Peter schiff: Congress Avoids the Cliff by Selling Us Down the River

 

 

 



By: Peter Schiff       

Thursday, January 3, 2013

 

With the possible exception of the New York Times’ editorial board (and the cast of The Jersey Shore), everyone on the planet understood that the United States Government needs to cut spending, increase taxes, or both. Instead, after months of political posturing and hand wringing, the Federal Government has just delivered the exact opposite, a deal that increases spending and decreases taxes. The move lays bare the emptiness of budget legislation, which can be dismantled far easier than it can be constructed.

One question that should be now asked is whether Moody’s Research will finally join S&P in downgrading the Treasury debt of the United States. After the Budget Control Act of 2011 (which resulted from the Debt Ceiling drama) Moody’s extended its Aaa rating, saying in an August 8 statement:

“…last week’s Budget Control Act was positive for the credit of the United States…. We expect the economic recovery will continue and additional budget deficit reduction initiatives will be put in place by 2013. The political parties now appear to share similar deficit reduction objectives.”

Now that Moody’s has been proven wrong, and the straight jacket that Congress designed for itself has been shown to be illusory (as I always claimed it was), will the rating agency revisit its decision and downgrade the United States? Given the political backlash that greeted S&P’s downgrade in 2011, I doubt that such a move is forthcoming.

For now, the real budget negotiations have been supposedly pushed later into 2013, when the debt ceiling will be confronted anew. But who can really expect anything of substance? The latest deal emerged from a Congress that is nearly two years removed from the next election. As a result, Congressmen were as insulated from political pressures as they could ever expect to be. Nevertheless, they still chose political expediency over sound policy. If Congressional leadership (an oxymoron that should join the ranks of “jumbo shrimp” and “definite maybe”) could not put the national interest in front of political interests now, why would anyone expect them to do so later? They will continue to ignore our fiscal problems until a currency crisis forces their hand. I expect deficits to approach $2 trillion annually before Obama leaves office. Unfortunately, at that point the solutions would be far more draconian than anything economists and politicians are currently considering.

In light of the extensions of the popular middle class tax rates, the loudly trumpeted tax increases on those individuals making more than $400,000 (and couples making more than $450,000) will not be enough to translate into higher tax revenues. Instead they will result in perhaps $60 billion per year in new revenue to the Federal government that will be more than offset by the new spending announced in the agreement. In fact, with the likely passage of the $60 billion Hurricane Sandy aid package, it will have taken Congress less than one week to spend all of the projected revenue.  

But the tax increases will push many individuals in high tax states like California and New York into paying more than 50% of their income in taxes. While many economists are cautioning that higher taxes on the wealthy will take a bite out of spending, in my opinion it is more likely to result in lower business investment, which is far more detrimental to the economy. When faced with diminishing discretionary income, most rich people would sooner cut back on savings and investment than they would on health care, education, home improvements and vacations.

But it should be clear that the rate increases are just the opening crescendo in a symphony of tax hikes on the nation’s entrepreneurial class. President Obama has recently stated that he will consider needed cuts in spending and entitlement programs only if they are coupled with additional tax increases on the wealthy. In other words, as far as the President is concerned, the hikes included in the budget agreement that was just passed didn’t count for anything. 

It cannot, or should not, be denied that Washington’s latest fig leaf will have a major impact on the markets. The New Year’s “relief rally” is understandable given the clear implications that the government will simply print its way out of trouble for as long as it can. In the past, fiscal profligacy was held in check by investors who would sell bonds and push interest rates higher whenever it appeared that the government was not serious about national solvency. But with the Federal Reserve now buying the vast majority of U.S. government debt, no such roadblock exists. With monetary and fiscal stimulus pushing up stock and bond prices, and no immediate fear of a rally-killing spike in interest rates, there is no reason to stay on the sidelines. Markets are now driven by stimulus, not fundamentals, and the stimulus is firmly at the wheel. (For more on this – see the article in the January edition of Euro Pacific’s Global Investment Newsletter). But it is important to look at the nature of the rally. Most significantly we would bring investors’ attention to the increase in gold and oil and other assets that are expected to outperform in an inflationary economy. Our new Newsletter edition also includes an analysis of some of the more promising overseas markets.

