchange rates dictate the direction of product. This is why China has a fixed weak exchange rate to the United States Dollar, this prevents them from ever becoming a consumer. Of course the good that China uses to trade and keep themselves suppliers is cheap human labor through lack of fundamental humanitarian principles. Ultimately what do you people need? Food, which essentially comes from the sun.
The United States after coming out of the World Wars was a very powerful supplier. The United States had everything all the large war shattered economies needed, so over time the dollar grew immensely strong against others. When United States companies saw this they started exporting high cost needs to other countries to take advantage of it. Of course if the dollar is too strong the rest of the world has no choice but to become suppliers. So what we are seeing here is the aftermath of World War II and the Cold War. This is the result of the rest of the world regaining their footing.
Now I said earlier that the monetary system here in the United States is based off the perception of the strength of our economy. If we have become net consumers our economy starts to weaken because our debt is moving outward to the other countries. This is known as the trade deficit. However since we don't monitor the change between energy to good to money we can't track who is the source and who is the drain.
To fix a trade deficit the dollar needs to become weak against the rest of the world so the United States can regain its position as a net supplier instead of consumer. A week dollar of course creates a budgetary deficit for the country though because the budget is always done in yesterday's numbers, so when the dollar weakens the net taxes in today is of number (but not value) less then what the budget was developed for. So really our Government's Budget deficit is only an illusion created by changes in time. Just like sometimes if you look at a bicycle the wheels look like they are spinning backwards, yet the bicycle moves forward. Our deficit is in truth a poorly timed glimpse of an oscillating system.
Now to get into the real nity grity of the national debt. Let me start with an example. A very large, powerful corporation, lets call it Walmart, buys inventory and sells product. Pretty simple right? Well walmart takes delivery of product prior to paying for it. This could at any moment be viewed as a debt, several hundred million dollars in fact. But Walmart turns over that inventory in less time than payments are made due. This means Walmart at any moment has immense cash reserves. So do they have debt or do they have cash? Well it depends at what time you take a snapshot of them. The trick is to pay for a good in today's dollars, tomorrow.
The United States government works on a very similar principle. It also pays for goods today in tomorrows dollars. But it receives payment in yesterday's dollars. This means that its deficit or surplus is dependent on consecutive yearly economies (typically 5-10 years). So was our surplus 4 years ago a result of Clinton's economic policies? Not really. Is today's deficit a result of Bush's? No not really. Nobody could really ever judge the extent the tech bubble would actually affect the world. When people finally woke up and realized what they were doing was stupid the economy very quickly slipped to the point it is now. (As a side note who do we blame for it all?...Well I guess you could go back as far as DARPA financing research in computers and networking, but of course you have to blame them for both the surplus and the deficit)
So where is all this going? Simply this: you can not sustain a deficit (or risk total collapse of world stability), a surplus (for the same reason), or a balanced budget (for the same reason). The world has to be inconstant oscillation with energy input from somewhere. So how to we incite a change again to keep from falling deeper into a deficit? We figure out what the next source of energy or good is and go for it.
In our case we have easier access to space than the rest of the world. That means we have better access to the source than anybody else. And this is why I defend my previous posts conclusion for us needing space. Remember our economy is based on the perception of strength. If tomorrow looks better than today then we have no deficit. This is why we need vision and hope. This is why we need that common task.
Editor's Note: A very very interesting thing I just found out is that economists are currently researching the tech bubble years in relation to the individual (Here's an
article published before any of Bush's policies realy had gone into effect) . The result of this research is the large stock market prices and great returns created a wealth effect and people saved distinctly less amount of money. This same effect is witnessed during very large government budget deficits. This is of course quite puzzling because it has in the past general been considered that a large budget deficent is detrimental to the economy and a strong stock market is good for it. Now we have a rising stock market, a falling dollar, and a rising deficit. I'm feeling optimistic about the future actually.
Editor's Note: Also remember when Gore was campagning for president one of the major points was how he and Clinton reduced the federal deficit and national debt to zero? Yah that was a lie. I forgot to bring that up earlier but it totally illustrates how deficits are used to scare people. The National Debt has actually been growing since WWII and hasn't stopped. In fact it increased more than 25% during Clinton's first four years. Anyways for further reading I recommend this
article.
