Common Cents

Life after debt

Ralph Murphy

(10/2019) In late September the White House approved a congressional supported stopgap measure to fund the federal government through 21 November in a continuing resolution that addresses a new operational environment to spending parameters. The bill details were vague for the 12 required federal departments routinely funded, but noticeably absent from the almost trillion dollar proposal was the interest payment on the national debt that had reached an unlikely $21 trillion amid low billing discretion and apparent tragi-comic overcharge. The debts were covered by tax equity, the debt a fabrication reflecting low levels of contractor cost at a sub-component to the internal market it drew from but outpaced to spending.

That brings to focus the roles of federal policy officials as when trusted with self control or discretionary spending for the limited need of their departments it seems they manipulate costs without the threat of guaranteed legal sanction. If fund redirects and over billing charges were better scrutinized as with simple challenge and justification to bill projection it might be enough to keep them in check. Policy officials also need better understanding of the actual costs associated with running their departments as again it’s usually a contractor fee rather than internal ones unless direct department theft can also be proven.

The point is vague affordance to fiscal or government spending in the post world war 2 era has been limited only by equity values of the deals themselves. The gap between market value of contract linked spending where the consumer would make the outlay for the service and its billing is the deficit and it reflects no real demand payment necessarily expected by the supplier unless they can get it. The problem with that debt is it’s held by the issuing authority here the government which demanded the interest and it was a major debt component both at home and abroad who followed the program design. Routinely over $ 200 billion interest of the deficit was annually funded. The real money was largely untracked and could float to almost any project at home or abroad the access official could afford.

What’s troubling to optimal market output is that overcharge is a policy template abroad as well with Japan an extreme example of it as the worlds second largest economy at just under$5 trillion a year was led to believe they owed over two and a half times that as the costs were poorly scrutinized to their scant needs. Europe’s similar to that ploy as Greece ostensibly owes over 170% of its annual earnings, Germany too as the worlds third largest producer still would have to pay 60% its total earnings for the same type debt fabrication. To backtrack a bit the lower income nations could actually be in equity debt or that tied to a lender whose money is backed by an actual sale of a good or service. In that arrangement though the leverage is troublingly with the borrower as they can just drop the debt if the likely alternate reprisal is afforded. The loan would have to be closely secured.

A routine funding source for those debts includes open market operations by host central banks to raise or provide transaction currency through sales or purchase of bonds or government securities brokered by that means. Private sector bonds or debt instruments are generally a withdrawal cash source the borrower as a corporation uses to raise project funding if cheaper than other sourcing as bank loans. Government bonds or securities serve a different objective as money supply control not profit sourcing is the objective to non manipulative use of that instrument. The creditor may find it investment worthy as the securities are interest rate brokered but again as a fund source the bills or bonds are a slow growth investment strategy and issued to accommodate new demand pressures likely to larger enterprises who can’t easily get the currency through other lenders.

When the federal reserve quotes an interest rate change, and they change daily these days despite the formal announcements every few months, it is generally linked to the treasury rates ( there are many, three month to thirty year rates) in an expansion phase or what the bond would cost to provide the new money which does have to be returned on maturity. It can also roll over at new terms if the borrower needs it. For new provision and to make the loan worthwhile the enterprise would likely have to be very large or alternate funds with fewer tie ups would be accessed.

An odd phenomenon has appeared in recent central bank loan provisions both to Europe and Japan known as negative interest rates that involve bond borrower withdrawals. The access group must be very limited as it does pay the borrowers to borrow guaranteeing constant money supply expansion, but not necessarily reflecting that need to domestic growth patterns and requiring an equity again value backed money provision that seems to derive from simple overtaxing. That or value loss to excess supply of currency with simple overprinting beyond new earnings which may be the case but the observer would have to be very closer to earnings reports for clarity to the yen value. . In Europe a similar value added tax was designed and controlled until very recently by European Union control authority and was variable between nations and to internal markets. It was seldom less than 7% or higher than 20% for federal receipt to the the members. We don’t have a federal sales tax in the United States but it is very common abroad and properly managed could also provide government spending needs in a tolerable range similar to the low end of Europe’s. The 28 EU members to that era approximated American earnings in aggregate.

In Japan the equivalency of that federal tax is " consumption tax" increased this month from 8 to 10% on most sales which was very controversial there as there wasn’t a perception of new spending need and other taxes levied to regions or federal controls were unchanged. It would be of real interest to discern who receives that revenue. Other payments as the project money could go most anywhere and the draw down too costly for viable businesses to recover growth. The spending patterns seldom reflect consumer demand but rather policy whim and could prove very costly at both ends.

The main issue now is closer debt scrutiny to issuer given need and receiver to scrutinized use as it does imply real sales value capital being used or redirected for mutual advantage which doesn’t necessarily exist. The alleged debt levels are so high it’s almost a supply statement "you can’t possibly think were serious". Generally the losses are to higher income nations those dominated by the Americans, Japanese and Germans with America far outpacing the others at 3 times Japans earnings and four times Germany’s though the per capital or total earnings divided by population is very similar.

An awkward phenomenon the reader probably won’t notice but is of concern here to Washington is the debt gap between actual service value and cost and projected cost to the older budget can be perceived by the tolerated extra contractors as actually owed though the equity itself is transferred to unspecified organs at home or even abroad. It’s very common in health and defense populations who do little projects of perceived value but are routinely just costly such as running gangs or unneeded clinics. The groups are paid but again it’s limited or suspect need and the contractor type might think the debt gap is owed but when they push beyond their project payments find it isn’t really paid. That leads to almost barter arrangements that real producers would never even consider. A prostitute could write off tens of millions especially if high profile as an entertainer could be accessed and the deal suspect.

The bottom line is accountability or necessity to federal billing meets scrutiny to process and tax equity funding supported by federal law. A theory is just that until proven as fact by data and the national debts to home and abroad aren’t justified by the market forces dwarfed by the bills. In moving forward the tools of government should work to simply support citizens far closer in tune with the markets of interest to meet their optimal consumer demands that reflect value they’d trade work toil to receive. Impersonal access leads to arbitrary spending and manipulated monetary supply can jeopardize survival. With those understandings federal law has to enforce unclaimed fund diversions or we won’t long endure the casual theft.