But by taking the nominal risk out of investing, the government is insuring that the risks to the U.S. economy will grow exponentially. We are now – and will remain – a debt-fueled economy for as long as the rest of the world permits this to continue. But this is no way to create real, sustainable economic growth. On the contrary, it will simply permit the growth of government, the depletion of economic vitality, and ultimately the collapse of the U.S. dollar.   

In the meantime, President Obama and Congressional leaders will take credit for a tax cut that is in reality a huge tax increase in disguise. Government spending is the real source of taxpayers’ pain and it is only a matter of time before the bill comes due in the form of inflation. See our Newsletter for fresh analysis as to why inflation may already be higher than you think. Because the deficits will grow even larger, more purchasing power will be lost in this manner than would have been lost had all the Bush tax cuts been allowed to expire. In addition, though entitlement cuts were taken off the table, the real value of benefits could be slashed, as cost of living adjustments fail to keep up with skyrocketing consumer prices. That’s a Fiscal Cliff that will not be so easy to avoid.

Read More by Peter Schiff

The Chinese Have Stopped Laughing (Michael Pento)

Euro Pacific Capital
Friday, July 29, 2011

By: Michael Pento       

 

The economy continues to prove that it didn’t need a stalemate between democrats and republicans over whether or not we should expand our credit limit in order to poop the bed. Gross Domestic Product climbed a paltry 1.3% in the second quarter of this year following a severely downgraded Q1 print of just 0.4%. Growth in the first quarter was revised down from a 1.9% prior estimate. Also today, the Institute for Supply Management-Chicago Inc. said its business barometer fell to 58.8 in July, from 61.1 in the prior month. And the Thomson Reuters/University of Michigan final index of consumer sentiment fell to 63.7 this month, which was the weakest since March 2009, from 71.5 in June.

 

Where are all those shills who assured us last year that 2011 would display a “V” shaped recovery in jobs and the economy? I know, I heard some of them today saying that the second half of this year is going to be great! Their reasoning was the same as it always is. Earnings are going to be wonderful because half of S&P 500 companies' earnings are in foreign currencies. Then, thanks to our crumbling currency, those foreign earnings translate into a ton of U.S. dollars—those dollars don’t buy you very much, but who cares as long as we are able to say we beat Wall St. expectations.

 

The poor, lonely Tea Party is vilified as being inhuman and behaving as insane children for not allowing the country to bankrupt itself as quickly as possible—even by members of their own party (read here what John McCain had to say for yourself). I guess the philosophy of McCain and his friends is that we should raise the debt ceiling to infinity and beyond and just pay our creditors back with more printed money. After all, the National Debt has grown from $400 billion in 1971 to $14.4 trillion today, so what’s a few more trillion between now and 2013? The dollar has lost 98% of its purchasing power in the last 40 years, so why not keep on defaulting on our debt through inflation and destroy the last few vestiges of the middle class. Sounds like a plan to me. It’s just business as usual. They urge us to keep up the spirit of cooperation and goodwill that has served to render this country insolvent.

 

The only problem is that the Chinese have stopped laughing at Geithner’s so called “strong dollar policy” and are now allowing the Renminbi to rise against the greenback (up nearly 6% in the last year). If we continue down this road much longer the only buyer of U.S. debt will be the Fed. That’s the real down grade to come. Not from the credit rating agencies, but from our foreign creditors. Once we have a failed Treasury auction, it will engender a vicious cycle. Debt service expense will soar, which causes out of control deficits. The Fed will be forced to purchase more of the debt and inflation rates become intractable, thus destroying GDP growth. Runaway debt, interest rates and inflation is what the Tea Party is trying so hard to avoid and it is a cause worth fighting for!

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.

With ample time until the debt ceiling is breached, House delays debt ceiling vote to rename a Post Office

Los Angeles Times
By Nichael A. Memoli and
Kathleen Hennessey
July 28, 2011

House leaders have delayed a scheduled vote on the debt ceiling plan offered by House Speaker John A. Boehner, a possible acknowledgement that Republicans lacked the votes to ensure passage.

The postponement was announced just minutes before the planned 6 p.m. vote. The House instead moved to consider a far less controversial measure -- to rename a post office in Peoria, Ill.

Republicans had been working throughout the day Thursday to lock down support for their plan to raise the nation's debt ceiling, even as Senate Democrats vowed to swiftly kill it if passed.

"We're not there yet; we don't have the votes yet. But today is the day," Boehner had told members at a morning meeting, according to a GOP source who was not authorized to publicly discuss the private conversation.

