Wednesday, June 2, 2010

Wednesday round up.

At, janmb misrepresents Jude Wanniski’s Two Santa Claus Theory. While Wanniski did argue Republicans should cut taxes in that article, he did not advocate they spend “like drunken sailors and put it all on the national credit card.”

Larry Kudlow
argues (with Dan Mitchell's help) that government salaries are part of the reason for the debt crisis.

At Wainwright Economics, John Tamny
says the wealth gap is irrelevant.

At, Scott Sumner comments on Steve Hanke's recent item on Estonia and Greece.

The Washington Post
expresses surprise that markets still are willing to buy 10-year U.S. Treasury bonds at a 3.3 percent interest rate.

Contrary to conventional wisdom, most supply-siders believe deficits have less to do with interest rates than does the dollar’s value. Larry Kudlow
made that point earlier this year.

Therefore, this Bruce Bartlett quote is something of a surprise:
"You can talk about the deficit until you're blue in the face, but we'll only get political traction on meaningful deficit reduction when there is economic pain being caused by the deficit in the form of inflation or high interest rates or both," said Bruce Bartlett, a Treasury Department official in the George H.W. Bush administration who recently wrote an article predicting that the U.S. government will be downgraded in less than a decade.

As Bartlett surely knows, deficits lead to inflation only to the extent monetary authorities choose to devalue the dollar to reduce the debt burden. That's a dishonest course, the stealth equivalent of a default, and it's the opposite of what Alexander Hamilton did after the War of Independence, when he committed the U.S. to repay its large debts in gold-backed dollars. The U.S. similarly committed to repay its enormous World War II debts in gold-backed dollars, which it financed at two percent.

The question is, with gold having risen for nine years and now at $1200, why aren't interest rates higher? Is it the flood of savings from the world's soon-to-be-retired, desperate for safe investments? A central bank Ponzi scheme? The zero Fed Funds Rate? All of the above?

Comments welcome.

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