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Thursday, October 31, 2013

The Balanced-Budget Amendment is Fool's Gold

From Renewed Reason Blog --

There is a renewed movement by many so-called conservatives for a balanced- budget amendment. The amendment supposedly would force our politicians to get our $17 trillion debt under control. We have been through this rodeo show before. The amendment is just a political farce for politicians who really don’t want to reduce the size of government.

The amendment will never reduce the size of our national debt. More importantly, the amendment will never reduce the size of government.

First, the amendment would never be enforceable. Isn’t the Senate already suppose to pass a budget and how many years did that take? Is the GOP going to file a case with the Supreme Court when the Democrats refuse to sign off on the supposedly balanced budget? Will the Supreme Court’s police squad force the Democrats to pass the budget? Will the Supreme Court even issue a decision in time?

Second, a balanced budget is just an illusion in Washington. Both parties regularly cushion their projections of revenue and hide the costs of government programs. In fact, the GOP House just passed an alleged balanced budget that increases spending by 3%! Magical. A balanced budget is a campaign tactic for courting voters who don’t think pass step one. As Murray Rothbard wisely noted,

As we all should know by this time, economists and politicians are experts at submitting glittering projected future budgets that have only the foggiest relation to the actual reality of the future year. It will be duck soup for Congress to estimate a future balance; not so easy, however, to actually balance it.
The only solution to limiting the amount of federal debt and, more importantly, the size of government is to get rid of its means to do both, the Federal Reserve. Without the Fed and its ability to print money out of thin air, the government could not increase in size but for increasing taxes on its consenting citizens or borrowing savings from a willing private sector.

At a minimum, the Fed’s ability to purchase treasuries must be eliminated. We always talk about the size of debt we owe to China. The size of China’s debt ownership doesn’t compare to the nearly $2 trillion in treasuries owned by the Fed. The Fed’s ability to purchase treasuries allows the government to grow its debt with little short-term consequences. Absent the Fed’s ability to purchase treasuries, interest rates would rise as the government borrowed more savings out of the economy. The government would be forced to pay its bills. The government debt simply could not grow to $17 trillion absent the artificially low interest rates maintained by the Fed.

The balance budget amendment is fool’s gold. If the politician boasts of supporting such an amendment but doesn’t talk about eliminating the Fed or its ability to purchase treasuries, the politician is just playing with you. Don’t be fooled.

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