Some analysts have already started to praise the results of Obama budget policy that is making a decrease in the deficit. It looks as if USA finally has found the right way to avoid fiscal and debt crash. And in fact they are right.
But from this point of view they were wrong that it generally existed any danger of default. In fact it never existed, when putting in calculation the right of USA to print a globally accepted currency. Because in fact this is the right reason of improving the budget situation. With printing press in FED, USA can always repay its debt as it is issued in dollars and USA can produce dollars.
The right way of doing with the deficit and the debt would be to balance the account without using the money-print. This would be the real healing for the economy by removing the real illness.
Lowering the deficit by using the technology of the inflation tax is not a solution of the problem. It is another – new, problem. Inflation tax is described in economic textbooks and it is neither Obama invention, nor he is the only to implement it with success. The central bank is printing money. This money leads to inflation that means higher prices of everything – from consumer goods to salaries. The increased everywhere expenses lead to higher tax-income. At the same time the debt and deficit are fixed. Interest rates are artificially kept low by the same money emission. And government expenses are not indexed with inflation, as it is not officially recognized by the government. I.e. the government is seizing some of the wealth in the society with the tool of inflation. Just like in the textbook for 1st year students.
There is no serious change in the reason of the US crash. The government is spending too much and has a debt of over 100% of GDP. USA is de-industrialized and is losing real jobs and mid-class. Much old and proven moral values are being crushed. Nothing of this is changed, the situation even goes worse. The illness is still here.
Via inflation the society is simply paying for a one-time dose of morphine.
April 14th 2014