The Government Debt Paradox: Pick Your Poison

Tyler Durden's picture

Authored by EconomicPrism's MN Gordon, annotated by Acting-Man's Pater Tenebrarum,

Lasting Debt

“Rule one: Never allow a crisis to go to waste,” said President Obama’s Chief of Staff Rahm Emanuel in November of 2008.  “They are opportunities to do big things.”


Rahm Emanuel looks happy. He should be – he is the mayor of Chicago, which is best described as crisis incarnate. Or maybe the proper term is perma-crisis? Anyway, it undoubtedly looks like a giant opportunity from his perspective, a gift that keeps on giving, so to speak. [PT]


At the time of his remark, Emanuel was eager to exploit the 2008 financial crisis to raid the public treasury.  With the passage of the American Recovery and Reinvestment Act in February 2009, Emanuel’s wish was granted.  The Obama administration had the opportunity to do big things.

Politically, the passage of the Recovery Act was a huge success.  Washington was able to dole out funds to their preferred projects like never before.  What could be better for a Congressman than to direct massive amounts of funds to infrastructure, healthcare, energy, security, law enforcement, and just about everything else?

Some Congressman even directed money to bridges and buildings that were then named after them.  No doubt, this flattered their egos.  But what it really did was memorialize their political swindle.

Economically, the Recovery Act was a great big dud.  The money was frittered away without producing any lasting wealth.  However, it did produce lasting debt.  Since the Recovery Act’s passage, the U.S. national debt has nearly doubled from roughly $10.6 trillion to nearly $20 trillion.


The post-GFC economic recovery was not the weakest of the entire post-WW2 era  despite all this money printing and deficit spending, but because of it. Government spending does not “help” the economy, it is a terrible burden on the economy. Every cent the government spends must be extracted from the private sector. Unless bureaucrats have magically found a way to gauge the opportunity costs of their spending, this is apodictically certain to damage the economy structurally and impoverish the citizenry at larger relative to what would have happened otherwise, as scarce capital is consumed and wasted. Not to mention that  the stimulus spending was utterly riddled with crony favoritism and utterly ridiculous items, including $535 Million for Solyndra (a now bankrupt “alternative energy” company) to $384,949 for a Study of Duck Penises, to $100,000 for Anti-Capitalist Puppet Shows, $389,357 for College Students to Keep a Diary of Their Marijuana and Malt Liquor Use,  while $1.3 million was spent for signs on highways to advertise that infrastructure spending was paid for by the stimulus. Countless more examples of this sort can be found. You couldn’t make this up if you tried. [PT] – clicki to enlarge.


Squib Kicking the Debt Ceiling Can

Several weeks ago we scribbled an article detailing why there will be no 11th hour debt ceiling deal.  We thought we were really on to something.  We even followed it up with a similarly themed article, calling Mitch McConnell’s debt ceiling bluff.

This week we were reminded that, like Socrates, “We know that we know nothing.”  For on Wednesday, President Trump squib kicked the debt ceiling can across the aisle into the outstretched hands of Senate Minority Leader Chuck Schumer and House Minority Leader Nancy Pelosi.  This came less than an hour after House Speaker Paul Ryan called the Schumer and Pelosi proposal “ridiculous and disgraceful.”

The Hurricane Harvey crisis, and the popular support for relief aid, provided Trump the opportunity he needed to reach an expedient, yet short-term, extension of the debt limit.  Come mid-December, he’ll likely regret his decision.  Mitch McConnell offered a small elaboration:

“[The President’s] feeling was that we needed to come together to not create a picture of divisiveness at a time of genuine national crisis, and that was the rationale.”

What to make of it?  U.S. stock markets were tickled pink.  After a brief panic on Tuesday, the DOW, S&P 500, and NASDAQ all closed Wednesday higher than where they started.  On Thursday, these markets closed about where they opened.

From a broader perspective, aside from digging a deeper hole that the American people will have to eventually dig their way out of, what does the debt ceiling extension really accomplish?

