As all my readers should know, I'm against deficit spending of any government in any condition. There is just no reason for it. With that said, people often say that "we're borrowing from the future". I do agree that the future will have to pay it back, but my beef is with borrowing from the future. Can you do it?

You Can't Borrow From The Future

People usually look at money the wrong way and the idea of debt. Money is just paper that is a representation of value. Just because you print more off, doesn't mean the world is more wealthy or that you "borrowed" from the future.

The proper way for the government to deficit spend is by offering the market bonds. What happens is that money leaves the economy and goes to the government to spend. The net change to the economy is zero.

Or if you need a real world example - borrowing money from a friend. If I borrow $100 from you, the net gain to society is zero. I have $100 more, you have a $100 less, so it all balances out.

The main point you need to understand is that government deficit spending requires money to leave the economy in order for things to balance out.

Does the government function this way?

Does the government really take out of the economy what it uses in deficit spending? IE: Does the government issue bonds for trillions of dollars worth of debt? No it doesn't.

Basically the government is just inflating the supply of money. As I mentioned in the first paragraph, money isn't value, but a representation of value. If a marketplace has 100 units of value, no amount of printing money is going to change that value.

Government Spending Can't Stimulate The Economy

There is no way for the government to do it, especially with deficit spending. No amount of money that is created through the banking system in the form of debt is going to change the fact that society has only 100 units of value. All the government can do is tax and redistribute wealth in the market, which leaves a net loss to the marketplace.

Essentially Obama, Bush and many of the governments around the world think that they can spend government money and everyone will be wealthier. Since it is impossible for the government to produce a net gain to the market, it is useless.

The real issue is with deficit spending to achieve this effect. You can't borrow value from the future because all that exists is value of today. When money is inflated, you get inflation. I understand that we don't have any inflation now because we are on a deflationary cycle. Inflation will come in the future, but economic growth will not.


Posted by Christopher | 4:55 PM | | 0 comments »