Clueless Leaders

I tell you somewhere Alicia Silverstone is smiling because if you back out all of the pomp, circumstance, rhetoric, and emotion from last night’s State Of The Union Address, what we have is basic governmental incompetence on how the economy really works.   

Between Obama's fear mongering over the deficit and Paul Ryan comparing us to Greece, we can confirm that our elected leaders are completely and heart breakingly clueless as the day is long. Both of these guys have zero idea of how the US monetary system and importantly the economy works.


Why in the world is Obama comparing the government with households is beyond me? The US Government is not revenue constrained. It never was and never will be. Consumers, State & Municipal governments are revenue constrained. Why is this? Simply, sovereign governments with a monopoly power over its supply of currency never ever needs to save or raise funds for spending. We can go all day long about the intricacies of Treasury auctions and the such and I will get into that in an upcoming post, but let’s be clear the government of the USA doesn't fund itself via Treasury auctions.

Lets recap:

Households have a revenue problem.
Municipalities have a revenue problem.
State governments have a revenue problem.
US Government has NO revenue problem


To this end Dick Cheney is correct when he said "deficits don't matter", but what they do portend is much higher borrowing costs for profligate spending. So far China, Japan, and most importantly the Fed, is buying Treasury debt and trying to keep rates down. Let’s be honest, I would rather have lower rates than higher ones to this end the cost of financing will rise if others believe you don't have a handle of your finances. Again, it’s a psychological situation we are dealing with here, its ultimately a confidence thing. That's all.


Obama also made this point:


"So tonight, I am proposing that starting this year, we freeze annual domestic spending for the next five years. This would reduce the deficit by more than $400 billion over the next decade, and will bring discretionary spending to the lowest share of our economy since Dwight Eisenhower was president."


Bam is the man! But is he serious here?


Does Obama know that Eisenhower presided over three recessions in his 8 years? How did he do it? Yes! He promoted two budget surpluses that immediately sent the country into recessions in the late 50's. This country can't afford austerity, because it needs to grow because there is far too much private sector debt on consumer and business balance sheets.


Now we get to Representative Paul Ryan.
He states in his retort....

“Just take a look at what’s happening to Greece, Ireland, the United Kingdom and other nations in Europe. They didn’t act soon enough; and now their governments have been forced to impose painful austerity measures: large benefit cuts to seniors and huge tax increases on everybody. Their day of reckoning has arrived. Ours is around the corner. That is why we must act now."


How many times do I have to say it. The USA is not Ireland or Greece! Ireland and Greece have no monetary sovereignty .They can't print up Euro's. The US can print up greenbacks.

Lets recap again.

Greece can't print up Euro's to fix their problems.
Surprise! Germany and France can't either.


The UK can print up British Pounds, but they for some reason are in fiscal austerity mode and soon will be driving off of a cliff because when you comingle huge debts and austerity the results are at the bottom of the Grand Canyon.

If Paul Ryan is the best that the GOP can do then the GOP is already dead.