For one thing, the debt ceiling extension brought clarity.  It elucidated that the faux appearance of fiscal responsibility that a debt ceiling projects is no longer needed.  Thus, President Trump wants to end the debt ceiling all together.


The time for installing the retractable roof has finally come! [PT]


The Government Debt Paradox: Pick Your Poison

Of all modern economic dogmas, perhaps the most broadly accepted is the belief that the government can spend the economy to growth using debt.  Certainly, government spending redirects economic growth to government preferred industries.  So, too, when government spending is financed via deficits, it grows inflation.

But government stimulus doesn’t grow the economy.  How could it?  Aside from reams of legislation, levies, and fees, the government doesn’t produce a doggone thing.

To the contrary, the government usurps capital and uses it in ways that it otherwise wouldn’t be.  Specifically, the government uses its heavy hand to distribute capital in ways that absent coercion, people wouldn’t pay for.  These generally equate to value subtracting endeavors.


As Ludwig von Mises pointed out: “At the bottom of the interventionist argument there is always the idea that the government or the state is an entity outside and above the social process of production, that it owns something which is not derived from taxing its subjects, and that it can spend this mythical something for definite purposes. This is the Santa Claus fable raised by Lord Keynes to the dignity of an economic doctrine and enthusiastically endorsed by all those who expect personal advantage from government spending. As against these popular fallacies there is need to emphasize the truism that a government can spend or invest only what it takes away from its citizens and that its additional spending and investment curtails the citizens’ spending and investment to the full extent of its quantity.” [PT]

For example, last month we learned that a foreign company hired by the U.S. government ran up a $50 million tab on luxury cars, weapons, and booze to mentor Afghan intelligence officers.  Was this a good investment?  Does it provide some benefit, financial or otherwise, for U.S. taxpayers?  Did someone at least have a little fun at the public’s expense?

In addition, value subtracting endeavors like these have the effect of attracting dependents.  Some become hooked on direct transfer payments, like monthly welfare and disability checks.  Others become hooked on the fat government contracts for their daily bread.


Nothing bad will ever happen! Promise! [PT]

Over the decades, the entire economy’s been warped by the constant expansion of government debt. 

Take it away, and the economy crumbles.  Continue its current trajectory and the economy blows up.

That’s the government debt paradox we presently live with.  Pick your poison.  Enjoy the ride!

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ET's picture

Debt does not matter when you can pay the debt with devalued currency that you can print anytime.

What matters more is how much the currency will be worth when that course of action is taken.

Historically, debts were paid off with currency devaluation when printing is an option.


This was covered in This Time Is Different: Eight Centuries of Financial Folly.


Our most recent experience in wiping out debt was in 1971 with the Nixon Shock. About nine years later all the debt accrued since World War II was wiped out by the dollar devaluation. One must look at the debt priced in Gold to understand this.

Jimmy Jimmereeno's picture

Superficially, your comment appears to make sense.  But do you actually comprehend what was written?  Have you no understanding of the concept of capital destruction?

greenskeeper carl's picture

Take it away, and the economy crumbles.  Continue its current trajectory and the economy blows up.

That’s the government debt paradox we presently live with.  Pick your poison.  Enjoy the ride!


While this 'paradox' would certainly be true, its not really a choice any of us have. We all know which of the two options will happen. The choice is being made for us, we have no say in any of it, all we get to do is deal with the consequences. IMO our last chance to stop this in its tracks was squadered during the 2008 period. All of that nonsense should have just been allowed to collapse. Sure, it would have hurt, but we'd be well on our way to an actual recovery by now. Instead, the govt chose to kick the can, and make a bigger, much worse event inevitable.

Escrava Isaura's picture

Get this over your heads, the problem is private money and interest.

By Margrit Kennedy: If Joseph the father of Jesus would have invested one penny at his birth at 5% interest, and Jesus would have returned to the same bank in 1990 - at the time of the German unification - he would have been able to buy, with the money accrued in the meantime, 134 billion balls of gold of the weight of the earth, based on the official price of gold at this time.