Aides to House Majority Leader Eric Cantor insisted that a vote could still take place Thursday. A spokesman for Senate Majority Leader Harry Reid posted on Twitter that the body was "ready to defeat the Boehner plan whenever House Republicans can get their act together."

Lawmakers are working to meet the Aug. 2 deadline for extending the nation's borrowing capacity, or administration officials warn of a chain reaction of potentially disastrous economic consequences.

Boehner's bill would raise the debt limit in two stages -- one that could cover borrowing through the end of the year and another to cover 2012. The first increase is paired with $915 billion in spending cuts over 10 years. The second would be contingent on passage of a larger deficit-reduction package crafted by a new congressional committee.

Rather than promising passage of a balanced-budget amendment -- a top priority for conservatives -- the bill only ensures a vote in both chambers. Such a vote would be largely symbolic. The GOP-preferred version of the amendment is widely rejected by Democrats and would fall well short of the two-thirds vote needed to pass.

Credibility of the nation’s ability to pay its bills will be tarnished (Michael Pento)

Euro Pacific Capital
Tuesday, July 26, 2011

By: Michael Pento

 

The U.S. economy may suffer an abrupt blow of austerity come August 2^nd. Indeed, that is what we truly need to bring lasting prosperity to this great country. But even if the republicans and democrats find a way to hold hands in the next few days, it won’t mean clear sailing is in store. A credit rating downgrade seems unavoidable at this juncture because a grand deal to cut over $4 trillion in spending is impossible to achieve by the deadline.

 

Therefore, whether it is a small deal or no deal, the credibility of the nation’s ability to pay its bills will be tarnished.

 

So no matter what happens after the deadline passes the economy will still be mired in trillions of dollars in debt that has to be serviced and rolled over. And since higher interest rates are virtually guaranteed to manifest because of inexorable debt issuance and inflation, the solvency of the U.S. is sadly, just ephemeral.

 

An increased cost of borrowing won’t help our comatose housing market either. But even before that inevitable increase occurs, data on New Home sales released today showed a declined for a second month in a row. Purchases dropped 1% to a 312,000 annual pace, which is a three-month low. And while the S&P/Case-Shiller index rose 1.1% and 1.0% for the 10 and 20 city index respectively, the YOY decline in home prices was still 3.6% and 4.5% for the 10 and 20 city index.

 

Mr. Case of the famous Case-Shiller Home Price Index explained the reason for weak sales data was the fact that household formation is negative. I’ve said over and over again that the cheerleaders and shills were wrong when saying the increasing U.S. population would solve our real estate problem. That’s because Population growth doesn’t equate to household formation. You need a job, savings and access to credit to afford a house.

 

I think most markets are far too complacent about the prospect of higher interest rates and the damage they will wrought. The Gold market has it correct and investors shouldn’t take solace in quiescent bond prices. The two biggest mistakes in the history of global financial markets are that the U.S. dollar will always be the world’s reserve currency and that U.S. sovereign debt is the ultimate safe haven.

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.

Mr. "I reject the word compromise" Boehner's budget reduces debt on our grandchildrens' back by a pathetic $850 billion over 10 years

Yes grandchildren, the same man who rejects the word compromise, yet voted yes to an Iraq Shock and Awe (while voting yes to make the Bush tax cuts permanent), will not let his buddies to pay for Shock and Awe (a.k.a. pass it along to the grandchildren), is tightly bound to his lobbyist friends, votes yes to bail out banks via TARP,  and then drafts a budget that removes $850 billion (6% of our current deficit) off your back over 10 years. This is the same Mr. "reject compromise" that grew up in a family of 12 children (including sisters) with one bathroom.

Grandpa remains party agnostic. Take Harry Reid's budget for example...smoke and mirrors and he too does not care about what debt ultimately ends up on the backs of our grandchildren. Grandpa's bottom line (no pun intended): you can wrap a box full of dog poo in Red State paper or Blue State paper and it does not change the gooey mess in the box let alone the stench.

The Hill
By Erik Wasson
7/26/11

The Congressional Budget Office has told House Speaker John Boehner (R-Ohio) that his debt ceiling fallback plan will reduce the deficit by about $850 billion over ten years.

House GOP rank-and-file have been waiting eagerly for the score since they are worried the bill would not measure up to claims made about it by House leadership. Leadership on Monday said the bill would reduce discretionary spending by $1.2 trillion over ten years.

