(USA) Change for the Worse - By Paul Craig Roberts

<blockquote>"Tracy shows clearly that inflation (he did not make a distinction between expected and unexpected inflation) enriches debtors and impoverishes creditors. He also mentions what might be called today a rational expectation of future inflation:

<blockquote>[T]he ... effect ... is to cause a fear that at every moment [currency debasement] may recommence, and that no further reliance can be had in plighted faith; to excite by this mean inquietude in all relations, and eventually to diminish all industrious and commercial speculations.[17]</blockquote>

Tracy's next target was unbacked paper money, which he argued was "the most culpable and most fatal of all fraudulent bankruptcies."[18] Those who claimed that the commodity contained in the currency was unimportant, that only the state's stamp or seal was valuable, were subject to Tracy's incisive response:

<blockquote>One might [have] answered them, if silver has no value, why do you retain that which you owe? You have no occasion for it. Give it to us first, then you may put your impression on pieces of wood if you please, and you will see the effect it will produce. It does not seem necessary to be very sharp sighted to devise this overwhelming answer.[19]</blockquote>

Of course the government would not do this, and Tracy explains the resulting legal-tender laws, and the concomitant destructive results of inflation - a "general want," the devastation of industry, price controls, difficulties in calculation, and the increasing poverty of those on incomes denominated in paper notes."
- Timothy D. Terrell, The Economics of Destutt de Tracy, 11/28/2008</blockquote>

*** 1919 - 'The only exception was the printing press of Austria’s central bank, which worked day and night.'

<blockquote>"A conference on Austria’s currency problems organized by the Vienna Association of Commerce and Industry gives a good sense of his alternative program. Mises and his friend Wilhelm Rosenberg were the main speakers. Rosenberg explained that foreign-exchange controls and banking regulations had stopped the inflow of badly needed foreign credit, and encouraged costly barter and black-market exchanges. The present relief was only temporary. He proposed attracting foreign credit by granting special privileges to foreign companies in such fields as mining, road construction, and tourism. Then Mises observed that strikes and work stoppages were pandemic in Austria. The only exception was the printing press of Austria’s central bank, which worked day and night. If this state of affairs continued, the krone notes would soon become worthless, their circulation would break down, and chaos would ensue. Mises then explained the origins of the present mess: the government itself had created the inflation; it then took the ensuing price rises as a pretext for imposing price controls and many more interventions. As in ancient Rome, the Austrian government was now at the point of providing the means of sustenance for a majority of the metropolitan population. Hoping for more Allied financial support was futile. The only way out was for the government to spend no more than it took in.


But Mises was completely disillusioned concerning the government’s capacity to solve the problems that threatened to bring chaos and violence throughout the country. It had taken him time to learn this lesson, and he learned it the hard way. He had had his own ideas about how an enlightened government could enact a thorough monetary reform but he now knew that it would never happen. He developed instead a revolutionary private-enterprise strategy for the establishment of sound money and was resolved to pursue it without delay."
- Jörg Guido Hülsmann, Mises: The Last Knight of Liberalism, page 357 & 358</blockquote>


***


Change for the Worse

By Paul Craig Roberts
March 04, 2009
Source (Original read)

The following is part one of a two-part essay.

President Obama has presented the most irresponsible budget in U.S. history. His fiscal year 2010 budget projects federal spending of $3.5 trillion and a federal deficit of $1.75 trillion. In other words, 50 percent of the government's budget consists of red ink.

And Americans are angry that sub-prime borrowers took mortgages they couldn't afford.

The bald fact is that the U.S. government is going to have to borrow — or print — half of the money it intends to spend in Obama's first budget. This fact has fallen through the cracks as New York Times headlines proclaim, "A Bold Plan Sweeps Away Reagan Ideas."

It certainly does sweep away Reagan ideas. No Reagan budget ever presumed that the federal government could borrow half of its annual expenditures. Indeed, Obama's budget deficit for 2010 alone exceeds the totality of "Reagan Deficits" for Reagan's two terms of office.

As presidential budgets are marketing devices rather than financial statements, they are imbued with optimistic assumptions. Obama's budget is based on optimistic assumptions about the extent of decline in gross domestic product. A more realistic projection of GDP decline would reveal that Obama's budget is the first since World War II in which more than half of the government's expenditures must be financed by red ink. I suspect that the red ink component of the FY 2010 budget will surpass World War II budgets.

To whom can the U.S. government turn for $1.75 trillion for FY 2010, on top of $1.2 trillion for FY 2009?

Not to taxpayers. Obama's net tax increase comes to $170 billion over 10 years, or $17 billion a year, a drop in the bucket. A supply-side economist could have told him that not even these paltry revenues will be realized.

Not to private savers. Americans are over their heads in debts.

Not to foreigners. Thanks to Clinton-Bush financial deregulation and Wall Street and bankster greed, the rest of the world is in financial turmoil and hasn't $1.75 trillion in savings to lend. Possibly, the stock market will collapse further, and whatever remaining wealth Americans have will flow into "safe" U.S. Treasuries.