This shows mathematically that the continual payment of interest and compound interest over a longer period of time is practically impossible. And explains why we have economic and social breakdowns.,d.cWc 


Blue Steel 309's picture

In 2 years, this is the first time I ever up-voted you.

Escrava Isaura's picture

I’ve be saying the same thing over and over.

Anyway, article: Over the decades, the entire economy’s been warped by the constant expansion of government debt. 

That is a lie. And an easy lie to prove.

US private and public debt related to GDP:

US private debt. Twice larger than the government.

Government Debt Isn't the Problem—Private Debt Is


kingOfFrance's picture

Hey guys, new here.

Isn't private debt stimulated by government / FED to "grow the economy" and thus the problem still is the effing government?


two hoots's picture

What is more lasting, now:   Large global corporations with a mixed basket of assets/currencies or a government?    I suspect the former has a better chance of survival than a goverment?   Just kinda musing.

Escrava Isaura's picture

New here………And you’re already a king?

I am afraid you will fit right in.


Clock Crasher's picture

We don't have a government.  We have global monolithic institutions that purchased the government.

The government sends rates to zero to stimulate miss-allocation of resources, create asset bubbles and create non  preforming loans.  It's a short term  high followed by a massive crash. At the trough  of the crash the money powers take title of all the physical goods and assets for pennies on the dollar when the People are forced to sell out for pennies on the dollar.

The People of America have twice as much debt as the government.  Most of the debt comes from consumer demand at the institutional bank level.  Private debt is 40 Trillion vs Public debt of 20 Trillion.

Now you could make an argument that unfunded public debt of 100 Trillion is larger. 

unsafe-space-time's picture

Money in banks and stocks is the problem

Stef1304's picture

Well, it's - at least, as much a DOUBLE BIND as it is a paradox.

Double bind : whatever move you do, you loose.

Farqued Up's picture

Why should the parasites stop the fraud, no one inside nor outside of Gov are afraid of jail? Deep State grows, Cabal uses the IMF to bribe and suck parasites into death debt on fiat worthless loans and then confiscate their countries' real wealth. The crooked parasites are given their relatively paltry bribes and skips the country with fresh passports in nice climes controlled by the Cabal. The screws are put to the poor citizens of the IMF raped countries.

The Cabal billionaires and YES, trillionaires are getting more real assets under their wings. This is the real pain where the medicine known as pitchforks, torches and Guillotines must be applied first and then work down to the Banksters and their lieutenants.

ET's picture

I read the article. Kind of weak article to be frank.

Property, plant and equipment will still be around when currencies are devalued.

Devaluation of currency is also a roundabout way of underpaying labor and imposing tariffs.

Gordon_Gekko's picture

Yes, they will be around but a lot of it will be simply of no use. Will need to be junked.

Escrava Isaura's picture

Who cares about devaluation, labor, and tariffs. Post collapse the only energy we will find is by burning the trees.


zuuma's picture

Plus, burning the tires.

There'll be lots of 'em.

JRobby's picture

Destruction = Offshored, reinvestment difficult to track but tax is evaded. Serfs will service the debt.

38BWD22's picture



I have not had a chance to think through that new meme of ridding ourselves of the regular exercise of "raising the debt ceiling" (whether it is a good idea or not).  There is always LOTS of hot air, but they ALWAYS raise it.

Maybe better to just admit that .gov cannot control spending.....

*   *   *

Reinhart & Rogoff's book you referenced is excellent.  Highly recommended.

greenskeeper carl's picture

True, the whole idea of a debt ceiling is but an illusion. If they just agree to raise it, without fail, every time, its not actually real, is it?

U4 eee aaa's picture

But they still have to go through the whole performance of lying. This is why they want to end it because lying is very painful when you are in a job that is as narcissistic as a politician's is.

