The Budget Deficit: is it a Myth?

by francine Hardaway on January 7, 2011

Lately it has crossed my mind that the entire concept of a budget deficit and a national debt might be a myth. I keep checking my assumptions on this because I have no training in economics, although I have thirty years of business experience and have experienced the easy-come, easy-go nature of money.

Three things make me doubt that our situation is as dire as the guys who cry wolf.

1) the globalization of capital. I have been in the entrepreneurship world to see a shift from a time when VCs wouldn’t invest in a company more than an hour away to a time in which VCs hop back and forth to and from China like it was on the San Francisco- San Jose axis. If we pay a good enough return on investment, by building infrastructure that puts people back to work, capital will come to those projects. Look at the way it  flocked to Dubai to build projects, and the way it is funding subways in China. For projects like those, there’s vendor financing, bank financing, bond financing. Worse economies attract it, if the upside is.big enough.

2) the manipulation of currency. And the related manipulation of numbers. How does the health care reform affect the deficit? You can get numbers crunchers to come down on either side  If you are not a VC and you don’t invest in companies, chances are you invest in  things at one or two removes from companies; stocks, bonds, commercial paper, hedge funds. Financial instruments, we call them. They are only fictional creations: Plato’s shadows on the wall of the cave.

Most financial instruments are built by quants trying to create return. Manipulating our currency and securitizing things further can help us out of our debt as it helped us in. That’s how money works.

3) time. Plain old time has the power to set many things right. My dad had a great expression when people tried to micromanage things : “don’t pick at it; it will rot and fall off by itself.” this has many meanings, and I’ll leave you to figure them all out. But they all come back to the laws of nature, and the idea of cycles. Seven lean years, seven fat years. You’d think some of the Bible-beaters would know that. And would also know that people will be forgiven their debts in seven years (that’s when foreclosures and bankruptcies will come off FICO scores

My thought process: don’t try to disrupt things too much to balance the budget. Leave it to global market forces

And if you can’t figure out whether this view is progressive or conservative, neither can I. And that’s the entire point. Both of those points of view do not reflect the world. As someone said recently, there’s no such thing as right and left, there’s only past and future. How about embracing the future. Why bother to recover the past. It’s done.

{ 1 comment… read it below or add one }

lieumorrison January 8, 2011 at 4:30 am

Greetings Francine,nnIu2019ve been meaning to reply to one of your posts forever now. Finally Iu2019m motivated enough to finally speak up. :)nnFor the last couple of months, I’ve been struggling to better comprehend how the financial crisis has evolved and whether our (US) economy is truely in recovery and trying to discern how bad the situation is in Europe. It also doesn’t help that I have a poor understanding how our modern economy works, anyway.nnFive years ago I had a roommate that was a hard core Gold Standard / Austrian School evangelist… regularly handing me Mises Institute literature to read and what not. While I was able to comprehend some of the described problems with fiat currencies and central banking, I still had a prevailing gut feeling of suspicion towards the fanaticism I keep observing in the background behind that movement. My reservations were re-enforced with the last couple years of the exploitative Cash for Gold advertising blitz which further made the concept not sit well with me.nnThese recent months of paying closer attention to economic issues and encountering mixed messages in the media concerning the status of the recession and the rate of employment (even regularly on some of the same channels, MSNBC comes to mind) encouraged me to dig deeper and pay closer attention to other sources of information. nnMeanwhile, through being exposed to some alternative view points and explanations, (many of which I am skeptical and guarded about) Iu2019ve managed to filter a few particular examples of interestong related info. For instance, the growing resurgence of the Silverite movement. In particular, the alleged issues that silver is highly undervalued, has a under reported scarcity, and rampant naked shorts of stockpiles/reserves that donu2019t actually exist. Traditionally this group are also proponents of a Silver Standard, often adverse to a Gold Standard (in addition to fiat currencies). However, the attention towards this commodity lately bleeds over to the fringe Alex Jones / Infowars crowd, for much of which I have little patience for.nnLast night I encountered a documentary that was critical of current (and previous incarnations) of fractional reserve lending *and* the re-adopting of the Gold Standard. The film, for which there is a copy of on Youtube, made a convincing argument with much less of the mass histrionics I found associated with the other content Iu2019ve found in regards to similar subject matter.nnI see your post this evening in my RSS reader, of questioning the current money situation and realized you might find this video interesting as much as I have. Perhaps worthy of critical discussion for your audience. It would be a great jumping off point for Enlightenment u2018salonu2019 type of discourse featuring the positives, the negatives, truths and untruths; a dialogue of skepticism and argument of whether or not being sold on the idea.nnThe Secret of Ozn Warning: This is a two hour investment and the content can be a bit dry for most… but the explanations and historical examples really clicked for me. (Though, I personally find the Wizard of Oz / Free Silver connections a bit overboard.)nnThanks for posting,nn-Louis

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