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[Bregs]
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The US debt limit has been the focus of the entire world markets for the last few weeks, with dire forecasts coming from all and sundry in case the debt limits are not increased.
To me, the debate between the Republicans and Democrats is ludicrous. Much like an atheist listening to a debate between Shia and Sunni, or followers of Shiva and Vishnu. These debates are very passionate, with deeply held convictions, but there is very little to choose between them. To paraphrase a recent colourful quotation from a game-changing personality, I would have to state that the entire debt limit debate is complete nonsense and should be torn up and thrown out.
The truth is the US government has already defaulted but we are unwilling to recognise it as such (of which more later). So whether the US will raise the debt ceiling or not so that the government does not go into default is immaterial. The argument between Democrats and Republicans over the US debt ceiling is really meaningless: it is guns versus butter as against guns versus margarine. Nothing significant.
Before proceeding further, I have very little doubt that the debt ceiling will be raised. Not only from the current $16.7 trillion, but also when that number reaches $20 and $25 trillion a few years down the line albeit with a high voltage drama every time the debt reaches the ceiling. It really doesnt matter who is in power and who controls the house or the senate in the future. With the net present value of the USs unfunded liabilities running north of $200 trillion and with neither party prepared to cut back on either warfare or welfare spending, there is no real self imposed ceiling as to how high the debt ceiling would be raised. But then there is always an external market ceiling, but more on that later.
Despite all the grand standing by President Obama and the Republican leadership on their respective positions, there is really no principle involved here just a question of how the principal (and a borrowed/printed one at that) would be spent. Both sides have demonstrated a readiness to increase military spending (which incidentally is very different from defence spending) without limits and social programmes such as Medicare/Social Security are sacrosanct as well. All that the Republicans are demanding is a postponement by one more year of Obamacare and I really cannot see how its even relevant in the grand scheme of things. So its pretty much impossible to envisage a situation of how the increases in debt ceiling will ever be stopped to effect real meaningful cuts.
But would the US government really default if the limits were not to be raised? At the present condition of near zero interest rates, payments on the outstanding debt account for less than 10 percent of national revenues and so what a refusal to increase the debt ceiling would really do is force the government to cut back on its expenses. Of course, its only a matter of time before Mr Market forces the hand of incoming Fed Chairperson Janet Yellen to raise interest rates (much against her wishes, I should add. She had vociferously argued for negative interest rates just a few years back). At that time, a transparent default would be on the cards without accompanying increases in the debt ceiling.
But why transparent? Because the US government has been surreptitiously defaulting for almost all of the last 70-plus years. First, there was a default to its own citizens when they refused to redeem the dollars for gold through the Bretton Woods agreement in 1944. The default to other central banks happened in 1971, when Nixon closed the gold window. And, of course, subsequently the US has been defaulting through inflation continuously by debasing the currency. So this will certainly not be the first default by the US government though for much of the world citizenry that have turned into sheep, this would be the first exposure of the wolf in stark terms.
The real debt ceiling for all of us is the one imposed by Mr Market and it is no different for the US government. Instead of the self-imposed charade being any real barricade to the amount of debt that the US government can afford, it will be runaway inflation that will end this mindless increases in government spending. Till such point, its going to be a series of dramas for the consumption of the gullible public, but with a pre-defined outcome. There will be a supposed meeting of minds in the greater interest of society and the world economy and we will be back to business-as-usual before long.
How long will Mr Market tolerate all this nonsense without mayhem in the currency and treasury markets? Who knows? But with trillion dollar deficits becoming the norm, the day of reckoning cannot be far into the future.
Read more at: http://www.firstpost.com/world/us-d...defaulted-1173125.html?utm_source=ref_article
To me, the debate between the Republicans and Democrats is ludicrous. Much like an atheist listening to a debate between Shia and Sunni, or followers of Shiva and Vishnu. These debates are very passionate, with deeply held convictions, but there is very little to choose between them. To paraphrase a recent colourful quotation from a game-changing personality, I would have to state that the entire debt limit debate is complete nonsense and should be torn up and thrown out.
The truth is the US government has already defaulted but we are unwilling to recognise it as such (of which more later). So whether the US will raise the debt ceiling or not so that the government does not go into default is immaterial. The argument between Democrats and Republicans over the US debt ceiling is really meaningless: it is guns versus butter as against guns versus margarine. Nothing significant.
Before proceeding further, I have very little doubt that the debt ceiling will be raised. Not only from the current $16.7 trillion, but also when that number reaches $20 and $25 trillion a few years down the line albeit with a high voltage drama every time the debt reaches the ceiling. It really doesnt matter who is in power and who controls the house or the senate in the future. With the net present value of the USs unfunded liabilities running north of $200 trillion and with neither party prepared to cut back on either warfare or welfare spending, there is no real self imposed ceiling as to how high the debt ceiling would be raised. But then there is always an external market ceiling, but more on that later.
Despite all the grand standing by President Obama and the Republican leadership on their respective positions, there is really no principle involved here just a question of how the principal (and a borrowed/printed one at that) would be spent. Both sides have demonstrated a readiness to increase military spending (which incidentally is very different from defence spending) without limits and social programmes such as Medicare/Social Security are sacrosanct as well. All that the Republicans are demanding is a postponement by one more year of Obamacare and I really cannot see how its even relevant in the grand scheme of things. So its pretty much impossible to envisage a situation of how the increases in debt ceiling will ever be stopped to effect real meaningful cuts.
But would the US government really default if the limits were not to be raised? At the present condition of near zero interest rates, payments on the outstanding debt account for less than 10 percent of national revenues and so what a refusal to increase the debt ceiling would really do is force the government to cut back on its expenses. Of course, its only a matter of time before Mr Market forces the hand of incoming Fed Chairperson Janet Yellen to raise interest rates (much against her wishes, I should add. She had vociferously argued for negative interest rates just a few years back). At that time, a transparent default would be on the cards without accompanying increases in the debt ceiling.
But why transparent? Because the US government has been surreptitiously defaulting for almost all of the last 70-plus years. First, there was a default to its own citizens when they refused to redeem the dollars for gold through the Bretton Woods agreement in 1944. The default to other central banks happened in 1971, when Nixon closed the gold window. And, of course, subsequently the US has been defaulting through inflation continuously by debasing the currency. So this will certainly not be the first default by the US government though for much of the world citizenry that have turned into sheep, this would be the first exposure of the wolf in stark terms.
The real debt ceiling for all of us is the one imposed by Mr Market and it is no different for the US government. Instead of the self-imposed charade being any real barricade to the amount of debt that the US government can afford, it will be runaway inflation that will end this mindless increases in government spending. Till such point, its going to be a series of dramas for the consumption of the gullible public, but with a pre-defined outcome. There will be a supposed meeting of minds in the greater interest of society and the world economy and we will be back to business-as-usual before long.
How long will Mr Market tolerate all this nonsense without mayhem in the currency and treasury markets? Who knows? But with trillion dollar deficits becoming the norm, the day of reckoning cannot be far into the future.
Read more at: http://www.firstpost.com/world/us-d...defaulted-1173125.html?utm_source=ref_article