They want to think they are the heroes and leaders when everyone can see they are spineless liars. It is bad enough they have to be exposed every 4 or 8 years when the 'other team' takes power in the house. These guys are exposed every year or every time they play the debt ceiling game.

and the kids see it. They get more angry because everyone older than them will give them a good solid lecture every time the kids lie. So the disillusionment grows.

This is good for the future and will serve to help catalyze the change

El Vaquero's picture

If the government stops deficit spending and the private sector does not take up the slack on debt creation, it will slow the growth of, or decrease the money supply to the point where the interest on all of the debt cannot be serviced.  The debt ceiling is just kabuki theater at this point.  They have to spend on a deficit.  If they don't, the USD goes bye-bye and they lose their power.  Personally, I'm all for removing the debt ceiling just for the lessons that it will teach people about getting something for nothing.  I want TANSTAAFL burned into peoples' minds. 

38BWD22's picture



+ 1 for:

There Ain't No Such Thing As A Free Lunch.

El Vaquero's picture

What can I say?  The Moon Is A Harsh Mistress was one of my favorite books in my teenage years and 20s.  It's probably about time to re-read it. 

unsafe-space-time's picture

There is no free lunch in society. Everyone has to wipe each-others ass to eat. In nature everything is free you just have to harvest it. 

El Vaquero's picture

That's still not free.  You have to expend time and energy to harvest.  People need to quit thinking about wealth in terms of dollars and cents. 

General Titus's picture

The more Monopoly money they print and give away to other nations and their Greater Yinon Plan wars, the more interest and debt is accrued to enslave the US Taxpayer/Slaves to the Balyonian New World Order that Georgie Bush Sr talked about

indygo55's picture

"Debt does not matter when you can pay the debt with devalued currency"

That statement in itself tells the tale of the cycle end. The currency is lost and the public confidence is destroyed. With crypto currencies and the blatent rigging of the gold and silver prices the public is awakening. These are very interesting times indeed. 

ReturnOfDaMac's picture

Chenney was right, deficits don't matter (unless democrats are in charge).  The key, to prosperity, is Ctrl-P!  The world will take our paper and they will LIKE it.  Ctrl-P janet, Ctrol-P. 

Unknown User's picture

Nauseating BS sponsored by the banksters who are not just profiting from lending what they don't have but want to lend it at higher rate. They were planning to squeeze the government for more by lowering US rating. Trump out flanked them by using Democrats against the Republicans.  So they are now whining about it.

Radical Marijuana's picture

"The government debt paradox"  is primarily due that civilization necessarily operates according to the methods of organized crime, whereby the biggest and best organized gangsters were able to dominate society so much, for generation after generation, that almost everyone ended up believing in their bullshit. "The entire economy’s been warped by the constant expansion of government debt"  to degrees that are WORSE than merely the Hobson's choices: 

Take it away, and the economy crumbles. 

Continue its current trajectory and the economy blows up.

Pick your poison. 

The genuine solutions are the opposite of the popular impossible ideals, which presume that there are fundamental dichotomies between "government versus organized crime."  An ultimate human problem is that civilization is directed by its murder systems, which have developed to maximize their maliciousness, by becoming as deceitful and treacherous as possible. Furthermore, important facets of that situation are that there are almost nothing but various levels of controlled "opposition" groups surrounding the central core of triumphant organized crime, which has become banker dominated governments.

The controlled "opposition" groups propose and promote impossible ideals, which always backfire badly and actually cause the opposite to happen. Therefore, it is the opposite of what they recommend which should be considered as more genuine solutions. Due to the ways that almost everyone almost totally takes for granted thinking using DUALITIES, which have been built into the structure of the dominant natural languages and philosophy of science, it is extremely difficult for any better UNITARY MECHANISMS to be advanced to resolve the apparent paradoxes, due to the ways that governments are necessarily the biggest forms of organized crime, dominated by the best organized gangsters.

Enjoy the ride!