The only other alternative is the printing press. Printing press finance would destroy the dollar as reserve currency and ignite high inflation. The United States would be unable to pay for its imports, and Americans whose incomes do not rise with the rate of inflation would be plowed under.

This prospect is not a "war on terror" scare tactic like "anthrax," "weapons of mass destruction," "al-Qaida connections" and "Iranian nukes."

The economic catastrophe that the United States faces is very real. But there is no awareness of this reality in Obama's budget. The crux of Obamanomics is the assumption that the economy can run forever on consumer loans, if we can just get the banks to lend, and the federal government can run forever on loans from China, Japan and Saudi Arabia.

Obama is requesting $130 billion for wars in Iraq and Afghanistan during 2010 plus a $75 billion supplemental request for the wars during 2009. This $205 billion is on top of $534 billion for the Pentagon in 2010, for total military spending of $739 billion.

The Chinese government's budget shows China's military spending at $59 billion in 2008. (The Pentagon claims Chinese military spending is between $97 billion and $139 billion.) Russia's military spending in 2009 is projected to be about $50 billion.

In the midst of the greatest economic crisis in U.S. history, when trillions of dollars are being added to U.S. national debt, Obama's budget spends more on two pointless wars than the total military spending of China and Russia combined. Obama's wars serve only the profits of the military-security complex and the promotion rate of military officers. The longer the wars continue, the larger the number of officers who can retire at higher ranks, thus further swelling future annual deficits and the national debt.

Moreover, as is becoming apparent, the Bush-Obama war in Afghanistan cannot be fought without fighting a war in Pakistan.

As if this isn't enough war, Obama parrots Dick Cheney's charge, totally unsupported by any evidence, that Iran is making nuclear weapons. The chances are high that the new White House Moron will have us at war in Afghanistan, Pakistan, Iran and Iraq. As Obama's wars expand, the $205 billion for war in Iraq and Afghanistan will become $400 billion annually and then $600 billion annually.

Obama's "troop withdrawal" from Iraq has proved to be just another con job. Obama has announced that the withdrawal doesn't include the 50,000 U.S. soldiers who will remain in Iraq indefinitely — like the U.S. troops that have been kept in Japan and Germany for 64 years and in Korea since the early 1950s.

Meanwhile, Medicare is on the ropes. The latest Medicare trustees report says that Medicare's funds for hospital payments will be exhausted in 10 years. To make ends meet, Obama proposes cutting payments to Medicare providers.

Obama's plan is to make doctors and patients pay for Medicare. One way to get national health insurance is to make it uneconomic for private health care to service Medicare patients. Already many doctors will not accept Medicare patients because of the low payments, endless paperwork and risk of prosecution for "over-billing." Looking at one recent Medicare patient medical bill, Medicare and supplemental insurance paid 29 percent of the billed amount, requiring the doctor to eat 58.5 percent of his charges and the patient to pay 12.5 percent. The doctor was paid $93.16 on a $320.89 bill. And Obama wants to reduce payments to providers?

What is Obama thinking? A country that can't afford Medicare can't afford national health insurance. Medicare provides only for the elderly, and it provides very little. A person pays the Medicare tax as long as he earns and on the totality of earnings. For the rich, the Medicare tax can exceed the cost of a gold-plated private insurance policy.

Basic Medicare leaves a person unprotected. To provide better coverage, it is necessary to enroll in Medicare Part B, for which the premium is $308.30 per month, or $3,699.60 per year. On top of this, a person needs a privately supplied supplemental policy to complete Medicare coverage. AARP's policy, which after deductibles are met covers half of drug costs, cost the "Medicare protected" elderly $273.50 per month, or $3,282 per year. The drug prescription plan passed by Congress costs the individual yet more.

The two supplements to Medicare cost the Medicare patient $6,981.60 per year. In addition, if the Medicare patient has much retirement income besides Social Security, he pays income tax on 85 percent of the $3,699.60 Medicare Part B premium, as it is part of taxable Social Security, which for someone in the 25 percent bracket is another $925 dollars.

In the late 1970s, Democratic Sen. Russell Long, chairman of the Senate Finance Committee, told me that as Social Security was collected as a tax on wages and salaries, the U.S. government had promised never to tax the benefits. So much for any commitment that the U.S. government makes to the American people.

A top Social Security income, minus the Medicare Part B premium, is $23,220 per year. Deduct the AARP policy, and the elderly who have paid in maximum Social Security taxes get $20,000 per year. Of course, few Social Security retirees receive the maximum payment. AARP's Public Policy Institute reports that in 2006 the average annual Social Security benefit for a retired worker was $12,372. Such a worker would have little left after paying the Medicare Part B premium and an additional premium for a supplement.


To find out more about Paul Craig Roberts, and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com.

COPYRIGHT 2009 CREATORS SYNDICATE INC.