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Last week's budget wrangles in Washington remind me of reality TV. You watch it like you watch a train wreck. While Republicans and Democrats have (temporarily) avoided shutting down the federal government, you almost wish they wouldn't have. At least then, they would have been forced to confront the economic consequences of their own political gridlock before reaching the next and much bigger deadline – the raising of the deficit ceiling, which may need to happen as early as five weeks from now if Geithner can't find a way to move money around the books to cover things until July.
When the deadline comes, if we see the kind of absurd political infighting that we've seen over the past few weeks around the budget, the consequences could be much, much more deadly, and not just for the U.S. If we'd have had a government shut-down last week it wouldn't have been good – lots of people would loose their jobs, and growth could contract as much as a percentage point. But if America were allowed to default on its national debt (which would be the consequence of not raising the debt ceiling) for even a day or two, it could trigger a bond market collapse, a spike in global interest rates, and a financial fiasco that could make the collapse of Lehman Brothers look tame. The fallout could very well throw the world back into recession.
As Larry Summers put it to those of us attending the conference of the Institute for New Economic Thinking, which is sponsored by financier George Soros, in Bretton Woods this weekend, “not meeting our debt obligations is like allowing a child with matches to sit in a room full of dynamite.” He added, “I continue to find it close to inconceivable that elected policymakers would allow the risk of default.” So do we all.
- Eleven reasons why there needs to be a debt ceiling. Can you think of any others?Rodger Malcolm Mitchell
- 2typo: lots of people would lose their jobs“I continue to find it close to inconceivable that elected policymakers would allow the risk of default.” So do we all.These elected officials have long demonstrated their ability to be a little dense. They may actually prefer "crisis mode".If an elected official is being forced to change their stance by "market forces" (i.e.: change in interest rates), then it may be easier to justify to their constituents. But to prove this, they need "the market" to tip their hand and forcibly raise rates.
- 3see now more here
http://machahir123.blogspot.com/ - 4Sovereign nations can: make their own laws, levy their own taxes and issue their own currency.The United States is a sovereign nation.Therefore, the United States can issue its own currency.Borrowing Federal reserve money is expensive; issuing American money is free.“How expensive,” you ask? In the twenty years between 1991 and 2010 the government borrowed $9.9 trillion while paying $7.4 trillion in interest. Seventy-five percent of the increase in the national debt went to pay the interest on that debt. This year the interest on the nation's debt will be around $500 billion - more than $5 trillion in the next decade.These interest payments benefits only the banks, bankers and Wall Street bond traders. What logic can justify such a large expense for the benefit of such a small number of our citizens? Never have so many paid so much to so few for so little.The U.S. government can issue all the money we need or want debt and interest free.The government is our only hope of stability. It is the only institution that has the authority, power, and flexibility to create a stable currency necessary to generate a sustainable economy. It can create money by fiat, lend money like commercial banks, pass laws to regulate the value of our currency, and it can fine-tune the money supply with taxes. No privately owned institution can do that job.
- 5Mr. Rodger Malcolm Mitchell, first of all you have to learn what deficits are before anything else. If you have the basics wrong, then all your assumptions and ideas are also wrong, because they are based on false perceptions and lies. You simply cannot run before you learn how to walk, and this is exactly what you are doing, trying to run before you learn how to walk.In your most preposterous most devious most twisted way of thinking, you say that federal deficits are a good thing, a way for the federal government to pump money into the economy and creat prosperity. You are totally wrong. In fact, quite on the contrary, federal deficits are bad for the economy and very bad for the nation in general.The first thing you have to learn is what a federal deficit - or state, county or municipal deficit - is. A federal deficit is simply the end result of the federal government spending way more money in a fiscal year than what it brings in revenue for that same fiscal year. So for example, when Uncle Obama spends $ 1.6 trillion dollars in a fiscal year but only receives 500 billion dollars in general revenue, that means that the government spent $1.1 trillion dollars more than what has brought in. This $1.1 trillion is then added to the accumulated debt, therefore, if the accumulated debt was for example $13 trillion dollars, now is $14.1 trillion dollars after this latest deficit being added.Now as a sovereign monetary nation, the USA has the option to monetize these federal deficts, that is, create money out of thin air and paper over these deficits with freshly printed fiat dollars, in other words, pay for the deficits with new created money. It is only in that sense if the federal government chose this easy cowardly option that new money is pumped into the economy, but not with positive goods benefits like you think, but instead this decifit/debt monetising brings with it with very nefarious negative consequences. For that reason, governments prefer to add the deficits to the accumulated debt instead of creating new money to pay for them, as this way the currency remains relatively stable and doesn't create inflation. When a monetary sovereign like the US Federal Reserve strays off this path and chooses to create money wantonly to monetize the deficits, disastrous consequences follows.Unfortunatly Helicopter Ben Bernanke has strayed from the proven path and recklessly and most irresponsibly more than doubled the nations money supply in the last two years, something that is totally unprecedented in the entire history of the USA.So why are federal deficits really bad for the nation and for the USA economy? Because:1) > In order to facilitate the deficts monetizing, the Fed drops interest rates to zero. With such easy free money, the speculators buy natural resources and other equities stocks like crazy, thus bringing their prices up, creating a very dangerous speculative bubble in the stock market. This zero interest rates and excessive money creation devaluate the dollar, thus further raising the price of natural resources and other stocks, because these are all priced in US dollars and as the dollar loses value, the prices of this commodities, like oil and food go way up. Inflation sets in big time, rendering every american poorer, including you, Mr. Rodger Malcolm Mitchell.2) > With this Federal Reserve excessive money creation out of thin air and zero interest rates to boot, international investors dump US Treasury Securities by the billions ( just look at PIMPCO recently) thus further devaluating the US dollar in the International money markets. Treasury Securities lose value big time forcing real market driven interest rates - not the Fed interest rate - to rise.3) > As real market driven interest rates rise, bank lending becomes very tight and mortgages and other loans cost more money, further putting a choke hold on the economy. The zero interest fed rates backfires big time and it creates exactly the opposite desired effect, killing the economy, not stimulating it.4) > Not all deficits can be monetized because if they were international investors woul become really weary of all this excessive money creation with absolutely nothing to back it up and would dump ALL their holdings in US dollars rendering it valueless. Therefore, deficits are still added to the accumulated national debt, making the national debt higher every year. As the national debt becomes unsustainable, investors lose confidence in the US government's ability to pay their Treasury Securities obligations and dump all their Treasury Securities in US dollars, collapsing the currency. PIMPCO recently dumped 258 billion dollars in US debt. Others will follow pretty soon.Look, the rapid devaluation of the US dollar has already begun, right now despite all the debt problems in Porkugal and the other three Porkys, the euro is rising steadily against the US dollar, right now trading at $ 1.45 US. The Canadian and the Australian dollar are now worth 5 cents more than the US dollar....These signs are all around you Mr. Rodger Malcolm Mitchell, if you cared to wake up from your make believe Snow White & Seven Dwarfs Pollyanna fantasy dream world, give your thick head a good shake, wake up, smell the coffee and get on the ball.Real Solution: > The US government must get serious about deficit/accumulated debt reduction by cutting back on Medicare, Medicaid and Social Security entitlements by 35%, reduce military spending by another 30%, stop policing the world and stop getting involved in unecessary wars in distant lands, and raising taxes another 30%.Mr. Rodger Malcolm Mitchell, unfortunately your dream world magic solution of printing unlimited money until the cows come home and pay all the US debts with it just doesn't work in the real world.============================================
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