Skip to comments.Why the debt deal is bad news
Posted on 08/01/2011 2:25:46 PM PDT by Kaosinla
Dont be fooled. Weve just been betrayed by Washington.
A deal on the debt ceiling is near and Washington still hasnt gotten serious about the fundamentals. It hasnt gotten serious about default. It certainly hasnt gotten serious about the future. When Harry Reid hails a bipartisan compromise you know were doomed.
Republicans and Democrats have just negotiated away the future of our children behind closed doors. The big compromise on Capitol Hill features elaborate triggers, tranches, Hornswogglers, Snozzwangers, Super Duper Commissions that will make the Snozzberries taste like Snozeberries, and a whole bunch of other convoluted gibberish that will, no doubt, come with loopholes and create entire new bureaucracies. What it doesnt do is fix the problem.
The fact is Moodys has already warned us that no one has put a plan on the table that comes close to solving our long-term problem. Moodys will downgrade us. This could happen tomorrow, in six months or maybe a year from now, but at some point in the near future its going to happen. And its going to hurt. So we must be prepared.
Imagine your credit cards interest rates constantly rising. Imagine high inflation eating away at your savings accounts, retirement funds and salary if youre lucky enough to have one these days. Imagine the interest rate on your mortgage rising and compounding until there was no hope of escaping debt. Imagine that fewer and fewer people are willing to lend you any money as your credit rating takes a dive.
Now imagine were talking about 15, 25, 100 trillion dollars and your Medicare, Social Security and Treasury bonds.
(Excerpt) Read more at glennbeck.com ...
We cant continue to borrow forever.
He’s right. Whenever Congress isn’t at home in recess we are in bad trouble.
First of all, these “savings” are based on 3% growth. We’re now “growing” at .4%. Second, when the rating is lowered the extra interest payment wipes out any “savings”.
$30 trillion, anyone? Do I hear $35 trillion?
Answer me, freepers. How long will we survive. When do I need to leave the city?
“Second, when the rating is lowered the extra interest payment wipes out any savings.”
That is one of the most preposterous aspects of this deal. It does not get anywhere near addressing the $4 trillion that the rating services said we need to address. The rise in interest rates will be a substantial tax on all of us and reduce disposable income that could otherwise be spent to support a sinking economy. The outlook is not good for the U.S.
Current debt limit options allow the Administration and Congress to perpetuate a tiresome fraud on this country. The proposals discussed allow debt accumulated over 230 years to 2006 to double in six more. The media as usual provides an un-penetrating analysis abetting this alternate reality.
Alternate reality resides within a 1974 act and amendments proscribing Base Line Budgeting. The baseline budget emerges by increasing previous year appropriations for estimated inflation and enhancements to all existing programs, and then extrapolating those adjustments for ten years. The Office of Management and Budget must next score any reductions in the rate of growth in federal spending for ten years as budget cuts.
This approach can work if an organization is generally headed correctly and only minor changes in spending levels are required. However, bond rating agencies such as Moodys emphatically warn the country must reject profligate spending to retain its AAA bond rating. At the margin, the U.S. also expects the world to buy its long term bonds to finance current government expenditures dedicated over 60% to social programs and interest.
Sending a balanced budget amendment to the states and abandoning Base Line Budgeting present the only avenues out of this dilemma.
The instant you get a hint that the goobermint will not be paying welfare benes, or that the banks have stopped cashing goobermint checks.
If either happens, cities WILL burn, almost immediately.
Hunt a hole FRiend, and hunt it NOW. Have an escape plan and be prepared to execute it on almost no notice....
Up to WW II any creditable currency was pegged to a gold/silver standard, which would have included the money of Washingtons time as President. During the Revolution the Continental Congress tried printing paper currency not backed by real assets to pay for the war, and hence the term not worth a Continental. Then during the Civil War, both the Union and Confederacy issued paper currency unsupported by real assets. Depending on Union fortunes, the paper traded as low as 40% in relation to gold coins. By 1864 Confederate currency had a gold value of five cents on the dollar. The U.S. didn't try anything like that again until FDR confiscated gold coins during the Depression, but silver coins were still minted and still freely circulated.
While WWII destroyed most economies of the world, the United States prospered. The only way to restart international economic activity was for the U.S. to take the lead, which it did with the Bretton Woods Agreement. Every currency had a fixed value in relation to the dollar, and the U.S. kept everything functioning by buying and selling gold at $35 an ounce. Therefore, once again there was a U.S. gold standard and the dollar became the worlds reserve currency. However, Americans could not take their Federal Reserve Notes to a Fed bank and trade them for gold.
The U.S. unilaterally abrogated the agreement in August 1971, allowed the dollar to float in relation to the trading whims involving all paper currencies. Until about 1968 people could still trade their Federal Reserve notes for Silver Certificates and trade those for packets of silver from a Federal Reserve Bank. When the government renounced that option, silver coins quickly disappeared from circulation. At this time the working careers of a single generation comprise the totality of comprehension for how the international community was to function economically without currencies emerging from things people can touch and see.
The problem at the present moment is that the dollar is backed by the full faith and credit of the government. When much of the world looses faith in the U.S. as a reliable engine driving the world economy because of its incredible behavior, then the dollars status as a reserve currency is jeopardized. The memory of the United States as The Arsenal of Democracy fades to be replaced by the realization of the United States as A Gulag of Dependency.