Since the entire political economy is almost totally based on the powers of public governments ENFORCING FRAUDS by private banks, and the big corporations that grew up around those big banks, and since about exponentially advancing technologies have enabled that to become about exponentially more fraudulent, it is generally the case that the older you are, the better that ride was, while the younger you are, the worse that ride is probably going to become.

wjkins's picture

What matters is they can purchase goods now. They are stealing billions now. Fuck what the currency does later. If could steal money like these cocksuckers and purchase my farm, gold, food or whatever I need to ride out the storm and have it paid for now ,then whats the worry. They don't give a fuck if we cannibalize each other over the devalued currency later.

css1971's picture

Yah yah.


1971. Money is now debt. More debt = more money. No more debt = less debt = recession.


This is really simple to understand people. Don't pretend you don't.

Solio's picture

It is a misnomer; it's debt sealing.

Korprit_Phlunkie's picture

If everyone keeps complaining it is debt squealing.

hooligan2009's picture

there is no paradox.

in personal life, you borow money without the intention of paying it back, YOU ARE STEALING.

in government lifem if you borrow money without the meas of paying it back, YOU ARE STEALING TAXES FROM THE FUTURE.

in corporate life, if you borrow moey and can't pay it back, you are bankrupt.

fiscal deficits are an illegal transfer of wealth from benefits that would otherwise accrue from future taxes - you take all the taxes from the future - as has been done via libtard socialism - and there is no money for welfare, security or health care.

federal, state and city debt is increasing at more than one trillion a year, making future federal, state and city taxes smaller and smaller for ever increasing populations that earn less and less.

immigration makes this worse, especially if money earned in the US is simply remitted to immigrants home countries. illegal immigrants, by defintion, contribute nothing since they are criminals.

the solution is to run fiscal surpluses of 1.5% of GDP until debt to gdp falls from 100%, to around 40%, so FORTY YEARS!

it is no coincidence that this is the lenth of time during which libtard sociaism has run up this amout of debt, via 2-3% per annum fiscal deficits

ANY budget deals that do not result in a surplus (let alone a balancing of spending and revenue) are A FRAUD AND A THEFT OF THE FUTURE ABILITY OF GOVERNMENT TO HAVE ANY RELEVANCE.


Ben A Drill's picture

At some point soon IMO, The free shit food stamp people nation including the fake disabled people will wake up cold and hungry due to the USA turning off the tap of free money and spending it on disaster relief.

Yes, we have work, yes you will get dirty, yes the pay is low, yes we won't pay you unless you help rebuild our city's.

No work, no pay.

Grab a shovel and get to work you free loaders.

Drug test every Monday morning. Pass and get paid, otherwise just starve.

HRH Feant2's picture

Imagine the shock when a welfare queen with 6 hood rats finds out there will be no refill of her EBT / SNAP card. Do you honestly think the ignorant, uneducated breeder is going to be able to understand the concept of work? The concept of showing up on time anywhere? The concept of wearing clothes for work rather than as a way to display sexual availability?

I can tell you what will happen and it isn't going to end up with their showing up ready for work and rules two days after they have no money. What will happen is they will start burning down their own area and move out and loot and steal and take what they think they deserve. These folks have been brainwashed to have an entitlement mentality and if the government doesn't give them what they think deserve they sure as hell will take it. Even if that means killing you.

It may be possible to get some of the white slackers to go back to work. Niggers? Showing up to do manual labor? Hahahahahahaha. Great fantasy but it is never going to happen. Which is why, when EBT/SSI/SNAP payments go down you had better not be living in a city. Now is the time to preposition yourself and get out. Those cities are going to do one thing and one thing only: burn, baby, burn.

Ben A Drill's picture

Your talking to a sharpshooter. I'm no expert because I don't want to put in the time. I guarantee that if you are my target within 100 yards. You will not be a happy camper. I'll probably kill you out to 600 yards, but I won't even know it because my Springfield Armory M1A scout squad doesn't have a scope. I shoot with iron sights for my battle rifle.

I have other weapons that are for close combat. .45 ACP pistol, 12 gauge tactical shotgun.

Long range shooting is not my preference. Too many law suits in the confines of city limits.