The CBO revealed the score in a Tuesday letter to the speaker.

The score is against the latest CBO baseline as adjusted to reflect the 2011 spending cuts deal between Congress and the White House that cut $38 billion in budget authority. Those 2011 cuts have ripple effects over the budget window.

The CBO has also determined that taking that earlier deal into account, the spending levels in the Boehner plan is a $1.1 trillion cut in the deficit.

Most of the effects of the Boehner plan come from caps it imposes on discretionary spending. Next year the cap is $1.043 trillion, a $6 billion drop from current levels.

Actual federal spending outlays in the ten-year period would be reduced by $710 billion relative to that March baseline, CBO says, if the discretionary spending caps in the Boehner plan are instituted.

Overall, savings in discretionary spending is cut $695 billion, mandatory spending is cut by $20 billion, and the savings in interest equals $135 billion.

CBO also looked at other more minor provisions in the Boehner bill. One would provide extra funding for Pell Grants to students and this costs $17 billion, while another would limit other student loans saving over $30 billion.

The Boehner plan is a two-step process whereby the debt ceiling would be raised before Aug. 2 and then again next year.

The CBO score reflects part one of the process, which grants President Obama the right to request a $900 billion increase in the debt ceiling, slightly more than the amount CBO says the Boehner plan cuts from combined deficits compared to the March baseline.

Boehner this spring said Congress would only raise the debt ceiling if spending cuts exceed the amount by which the debt ceiling is raised.

CBO does not assign a score to the second phase of the Boehner plan which would require a joint committee to come up with a plan to cut $1.8 trillion from the deficit by Nov. 23.

Obama Demagogues Default (John Browne)

Euro Pacific Capital
By: John Browne       
Monday, July 25, 2011

President Obama has continued and increased the reckless spending of the previous Administration. Now, as the federal debt reaches its statutory limit, he is spreading fear and panic in the hopes of having it raised.

Many of the key people responsible for America’s historic mess, including the President, Treasury Secretary Geithner, former NEC Director Summers, and Fed Chairman Bernanke, have pronounced publicly that a failure to lift the debt ceiling will cause a catastrophic Treasury debt default.

This is simply not true. The US Treasury has tax revenues that cover the service of its current (staggering) debt of some $14.3 trillion.

Yet, that doesn't mean the US government won't be forced to default in other ways. Failure to pay the nominal interest and principal on bonds is only the narrowest definition of “default.” When a broader definition is used – which includes the use of inflation to erode the real value of US debt – the US government has in fact been in a state of continuous default for almost a century.

A 2011 dollar is worth just four cents in terms of a 1914 dollar. As that new money circulates, your dollar will lose some 53% of its purchasing power, productivity increases notwithstanding. That's just in the last three years!

However, despite this continued stealth default and the constant underfunding of government obligations, hitting the debt ceiling would represent a very serious escalation of the United States' insolvency. For, while Treasury bonds would continue to be honored, many other obligations would not. This is the time when seniors and soldiers should being paying attention.

If the debt limit were not raised, the Administration would be forced to literally choose which checks to send and which to cancel. On the chopping block could be Social Security checks, Medicare reimbursements, military salaries, federal pensions, and myriad boondoggles that the federal government has taken upon itself to fund. Perhaps the President would cancel his next campaign stop to save the expense of fueling Air Force One? Not likely!

While President Obama would find himself walking through a minefield of special interest groups as he chose where to cut, I expect the overall effort to be broadly popular. This is, after all, what the boisterous American Tea Party has been demanding all along. And the ultimate result would be a renewed faith in the US dollar and Treasuries.

In fact, the Republicans have in their hands the opportunity of a lifetime, the chance to force the Administration into good sense, while avoiding the political fallout.

Unfortunately for them and for the country, President Obama and his key Democrat allies appear to have terrified the Republican establishment into believing that if they stand up for prudent finance, default will result and conservatives will be blamed for it.

Already, key Republicans have stated publicly that they are unwilling to risk triggering the debt ceiling, thus handing Obama their trump card. In doing so, they are forgoing any chance that Obama would be forced to re-prioritize the government's reckless spending. Therefore, they are actually raising the risk of a true default – in which not even Treasuries will be honored – in the coming years.

Increasingly, it appears likely that the Republicans will buckle. If they do, Americans will be faced with a package that both sides will claim as a victory. The losers will be hard working, patriotic Americans and those around the world who believed the United States was good for its word.

