Sunday, January 15, 2006

Deficits and the National Debt

Analysts: Growing Deficit Hobbles Economy
Published: January 15, 2006

The Article is a good review of current economic thought on Deficits. The trouble lies in that the focus of attention is blurred. A good Five years after this Author published Inflation: Roots of Evil (iUniverse), Economists still worry about the effect of Deficits on Interest rates; a relatively inconsequential affect upon either Inflation or economic growth, if the Prime rate can be kept below 10%.

Government deficits, though, have immense impact upon Resource pricing. Deficits actually possess a Double-Whammy: they first create Money--through the production of financial instruments which can be bought and sold (the Later to serve as purchasing capacity); while providing an overdraft of Resources by the Government. The Government continues to spend drafting huge Resources, while the financial instruments allow the Private Sector to maintain their own sustained Resource purchasing power. The immediate hazard is the draft of Resources above the norm, the long-term hazard is the creation of Money which will not be contained until the Debts are repaid.

Government deficits spark artificial Demand, which seemingly generates Employment and Profits, but is offset by the increased draft of Resources which raise Resource pricing above natural Production levels. The creation of Money forestalls any future reduction of Resource pricing until the Government debt is repaid, and erodes natural economic performance because of the abnormal Resource pricing. lgl

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