Thu. Dec. 27, 2012:

Dear Cowering & Faithful Readers,
Nobel Prize-winning economist Paul Krugman of the NYT, in a column titled "When Prophecy Fails," recently compared deficit/debt doomsday scolds to the delusional Mayan Calendar predictions that the world would end on December 21, 2012.

Here is a cogent nonpartisan reaction to Krugman, from a recently retired Illlinois businessman:


I read this column by Krugman in the Steamboat paper. I think that budget deficits do matter even though Cheney and Krugman do not agree. We have been borrowing about 1/3 of our annual expenditures and the only reason that this debt has not overpowered our economy by now is that the Fed has kept interest rates low. Also, foreign countries are willing to loan us the money by buying US Treasuries in spite of very low interest rates because the dollar is still considered a much safer currency than the euro and a lot of other currencies. 

Most economists believe that it is just a matter of time before inflation starts to rise and the Fed will be forced to raise interest rates to combat this inflation. And then the cost of servicing the national debt will get much more expensive. 

                                   

The federal government can do what no state or family can do and that is to print money. But deficits do matter and I don't see how we will be able to reduce these deficits. Krugman is right that we should not try too hard in a fragile economy to deal with the deficit and that we do need to make sure that the economy is strengthening. But, once again, why didn't the country pay down debt when times were better. Bush made things look better than they were by not even including the cost of the Iraq war in his budgeted expenses. 

Not every expert thinks that Bernancke has lost his mind with his easy money policies but many do. The fed is keeping interest rates at artificially low levels and this is distorting the economic picture and also making it difficult for seniors and others depending on investments in savings accounts or government  bonds to earn a decent return on their investments.
 

In time, it will be difficult to service the government debt - let alone pay down the debt. It is very important that we start to deal in a serious way with the  national debt and it is going to take a lot more than raising taxes on the rich.  We must start cutting expenses and that means entitlement programs. And the politicians would rather continue the charade that deficits don't matter and instead act as though only reelection  matters. Congress and the President are creating an incredible amount of uncertainty with their failure to deal with real problems and this has impacted the economic and job recovery.  

Romney was a lousy candidate but his private speech to big donors in which he said that he could not win the votes of the 47% that rely on government programs was probably very accurate but not smart to say. Why would those dependent on government programs - social security, medicare, medicaid, food stamps, unemployment benefits, etc - not vote for Democrats that vow to keep intact all of these programs and criticize Republicans that say we cannot afford all of this government spending?


Just as I believe that the NRA is losing its popularity with its supporters, I also believe that the politicians are risking their standing with the public. Most Americans thought that a compromise could be reached after the election and are frustrated and angry that we are again delaying and not appearing to be serious about solving problems. I know what I will do - not vote for any incumbent until I see some real progress in dealing with big problems and not kicking them down the road until another election has come and gone.