Public Financing or How You Get Screwed

PSDS – Lesson 1 – Public Financing or How You Get Screwed

Dick McDonald
dickmcdonald.blogspot.com

PSDS or “public sector derangement syndrome” – see introduction here – starts with the financing of government, the “public” sector. America uses two financing methods – “fiscal” and “monetary.” “Fiscal” policies involve taxing the people to underwrite the cost of government. “Monetary” policies involve how much money to print, what interest rates should be, what leverage is allowable in lending and investing and in certain cases “monetary” policies are used to pay bills out of thin air as Representative Ron Paul of Texas likes to point out.

To the average American, uneducated as he is by his liberal indoctrination, “monetary policy” is a mystery until it comes and bites him in the ass. Even then it remains a mystery by omission as the liberal media is not going to smarten up ordinary Americans when they have an opportunity to blame the dreaded capitalists and the opposing political party. That other party is too genteel to ruffle feathers and in some way is just as guilty as the liberals by overplaying the monetary tool of rate reduction in the first place.

It was the “monetary” policy of lowering interest rates from an average peacetime 6% to 1% that has caused the foreclosure debacle America is presently facing. It is not just a one-step linear sound bite that will explain it – one has to think a little. When using “monetary policy” the government doesn’t have to find a source of income to tax to cover the cost of the expenditure – it merely lets the Federal Reserve Bank print more money to cover the cost. That “printing” will dilute the value of the dollar if those dollars are used to pay expenses. Here the expense was bricks and mortar which don’t appreciate they depreciate. Their increase in valuation through inflation and artificial stimulus can’t hide the fact that the infusion of cheap money was just a massive “expense” as the expenditure did not generate real growth.

Here is where PSDS comes into play. If we printed money and gave the ownership of that money to the citizen and forced that citizen to put that money into an account that invested that money in the American economy for his 40-year working life that money would grow into million-dollar nest egg and deliver the American Dream to the rich and poor alike. It would deliver a nest egg that would absolutely explode the wealth of America and its citizens. Why don’t we you ask – PSDS.

You see the dollar we print remains just one dollar. The dollar that is invested in the economy compounds into many dollars. For example you invest a printed dollar a year for 40 years you have printed 40 dollars. However, if that dollar is invested in the economy it compounds after 40 years into 443 dollars at a ten per cent rate of return. There is your proof that we as a people are suffering from PSDS. We have bought into big government but we haven’t a clue how to run it, how it slows down our economic growth, cripples our economy and finally limits our standard of living.

The trouble with liberals and socialists is that they insist on spending money on expenses. As a result they only get $40 of value for $40 spent. The conservative capitalist gets $443 for the $40 spent by investing that money in a long-term investment. The Liberal stays poor and the conservative gets rich. The Liberal suffers from PSDS – the conservative doesn’t.

Sure, you can jawbone all you want about “fiscal policies” and taxing the rich or cutting taxes on the rich but PSDS makes us all players on a stage off-Broadway removed from the “bright lights.” We missed acts one and two and have no understanding of what happened to cause this malaise in act three. Well what happened in acts one and two were socialist policies hidden in the plot as you were directed to by the hero and his foil arguing about taxing or unburdening the rich when the real massive taxation was being imposed on the poor and ordinary citizen.

You see the government only collects about $1 trillion in individual income taxes whereas it collects $1.3 trillion in payroll taxes. Income taxes may be paid by the rich but the big haul – payroll taxes – is imposed disproportionably on the underclass as the rich don’t pay payroll taxes on dividends and capital gains – the source of their great wealth. All these taxes are consumed by government with the small exception of maintaining the infrastructure which as the bridge in Minnesota taught us is in a state of major disrepair. Spending money as fast as you can extract it from the people has led a loose and irresponsible Congress to “fiscally” run up $9 trillion of actual debt and $45 trillion of unfunded debt.

We are NOT going to pay off these debts “fiscally” (fiscal policies) without the enormous pain and suffering of higher taxes or reduced government benefits – we could however immediately liquidate $4 trillion of the national debt and $45 trillion of the unfunded debt by merely changing retirement responsibilities from the government back to the people and finance the whole transition “monetarily” enabling us to guarantee to pay benefits under the old entitlement programs forever as the minimum everyone is entitled to.

To accomplish this would require the people to insist that government abandon and forever deep-six the PSDS syndrome. Take the $1.3 trillion and place that amount into personal investment accounts of the people and let that $40 dollar 40-year investment explode into $443 dollars or $3.2 million for every average household in America.

As compounding will explode each dollar invested into many (40 into 443), financing the transition and guaranteeing old program payments by paying the ever-decreasing amount by printing dollars doesn’t cost us anything because the asset –personal investment accounts – will always be greater than the diminution of the dollar by printing more ($40 dollars will always be just $40 dollars, of course unless inflation makes it $20).

PSDS orthodoxy states that redistribution from the rich to the poor is the acceptable method of delivering the common good. Lost in that philosophy is the reality that the underclass is so massively taxed they have nothing left to tax and the public sector is forced to confiscate from the rich because they have no one else left to tax.

PSD was based on a temporary economic fix by the economist John Maynard Keynes which he devised to cure a temporary economic problem during FDR’s reign. He later decried that liberals and communists in government had adopted his fix as their primary economic demand-side tool to tax everything standing. He knew as every thinking American should know that supply-side economics is king. You can’t consume something until you produce it and production is not what the public sector does – it merely consumes.

Hillary Clinton states “I certainly think the free market has failed. We’re going to take things away from you for the common good.” Her liberal party mouths the same PSDS as she does. Obviously she and they have no earthly idea how to run the country – nor does Obama.

They will continue the PSDS that posits consumption over investment – they will opt to take in $40 and spend $45. They will opt for the pain of reduced benefits or punitive taxation rather than solve the problem monetarily and create the $443 compounding miracle. And where do you stand America – ready to continue PSDS – or use the tools we have to invest in our future and explode our economy with a first-year infusion into the capital markets of $1.3 trillion and increasingly more every year thereafter.