Income Pays the Debt

Austerity will not pay the debt. Income pays debt.

If capital is not invested to produce income for those whom the debt is assigned for payment, the debt grows and income declines.

Wealthy policymakers should not complain about an overextended debt-to-GDP ratio if they are only asking everyone else to sacrifice. Not only is it bad politics, it is bad economics.

If reversing the deflationary trend is the objective, reducing the budget deficit without providing the income to pay it supports the deflationary trend. Postulating that deficit reduction in priority frees capital for growth is not only a disconfirmed hypothesis (because slow growth causes deficits), it is an intellectual embarrassment. If America wants to assure its creditors, this is not the way to do it.

The income available to pay the public debt and reduce deficit spending has been consolidated (because slow growth causes high prices, declining middle-class incomes and a higher debt burden). Upper-class incomes have the funds immediately available to give world markets the confidence that the dollar is a stronger expected store of value than commodities. As long as the dollar is weak because the available income will not support its debt, rising commodity prices will support the need for more debt (the Fed adding trillions of dollars of treasury bonds to its open market account, for example).

Exacting payment of the debt from the middle class will weaken the dollar even further. Consumer spending will be reduced from already deflationary levels. Supposedly, QE will add the missing money, but QE immediately adds debt, weakening the dollar. Since QE is bonded debt, it relies on the conviction to cut the deficit. If cut without sourcing the available income (the accumulation that is the source of the deflationary trend--falling middle incomes against rising prices), however, recessionary trending (deficits) get support, not resistance.

It is critical to pay the debt with current income without supporting the deflationary trend. This requires progressing the tax code: increasing the rate at the upper margin and lowering it at the middle. Global markets will be more secure with a dollar strengthened to pay its debt toward extended prosperity rather than extended austerity.

Austerity measures are intended to make the rich richer and everybody else poorer. If the accumulation would not have been so huge with bailouts, deficit spending and QE at nearly $4 trillion, and the Fed still describes recovery as doubtful, austerity would have a more equitable, distributive aspect. Tax cuts for everybody would not be such a hard sell to invest economic growth and provide the income to pay the debt.

The middle class has already suffered a detriment--the Great Recession. The austerity being suggested for the middle and lower classes knowingly and willingly doubles the detriment, yielding a benefit to the upper class.

The lower and middle classes are not being adequately represented. The only catalyst available is a Tea Party caucus that is looking more and more co-optative.

With an 18th Century revolutionary spirit, the Tea Party caucus is concerned with conservative values that were at that time radical. Middle-class incomes today stand to lose to an upper class fully armed with the fullest extent of the risk won by the bourgeoise from the crown. Conservation of that risk is hard to resist by a middle class with upper-class aspirations. At the same time, the middle class knows full well that the best bet for upward mobility is to win the lottery, but the chances are still, according to bourgeois values, entrepreneurially better than overthrowing the crown. Conservation of the risk, and the reward, makes bourgeois aspirations easy to co-opt.

There is a point of inflexion where the middle class is so overwhelmed with debt that it can hardly consider itself middle class, but lower class. That is when the value of the risk reaches its fullest extent of probable loss. The risk goes fully gamma (political) when it is no longer co-optative.

QE, for example, is a way to co-opt the risk. As middle-class pressure for tax relief increases along with deficit reduction, demand for a distribution from the accumulation becomes critically political. QE funds have been added to mitigate the political extent of the risk. The risk can then be economically extended with the illusion of prosperity like the housing bubble.

It will look like tax relief for everyone causes prosperity when the debt has actually been extended over the value of the assets. The effect of overvalued assets with undervalued risk is the crisis that Dodd and Frank warned Americans would surely happen. At that point, a realignment occurs that novates the risk with the value of the Revolution fully conserved, keeping the Hamiltonian model fully operational in the name of liberty.

Debt paid ex nihilo is debt added and distributed to the middle class in the form of systemic risk. Since what is "too big to fail" is required by Dodd-Frank to have plenty of reserves (income that does not distribute to the middle class), who is left to take on all the risk of detriment, with all that popular demand for a flatter tax and deficit reduction, should be no surprise.

The least able to pay, in true Hamiltonian form, will be stuck with the liability, confirming a detrimental reliance on the liberty of a wealthy aristocracy. It is a liberty to be aspired to, like the middle-class revolutionaries that aspired to live like kings with the risk of loss fully assumed.

The debt is paid when crises occur and that includes full assumption of gamma risk when distributions are not allowed to fully occur from accumulations. Co-opting the risk actually accumulates it in the future, depreciating the probable value of the risk to be aspired. That co-optative value of the risk can be fully discounted now, today, to a current value that demands debt reduction from the income accumulated into a crisis proportion. The debt will be paid with the least amount of austerity. The lower debt burden will provide the demand needed to support a recovery that is not debtor (austerity) financed, but financed from the income (the savings) generated from economic expansion (GDP), reducing debt to equity.

Austerity will not pay the debt. Income pays debt. Deprivation of needed income (demand)--cutting Social Security benefits, for example--does not pay the debt. That funding produces the demand necessary for economic activity (GDP), providing income that both produces profits and pays the debt while, at the same time, preventing the value of the debt exceeding the value of our assets into a crisis proportion.

The rhetoric we have now that postulates the need for exacting austerity from the needy is good ideology, but exceedingly bad technical analysis. Technically, and morally, it is just flat-out wrong.

The Great Recession (liquidity crises and slow growth) is not caused by "entitlements." They are an asset, not a liability that is stealing value (demand/income) from the middle class. It is the Goldman Sachs and Bank of Americas of the world who think they are entitled to enslave everyone to the bogus objectivity of credit that is deliberately scored by manipulating the business cycle into a means of deprivation. They provide the detrimental sense of entitlement that needs to be deprived. That deprivation will provide the income to pay the debt instead of extending it into a perpetual risk of loss always scored to their advantage.

When The People are told that equity is technically impossible to the fullest extent of the risk (the paradox of thrift in which the wealth accumulates to those who are willing to sacrifice the most), don't believe it! No one is entitled to bilk The People into economic insecurity. There are plenty of small banks to put Bank of America and Goldman Sachs out of business. It is still a free market despite too big to fail.

It's time to start pluralizing the systemic risk (the paradox) with dollar (empirically popular) votes. The income circulated provides the risk reduction--the empirical margin of profit AND the social security--we are ALL technically looking for.