The attached segment is from a conversation on CNBC regarding the deficits.  I found it extremely interesting to see 4 deficit hawks arguing their points and concluding many of the same things I have been saying for a long time.  The topic was government deficits and whether they matter.

They’re all worried about the size of the deficit and though none of them directly says we’re Greece the thinking is obviously there.  They all believe the US government is like a household that is revenue constrained (Rick Santelli actually makes that exact comparison).  This is obviously wrong as I’ve explained numerous times.  Anyone who understands how the banking system actually works can see, from an operational perspective, that taxes and bonds fund nothing in the USA (a country with monetary sovereignty in a floating exchange rate system).  Therefore it is incorrect to imply that the USA is revenue constrained or at risk of default (in the same way Greece is).

Steve Moore and Larry Kudlow call for tax cuts.  They’re both dead right.  Rick Santelli calls for a heavy dose of Austrian pain and says we need to cut spending.  I agree in part – it’s time to take the spending decisions out of the hands of the government and put it into the hands of the people. It’s also time to impose austerity on the banks.  Stop funding and promoting their speculative behavior.  This country is not great because of the greatness of its banks.  In fact, as we’ve seen over the last 25 years, the stronger the banking sector the more fragile the economy.

So it’s curious to me why we keep talking about raising taxes while Ben Bernanke keeps concocting plans to help the banks (such as QE2).  By this point I think we all have recognized the economic hurdles we confront.  Everyone in this segment agrees that we need to grow our way out of this mess, however, how can we expect to grow our way out of this mess when the government is imposing austerity measures on us all?  A tax cut appears like the only feasible political response at this point.  It won’t fix all of our problems, but it certainly won’t make them worse.   The deficit hawks appear to agree.

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