Sunday, July 17, 2011

The World From Berlin

I don't mean to pick on Berlin, or Germany. This is taken from an article from Spiegel Online, and the article addresses the issue of the debt ceiling debate in Washington. I will use the article to burst many bubbles.

The original article can be found here:,1518,774666,00.html

Quoted material is taken from the article.

"The US needs to raise its debt ceiling, currently set at $14.3 trillion (€10.1 trillion), by Aug. 2, otherwise the country will run out of money"

Now, this is not true. The US will NOT run out of money. The US will run out of borrowing capacity. It is quite a different issue. Tax receipts will continue to roll in, only the spending cannot be supplemented via further borrowing. This is an obvious point, and that the author neglects it suggests either financial ignorance or purposeful manipulation. Neither is acceptable.

The US can certainly continue to meet its interest payments and service the debt. The US can then cut expenditures to meet tax revenue. It is not so hard, once one wraps his mind around it. Millions of people do this every day, in both their personal and business lives.

There is no need to talk about default. The best thing that could happen in this issue would be to cut government expenditures to meet revenue (actually, the best thing would be to shrink or eliminate "government" as it is currently understood, but that is another subject).

Frankfurter Allgemeine Zeitung writes: "The politicians in Washington are playing with fire. A swift compromise is needed. Nobody needs a US default."

Certainly, taxpayers and their children and grandchildren, while perhaps not in "need" of "a US default", certainly would be better of for it, assuming that failure to raise the debt ceiling would even result in such an outcome.

Süddeutsche Zeitung writes: ""It's actually unimaginable. On August 2, the US could, for the first time in its history, become insolvent..."

Again, failure to raise the debt ceiling does not necessarily need to result in default. More importantly, it would NOT be the first time for the US to default - not even in the last 100 years.

Walk with me down memory lane:

Roosevelt confiscated gold, just before changing the value from $20 / ounce to $35 / ounce. A default on the promise to redeem currency for a fixed amount of gold.

Nixon defaulted on the promise to foreign governments to exchange gold for dollars in 1971.

Basically, every day since Nixon's default, the US has added to the default - with the dollar now buying only 1 / 1600th ounce of gold.

Die Welt writes: "In the middle of the poker game between the two political parties to prevent a national default on Aug. 2, polls show that 77 percent of Americans believe that they live in the world's greatest system of government."

Yes, it is a farce that so many Americans believe this. On the other hand, if the borrowing was to be stopped permanently, those 77% might just be right!

"The [Tea Party] movement sees traditional politics as corrupt and regards Washington as a den of iniquity."

On this point, the Tea Party (to the extent "members" actually believe this) is correct.

"Compromise, they feel, is a sign of weakness and cowardice."

Actually, compromise on the issue of the debt ceiling is a sign of certain national (in every sense of the word) bankruptcy (in every sense of the word).

Bild writes: ""Irrespective of what the correct fiscal and economic policy should be for the most powerful country on earth, it's simply not possible to stop taking on new debt overnight."

Who said anything about overnight? This problem has been a long time coming, and known to all.

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