market-ticker.org / by Karl Denninger / 2015-07-07 06:00
I have often commented about innumeracy among the American people, but nowhere do I find it more-distressing than among those who are of sound mind and reasonable (or better) education.
There really isn’t any point in having any sort of debate on government reform, monetary reform or anything of the sort with those who deny arithmetic. It is a complete waste of time to discuss that which cannot work and if your answers do not comport with arithmetic they cannot work.
When it comes to government spending it’s quite simple: Government cannot spend, in nominal dollars, more than it taxes. It does not matter one bit whether the money that government is using is theirs (that is, they’re a “currency issuer”) or whether the money is issued as debt or by pure fiat — that is, debt-free.
The reason is as I’ve put forward for years now — pretty much since I started writing this column, and which I spent a lot of ink on in Leverage: Two compound (exponential) functions will always diverge from one another. If the smaller, that is the component of the larger, is growing faster than the whole it will eventually consume the entirety.
There are no exceptions to this, ever, because this is a fact of arithmetic just as 2 + 2 = 4.
Since a sub-part (e.g. government) can never exceed the whole (the entire GDP of the nation) yet the progression of growth of government spending that exceeds that of output (both in nominal terms) must inevitably do so there is no way such a path can succeed.