Why raise the national debt level? Congress is not going to tax everyone more to make up the difference. It just gets put on bar tab, to be paid at a later date, someday (200 years from now). The phrase “Kicking the can down the road,” is the new euphemism in town. Reality is not about raising the debt ceiling; it’s about keeping the punch bowl full and the party going.
If Congress doesn’t increase the debt ceiling, our government has to face reality. You can wish, but if you don’t have the cash, it is only a dream. Our dreaming is over, reality is a necessary event. Below is a pic from from my blog dated 4/6/08 about bubbles, the big one is still there.
Of course, there is one item that needs to be considered. The Federal Reserve could be sitting on a giant Ponzi scheme that is invisible. Technically they give cash to banks and companies like AIG for collateral. So it is a zero sum game if the Fed sells the collateral (in theory)(but it could be worthless).The US government owns all of Fannie and Freddie’s real estate. The underwater home owners now hand the keys back to the tax payer. An extra 6 trillion hidden here would be a surprise that could change the color of an IRA fund manager’s underwear.
Obama the other day was pontifying “Raise taxes on the rich and rewrite the tax code to lower everyone’s taxes.” ---Sounds like a religious miracle in progress. How can you do both? The phrase “Used Car Salesman” comes to mind. Obama reminds me of the guy pimping his wife for drinking money. He comes home after partying and gets mad when his wife offers him the same rates everyone else paid.
What is happening in Greece is a little different. If they issued 3 percent long term bonds, these are probably trading for about 15 cents on the dollar. So if the IMF went in and bought 100 billion of them, it might cost them 15 billion face amount. But they could turn around and gift them back to Greece at 30 billion when they mature. It’s a little like your home going up for auction for nonpayment and your brother-in-law buys the place for peanuts and lets you live in it with the agreement that you pay him back. It keeps his sister happy and the jerk she married, on a leash.
The Congressional mentality, is to borrow until we can’t afford to pay the interest on the debt. That concept reminds of the two boys that were warned of the evils of masturbation, they were told it caused blindness. The one kid turned to the other and said, "Lets do it until we need to wear glasses." The real discussion right now revolves around serious cuts during the rest of Obama’s Presidency and it doesn't look like there are any. These proposed 10 year plans,are an euphemism for "Not on my watch."
The debt limit should be frozen where it is. Let’s stop this madness now. The Geithner claim that our debt rating will be hurt is pure hog wash. Our government debt is the benchmark for the rest of the world’s securities. Raising the Debt Limit allows the Treasury to be able to sell to the Federal Reserve that extra trillion the government doesn't need yet. Bernanke (the Fed) will buy Treasuries in order to keep interest rate artificially low. The neat thing about the transaction, the Federal Reserve returns back to the Treasury the dividends paid by the Treasury on the bonds held by the Federal Reserve. These purchases keep rates artificially low. Thus the bills purchased and held by the Fed cost the Treasury nothing.
Refusing to raise the debt limit, doesn’t change the final outcome. It’s just going to happen sooner, rather than two years from now. Our government is broke. Without the "New Money," the Fed cannot keep interest rates low by buying Treasuries, rates will have to rise. Greenspan and Bernanke will take the blame for this when the history books are written. They offered a flawed painless solution to a very painful problem. Unfortunately economists are more like coroners; they are better at diagnosing what went wrong and why, after the fact.
To a majority of Americans "The Economy" is just a concept, little understood. The "Group Think" is that Congress can fix what is broken. Congressional solutions are a little like trying to use your clothes dryer to dry the kitchen dishes and glassware. When the buzzer goes off, you can rest assured that everything is dry! You end up getting what you were promised, but it's not quite what you had in mind.