Monday, August 13, 2018

Robert Wenzel and the Federal Government Agree About Something

Robert Wenzel and the Government finally agree.
By Bill Bergman
In a blog post on t Economic Policy Journal Sunday (“Buckle Your Seat Belts: US Spending on Interest Hits All-Time High”), Robert Wenzel highlighted recent acceleration in federal government interest expense. He warned that
this could just be the start, in light of recent interest rate increases and his expectations for government spending and inflation.

“The most important question,” he concluded, “becomes the one of how much of the new debt that will be issued by the U.S. Treasury in tiger by the tail fashion (chasing higher interest rates) will end up being monetized by the Federal Reserve. The more monetization, the higher the price inflation.”
We can’t say we weren’t warned, and not only by Mr. Wenzel.
Uncle Sam himself has been pretty blunt. In recent years, the government’s annual financial report has regularly warned that government fiscal affairs are simply unsustainable, including warnings about future rapid increases in interest expense in light of demographic and financial challenges facing social insurance and other federal spending.
And speaking of blunt, Uncle Sam has also let us know—in no uncertain terms—what it believes it holds in the tool chest.
The federal government’s balance sheet reports liabilities that swamp reported assets by about $20 trillion, leaving a huge negative hole that is itself understated by the government’s failure to include on the books massive unfunded obligations for Social Security and Medicare. Introducing the balance sheet, however, the government gives us the following “comforting” words:
“There are, however, other significant resources available to the Government that extend beyond the assets presented in these balance sheets. Those resources include Stewardship Land and Heritage Assets in addition to the Government’s sovereign powers to tax and set monetary policy.”
In other words, we the people don’t have to worry about our Government (capital G), because it possesses sovereign powers to take our money, and inflate the value of that money away.
Wait, I thought “We The People” were the sovereign? The government isn’t our King. Don’t we have a system of popular sovereignty?
Bill Bergman teaches finance courses at Loyola University Chicago. He has more than 30 years of financial market experience, including thirteen years as an economist and policy analyst at the Federal Reserve Bank of Chicago. Bergman earned an M.B.A. and an M.A. in public policy from the University of Chicago in 1990. He is also Director of Research at Truth in Accounting.

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