At the margin, the country expects the rest of the world to buy our long term bonds issued in ever increasing amounts to finance current government expenditures dedicated over 60% to social welfare programs and interest. The world also perceives the awful specter of media, politician, and academician feeble dithering before the looming catastrophe of $61.6 trillion of unfunded social welfare obligations. Without any real assets backing the dollar, people are decidedly troubled by this countrys behavior and can decide the dollar is not worth a Continental. Such contemplation is already widespread, because through Quantitative Easing (QE) programs the Federal Reserve already had to buy $100s of billions of bonds the world would not purchase.
However typical of all central bankers, Ben Bernanke believes he can overcome these international fears by applying his intellect to macro-economic models providing dubious information to achieve precisely timed money supply changes, which allow timely adjustments for identification and reaction to increases in money velocity. Supposedly he would sell bonds and reduce the money supply with a precision that prevents inflation from taking hold or a recession from occurring. He would proceed in such a manner as to concurrently allay any fears of a Congress and an Administration in an election year. This result has probably not been achieved since the seven years of plenty and famine in Egypt when Joseph obeyed the word of God from his dreams.
To carry the Jewish/Christian analogy further compare the character of God to the enormity of the hubris committed by the Federal Reserve and the Treasury Department as they style themselves after the Creature. The new money is not printed, but spoken into existence in exactly the same manner as God created the heavens and the earth in Genesis.
However unlike Gods creation, money has no substance at any time. In spite of that people do exchange items of real value such as labor, cars, and food for words spoken over a phone by a twenty something Fed bond trader. This person calls a company such as Goldman Sachs that has an inventory of securities brokered for the Treasury Department, and pays lets say $1 billion for securities. Until the trader speaks $1billion, the money to pay for the notes or bonds does not exist. Anyone else purchasing the bonds does so with dollars already in circulation.
One analogy to explain the looming inflation might be to consider a flood control dam. The water that builds up behind it during the winter and spring could be considered QE1, QE2, QE3, etc. The face of the dam would be the current moribund economic activity indicating a very low velocity of money as exampled by such questions as Why do I want to borrow if no one wants to buy? or Why do I want to buy when I dont have a job? Now stagflation happens when the reservoir gets so full with QEs that some water just has to go over the top, even though economic activity remains anemic.
But when the economy picks up money begins to actively circulate. Now the increased velocity of money exponentially multiplies the QEs, and the increased pressure shatters the face of the dam. Just as a wall of water scours out the stream bed and washes all before it, inflation now rages through the economy and destroys peoples financial asset values and their purchasing power.
Now all this seems fairly insane, until you realize that every member of the G-20 behaves in much the same way, and do understand their precarious situation. The Congressional Budget Office (CBO) recently reported that national debt will exceed GDP in ten years, which is where Greece is presently. By 2037 the CBO reports national debt will become 200% of GDP. Since all currencies have about this same connection to reality, finding one or several of sufficient magnitude and viability to replace the dollar as a worldwide medium of exchange and store of value becomes perplexing. An individual country might think they have a solution, but they know they must also survive during the resulting chaos as all countries seek similar solutions. They see the daunting specter of disaffected holders sending trillions of dollar denominated bonds to the marketplace when there are no buyers unless prices are severely discounted. They are also frightened by the image of a devastated U.S. economy, because feeding the insatiable desires of U.S. consumers has been a mainstay of their prosperity. I imagine something like the final scene in The Good The Bad and The Ugly. The members of the G-20 are standing in a circle with open graves behind them. They are all contemplating how they are going to successfully outdraw the other nineteen members and survive the resulting mayhem, which Lee Van Cleefs character did not.
The Good, The Bad and the Ugly: http://www.youtube.com/watch?v=sXldafIl5DQ
Tax Rate to Balance Budget: http://www.taxfoundation.org/research/show/25985.html
Fy2010 Spending by Category/Department: http://en.wikipedia.org/wiki/File:Fy2010_spending_by_category.jpg
FY2010 Spending by Function: http://en.wikipedia.org/wiki/United_States_federal_budget
Policy Basics: Where Do Our Federal Tax Dollars Go? http://www.cbpp.org/cms/index.cfm?fa=view&id=1258
U.S. Funding for Future Promises Lags by Trillions http://www.usatoday.com/news/washington/2011-06-06-us-owes-62-trillion-in-debt_n.htm
What if the Treasury Defaults: http://online.wsj.com/article/SB10001424052748703864204576317612323790964.html?mod=WSJ_Opinion_LEADTop
CBO outlook on long-term debt worsens: http://thehill.com/blogs/on-the-money/budget/167781-cbo-outlook-on-long-term-debt-worsens
DEFUND socialist collectives, foreign and domestic.
Now, legal plunder can be committed in an infinite number of ways. Thus we have an infinite number of plans for organizing it: tariffs, protection, benefits, subsidies, encouragements, progressive taxation, public schools, guaranteed jobs, guaranteed profits, minimum wages, a right to relief, a right to the tools of labor, free credit, and so on, and so on. All these plans as a whole with their common aim of legal plunder constitute socialism. - Bastiat
Above all, if you wish to be strong, begin by rooting out every particle of socialism that may have crept into your legislation. This will be no light task. - Bastiat
535 particles of socialism have descended upon OUR house and senate, because not one will identify the problem.
Legislatures (state and federal) can be part-time jobs with 1/10th pay, NO retirement, NO perks, NO insurance. These POS politicians can get a job doing something productive not "progressive" (like enriching themselves at our expense, while they are enslaving us, our children and grandchildren).
...That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness... - Declaration of Independence
We will be prosperous, productive, very low-taxed citizens in a country which acts as a beacon for individual liberty.
You and Edward Griffin explain it well. Money is debt and it doesn’t exist at all until somebody borrows it. When they pay it back it ceases to exist.
The Federal Reserve neither is Federal nor has any reserve.
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