Not too long ago President Trump came out with his proposed budget for the year 2018. It was heavy with a ten percent increase for the military, had draconian cuts for Social Services cutting some programs and illuminating a large number of others. It also cut out programs for the arts and for scientific research. It contained what Trump calls Tax Reform. This is actually a massive cut for the top Two percent of earners and large corporation decreases in taxes.
Looking at his Cabinet the indication is that Trump wants a government of the rich, by the rich, and for the rich. The groups really harmed by his proposal would be the poor who are totally dependent upon the Federal Government for numerous services and the elderly living upon a fixed income like Social Security or a set retirement that decreases year by year as prices slowly rise due to inflation or otherwise. Their medical insurance would rise significantly but their coverage or protection by the state would decrease significantly.
One can suppose a rapid rise in their death rate of the elderly would benefit the government as their producing days are over and they are only consuming.
In a recent article on the internet a staunch conservative congratulated President Trump for his stance on the budget but then stated that he did not go far enough. He apparently felt that Trump’s proposed massive cuts to the United States social programs would still be costing too much money.
Trump’s Treasury Secretary, Steven T. Mnuchin, was originally a Wall Street financier. According to his and several other people who are involved in finance and working for Trump have stated and may well believe that following Trump’s budget will raise the Gross Domestic Product (GDP) to 3%. It was .075 in 2015.
These people come from the world of finance. They are not economists. To many economists this is wishful thinking nonsense; it’s not about to happen. In fact with all the Trump cuts, increases in spending, and lowering of taxes for the wealthy the deficit will increase considerably in 2017 and 2018. Thus significantly upping the National Debt which is currently 19 trillion plus dollars.
The National Debt is currently approaching 20 trillion dollars but what it actually is is misunderstood by most people in the country. Most people consider that this is money owed to countries like China and Japan for the uneven trade that goes on with them. But this is only partly true.
The National Debt consists of two parts: one public and one private. The public part is the money that the government owns. It is money that it has lent itself. The question here is can an entity owe itself money? In terms of the Federal Government obviously it can. Several times a year the Federal Reserve transfers billions of dollar in interest to the Treasury.
Entities within the government transfer their surplus funds to the general fund. The government then gives them credit for the transferred funds. The largest entity to do this is Social Security. In the 1980s, when Ronald Reagan was President, Social Security was in trouble. It could conceivably run out of money in the near future. Congress raised the amounts paid into Social Security by both the individuals and their employers. And in 1989 Medicare was separated from Social Security. Additional separate amounts were paid into it by both employers and employees from then on. Also at this time people who did not pay into Social Security could make payments into Medicare and have it when they retired.
From that time on Social Security has had a relatively large surplus. It is today the largest debt holder of part of the National Debt. Interestingly Al Gore, when he ran against George W. Bush, has as part of his platform, a lockbox, which would have been banking surplus Social Security funds rather than putting them into the General Fund and spending them. However with George W. Bush as President the surplus went into the General Fund and was spent.
China, Japan and other nations have many individuals and companies within their countries that hold U.S. Government loan papers. That and loan bonds held by individuals within the United States and other countries would make up the privately held National Debt.
The Federal Reserve admits to owning about 50% of the National Debt. I would estimate it to be more like 60% to 70% of the actual National Debt.
The FED sells these bonds continually, increasing or decreasing the amount of currency in circulation. Money is not only cash; it is also credit and debit cards and checks. The FED regulates the amount of currency in order to control value and limit inflation. Too much money in circulation decreases the value of the money and too little money being available creates deflation. The FED has to maintain a balance between the amount of money in circulation and the population of the country.
In the minds of most people money is an object of value. It allows people to have what they need and want. In fact for most of its history money itself was an object of value acceptable all over the world. Eventually the amount of gold and silver, which was money in the form of coins, was insufficient in terms of all the business that went on in a country. There wasn’t enough gold and silver available to conduct the necessary business for the country to function properly. As a result of this the government of each individual nation withdrew the precious metal and began printing its own currency which functioned within its borders..
This began at about the first third of the 20th Century and has continued since then. Money today in the U.S. is a Federal Reserve Note. It has no real intrinsic value. It is merely a means of exchange for goods or services.
Adam Smith in 1776 published “An Inquiry into the Wealth of Nations.” In this work, which was strongly influenced by French economists called the physiocrats, Smith developed the basis of the modern capitalistic economics. The true wealth of a nation is what it produces; its goods and services. These are it Gross Domestic Product. They are defined as all the goods and services the nation produces in terms of dollars and cents within a given period of time, a fiscal year.
This brings us to the basic concept. What is the actual wealth of a nation? Today the United States is the wealthiest nation that has ever existed. Yet according to our current President we cannot afford to take care of our overall population. I sometimes think that all modern day Republicans would be much happier if they had lived hundreds of years ago when every individual was responsible for himself and for his family and government merely existed to protect him from foreign invasion. Looking back historically I wonder if such a time ever really existed.
By following Trump’s budget the government will massively reduce its spending. The military will have much more to spend. Trump has indicated that he will massively increase U.S. presence and involvement in the Middle East. Much of the military funding will be spent overseas and a large percentage of the tax decrease will go to the upper two percent of the population. They have not noticeably increased their expenditures when their incomes have increased in the past and the probability is that they will not do so in the present.
What will happen with his tax cut, if it comes into existence, is that there will be far less money available in the economy for the purchase of goods and services. The probability is that because of a lack of funds less money will be spent and less goods and services demanded. The GDP will actually decrease and it could achieve 0 growth or possibly .01% actual growth or even hit a minus figure,
There is also the fact that there is a velocity to money spent in the National Cash Flow. Money when spent is usually spent three to twelve times. For example a person shops in a supermarket. He or she spends twenty dollars. That money may be used to pay the salary of an employee. The employee spends that money on dinner in a restaurant. It can again pay an employee’s salary. The money keeps getting spent until it becomes part of the Natural Cash Flow that can be three to twelve times. The $20 can generate $60 to $240 worth of increased productivity. Conversely if the money is not spent that amount of productivity is cut from the GDP. All of Trump’s cuts will subtract trillions of dollars from the economy.
In addition to bringing a tremendous amount of misery Trump could also bring about a tremendous recession of depression. We are still working our way out of the Great Recession of 2008. Trump also wants to get rid of the laws that were passed to avoid that situation from ever occurring again. Concievably the country could be brought back to the point we had reached in 2008 that almost brought the nation to a worse situation than occurred in 1929, with the Great Depression, which was also brought about by a Republican run government,. This can be done by following what today could be called Trumponomics.