Rule number one #. "I feared for my life!" That's why I shot.

Don't follow rule number one and you will end up in jail.

HRH Feant2's picture

You missed the enitre point of my comment. If you have to shoot anyone you are in the wrong area of the country. But keep on thinking your little fire stick will keep you safe. You gotta sleep sometime. How many people does it take to keep watch, 24/7 for months or weeks at a time? And you think you will prevail against an angry mob?

Hahahahahahahaha. Yeah, right. Go take another pill. You need one.

FreeEarCandy's picture

Oh sweet Jesus. Print our own national currency and back it with our own oil. Make it the law that only our new national currency can be used to pay taxes. As the quantity of our new national currency rises we return the same amount of fed notes back to the fed. Debt is satisfied when all fed notes are taken out of circulation - end of story.  

Why are people so retarded that they make a mountain out of a mole hill? Stop acting bankrupt and use your head.

Wexx's picture

JFK tried it and look what happened to him. Lincoln did the same with the greenback, and look what happened to him. Good luck finding someone that has the power to follow the constitution instead of the FED.

FreeEarCandy's picture

Jackson did it and nothing happened to him. You also error in thinking 1 person is responsible to save everyone from their own stupidity. Orginize or take it up the ass. Nothing going to get done here. 

striped-pad's picture

The problem with backing government-issued money with oil is that the money is a liability of the government but the oil is an asset of someone else. Unless the government confiscates all the oil, the money isn't really backed by the oil.

I didn't downvote btw.

FreeEarCandy's picture

Point well taken, but US government does hold oil already... Strategic oil reserves. 

Korprit_Phlunkie's picture

I have an idea, just kick the can ONE MORE TIME. Past our children, past the grandchildren, past the great grand children, to the new group of immigrants we will let in on the TRUMP NESTY deal to come.

GooseShtepping Moron's picture

I'm sorry, but I need to say something here. For anybody who wishes to be taken seriously, it's time to stop quoting Rahm Emanuel's "never let a crisis go to waste" remark as if it were a rare window into the abyss, as if Rahm had somehow let slip all the dark machinations that the Deep State had in store for its witless and servile subjects with that one single phrase. The remark was actually nothing of the kind. It was just a variation on a well-worn cliche that has been making the rounds for decades, and is quite harmless in and of itself.

If you've ever spent any time browsing around in the self-help section of a bookstore, you've probably come across numerous such pearls of wisdom, many of which are no doubt apocryphal and of limited usefulness, but they tend to cheer people up in their difficult moments and inspire those who need inspiration, which is why they get published over and over again. One of these bromides (which I first came across almost 20 years ago, long before the financial crisis), goes something like this: "Don't panic if you find yourself in a crisis. Did you know that the Chinese character for 'crisis' is the same as the character for 'opportunity'? By following the Tao, you can let the crisis lead you to a better outcome than you could have imagined, etc. etc."

Since I neither read nor speak Chinese, I have no way of knowing whether that statement is literally true or not, but that doesn't matter. Nobody can deny that the idea has a certain applicability and attractiveness about it. And the publishers know how to add a touch of panache by attributing it to ancient Taoist wisdom and the mysteries of the Chinese script -- it sells better that way. But the important point is this: There is really nothing unusual or nefarious about what Rahm said. It was obviously just a reference to this aphorism. Anybody who does not know this is frankly stupid and does not need to be spouting his opinions about the government, the economy, or the culture all over the place. He needs to leave that to people who actually know what they're talking about.

Zorba's idea's picture

Well! Great news for all the Debt slaves navigating the margins...the big impending Financial meltdown will actually be a great opportunity. Crisis transformation wont require assets to be leveraged...good news! BTW, Fuck that mayor with the missing digit.

Maj's picture

More of a Zugzwang than a paradox.  But I get the point

Zorba's idea's picture

I'm not sure which civilization invented "compounding interest"...this 8th wonder of the world has been the most destructive force ever conceived and its grand finale is soon approaching.