Debt, Deficits and Jobs–Unrelated
By Larry Johnson on July 10, 2011 at 9:31 PM in Current Affairs
Watching both parties play chicken with the mish mash of Federal debt, the Federal deficit and unemployment is sickening and frustrating. Both sides, Republicans and Democrats, are to blame. Let’s start by exploding the biggest myth–burgeoning Federal debt and deficit spending is causing further job losses.
Nope. That’s pure bullshit. Our nation’s unemployment problem is caused by one thing–the collapse of real estate prices and a huge pile of foreclosed properties. The fallout from this is pervasive. For example, the collapse of real estate prices makes it virtually impossible for people to refinance existing properties or secure loans for a new or previously owned. So companies that make loans and employ appraisers are not expanding. This also means that builders of new homes and remodelers are stagnant. No need for new or refurbished housing when you have scads still on the market. That means that electricians, plumbers, carpenters, painters, roofers and cement workers are underemployed or out of work. If they are out of work or not bringing in their normal salary then they have less money for buying clothes, furniture, and meals out. Understand?
The Federal debt and the Federal budget don’t directly affect this market unless the Federal Government commits to buying up the properties that are underwater. That’s not on the table.
So we are left with Barack Obama’s spending spree. As I pointed out in a previous post, George W. Bush ran up almost $6 trillion in debt. Yes, he’s guilty. But he took eight years to get those numbers. That’s 725 billion of new debt per year under George W. Bush. He had the help of both Republicans and Democrats.
So how about Obama? He’s racking up debt at twice the rate of George W. Bush–$1.36 trillion dollars per year. What is shocking is that all of this Federal spending has had such an anemic stimulative effect. Why? A sizeable chunk of the money went to sustain State and local governments, which are not in the job creating entities. A substantial amount also has gone overseas to support military operations in Libya, Afghanistan and Iraq.
So what if the debt keeps going up? Well, you have to ask, “who owns the debt?” If your brother or sister lends you a bunch of money then you have one type of problem (e.g., Thanksgiving could be an uncomfortable scene if you default). However, if you borrowed money from the bank and secured that loan with collateral you will find yourself facing foreclosure or loss of property. If you borrowed the dough from the mob? They’ll only break your fucking legs if you are lucky.
My point? Who owns the debt determines the nature of our problem and threat. The soaring U.S. debt has been bought up by a growing number of foreign interests. That is not a recipe for enhancing our nation’s security. In fact, it puts us in a situation that our pursuit of legitimate national security interests overseas could be in jeopardy.
The irony is that our politicians are now obsessed with the Federal deficit and are haggling over what to cut and raising taxes. Ironically, cutting the Federal budget and raising taxes will have a further negative drag on the economy. Further Federal spending, unless specifically targeted on clearing out the back log of foreclosed and udnerwater properties, will have little effect on boosting the national economy.
A robust economic recovery and change in policies that promoted the repatriation of foreign profits would produce more revenue that would help reduce the deficit. So we are not locked into a single solution kind of problem.
Going forward it is important that we do not mix debt/deficits with the jobs problem. The first priority ought to be getting people back to work and that means getting the back log of foreclosed and underwater properties cleaned up. Until that happens we will continue to drift along.
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