Running Out of Runway...next time you fly, ask pilot if he/she rejects "compromise"

USA Watchdog
July 25, 2011
By: Greg Hunter

It looks like even the mainstream media (MSM) can see a calamity if we are right on top of one. Finally, the dire debt ceiling negotiations between Congress and the White House were covered wall-to-wall on all the major media outlets yesterday. No comment better describes the frightful situation America faces over its debt problem than what Treasury Secretary Tim Geithner said yesterday on FOX, “. . . we’re running out of runway. I never thought they would take it this close to the edge and let politics get in the way of demonstrating we will pay our bills on time.” To extend that metaphor, even if the debt ceiling is reached just before the August 2^nd deadline, doesn’t mean the government can get enough altitude to clear the trees. It will take some time to implement the new bill, and time is very short.

Meetings in the nation’s capital yesterday did not produce a bill that can garner approval of the House, Senate and President. At the open of the Asian markets overseas, gold was up $20 an ounce in the first hour of trading. It hit another record high (with many more to come.) Who knows if the yellow metal will hold onto the gains, but that amounts to a giant vote of no confidence from overseas consumers of our dollar and debt. 

Remember, there are $12 trillion in liquid assets (treasury bonds and dollars) held outside the country. A panic over the stalled debt talks in the United States could cause massive selling of those assets. Interest rates would spike and the value of the dollar would plunge. It would cause immediate pain for U.S. consumers and could disrupt markets worldwide. The stakes in Washington D.C. couldn’t be higher. What has been called a “cloud of default” could start hurling thunder bolts and producing torrential rain in the global economy.

To say the Democrats and Republicans are not on the same page is an understatement—they’re not on the same planet. The argument between raising taxes and cutting spending has morphed. It now includes a “must do” deal to take negotiations on raising the debt ceiling out of 2012 elections. When the idea of a short-term debt increase was posed to White House Chief of Staff Bill Daley on “Meet the Press” yesterday, it was soundly shot down. Host David Gregory asked, if “The President would veto a plan if it does not extend the debt ceiling into 2013?” Daley quickly said, “Yes.”

Meanwhile, over on FOX, Speaker of the House John Boehner said, “I think the better path forward at this moment will be … to put together a process that’s doable.” He’s basically talking about a short-term Republican plan that cuts some spending and pushes the debt ceiling up enough to pay the nations bills until the end of this year. I don’t think the President will think that is “doable.” That means no so-called “grand plan” and more debt ceiling debates in 2012. Mr. Boehner says he will announce details of that plan on Monday. On the other hand, Senate Majority Leader Harry Reid is getting a different plan together on the Democratic side. It will reportedly cut the budget and raise the debt ceiling until after the 2012 November elections. Does it sound like a deal is coming together to you? Not to me.

Maybe that’s why the host of “FOX News Sunday,” Chris Wallace, asked Secretary Geithner yesterday, “What’s your plan for default?” Geithner has already admitted he recently had meetings about this very subject with Fed Chief Ben Bernanke and others. Mr. Geithner responded, “Our plan is to get Congress to raise the debt ceiling on time . . . we do not have the ability to protect the American people from the consequences of Congress not taking action.” According to Geithner, 80 million checks a month are sent out by the government. The U.S. borrows 42% of every dollar it spends, and a short-term default to some will happen. Geithner repeatedly sidestepped the question of who will get paid and who will not. I think Treasury debt, Social Security and the military will all get paid, but plenty of other commitments will not be.

I do not see how you tackle a debt problem by adding trillions of new debt. I do not mean to sound like a Republican, but spending is the problem. So where can you make some big cuts? Neither party is talking about cutting spending for the military. The U.S. spends more on defense than all other countries—combined. I am not anti-military, but do we really need to start another war in Libya? Do we really need to have bases in Korea and Europe? Both parties are also mum on the continuing banker bailouts through Fannie and Freddie. Why do taxpayers get the bill for $trillions in sour mortgage debt pumped into the failed mortgage giants by the big Wall Street banks? Not a word about that by either party, let alone prosecutions. To top it off, the big banks are in the process of negotiating immunity for their crimes! You think I am kidding? (Click Here)  Literally trillions could be cut in both areas, but that’s not what the debate is about. Don’t expect the MSM to point that out because they all will get big bucks in political advertising for the 2012 election.

Most people are living like they are in the “blue pill” world of a Matrix movie. I keep having this vision of a slow motion crash, and then, all of a sudden, someone flips a switch and bam!–we are at the speed of real life. It’s sure looking like that switch is going to be flipped right around the beginning of August.

The (Cuisan)art of fiscal policy (Paul Daggett)

Puréeing: Flawed ideas and denial

result in mush that no one can swallow.

StarTribune
July 24, 2011
By: Paul Daggett

The continuing stalemate over whether to raise the debt ceiling and how to control the nation's budget deficits is revealing. Politicians are unable or unwilling to acknowledge the seriousness of the U.S. fiscal position.

Consider the central disagreement between the parties: taxes. The Republican Party opposes increases of any kind, saying that taxes on "job creators" are exactly the wrong policy at a time of high unemployment. To reduce budget deficits without raising taxes, Republicans propose major cuts in government spending.

Democrats contend the huge cuts required to reduce deficits without "revenue increases" would decimate the lower and middle classes, which are more dependent than ever on government's safety-net programs. They argue that higher taxes on the wealthy are a fair way to balance government budgets.

Unfortunately, both parties' positions are fundamentally flawed.

The Republican position that tax increases would destroy jobs fails to acknowledge that spending cuts would also destroy jobs. Cutting government spending destroys the jobs of government employees as well as the jobs of those who sell goods and services to the government and to the recipients of government benefits.

Many Democrats insist that everything was fine with the budget under President Bill Clinton -- the federal government ran a budget surplus in the final three years of Clinton's second term. Undo the Bush tax cuts for the wealthy and end his expensive wars, and everything should be fine, they say.

Clinton's surpluses, however, were the result of a temporary surge in tax revenue as the Internet bubble inflated, not fiscal responsibility.

More important, these arguments both miss the larger point -- the financial/housing crisis and the Great Recession have changed everything.

The crisis has had enormous impact on the federal budget. The various stimulus plans, bailouts, tax incentives, etc., passed in response to the Great Recession cost far more than the Afghanistan and Iraq wars combined. And while federal spending surged at an unprecedented rate, government revenue was collapsing. Federal tax revenues plunged $400 billion from 2008 to 2009 and failed to recover, remaining level in 2010. Federal government revenues were lower in 2010 than they were in 2000!

Prior to the Great Recession, maybe the government's debt problem could have been solved with some reductions in the major entitlement programs, cuts in war spending and tax increases on the wealthy. But now, even the most "austere" proposals for dealing with the budget crisis (such as those from Rep. Paul Ryan or Obama's deficit commission) do not come close to balancing the budget. They simply slow the pace at which the nation hurtles into debt.

It seems unlikely, in the current political climate, that the United States will take the necessary steps to restrain its profligate ways voluntarily, but at least the country still has the time and resources to do so. Greece, Ireland, Portugal (and now likely Italy) failed to get their budgets under control fast enough and effectively went bankrupt. Now the budget decisions for those countries are dictated by their financial patrons, the European Union and the International Monetary Fund.

So while parties wrangle over whether the wealthy should endure a small tax increase or federal spending should actually be reduced for the first time in most Americans' lifetimes, soon enough the topics of debate will be far more serious:

Should Social Security and Medicare be drastically reformed or eliminated? Should taxes be raised significantly -- and on everyone? How should the United States adapt, geopolitically, to a dramatically downsized military?

The nation's debt will require real sacrifice and tough decisions. America can make those decisions itself or, like Greece, Ireland, and Portugal, leave them to foreign creditors.

Isn't it time the nation's politicians

started taking this seriously?

Paul Daggett is an investment analyst in Minneapolis.

John "I reject the word compromise" Boehner Responds to Obama's Fruitless Invitation

Now Remember Grandchildren,

These Are Professionals. Do Not Attempt

Any of This At Home.

Washington (Jul 5) House Speaker John Boehner (R-OH) today issued the following statement after President Obama discussed his request for an increase in the national debt limit:

“The American people are worried about our economy, and our future. More than two years after the start of Washington Democrats’ ‘stimulus’ spending spree, they’re still asking, ‘where are the jobs?’

“We’re not dealing just with talking points about corporate jets or other ‘loopholes.’ The legislation the President has asked for – which would increase taxes on small businesses and destroy more American jobs – cannot pass the House, as I have stated repeatedly. The American people simply won’t stand for it. And their elected representatives in Congress won’t vote for it. I’m happy to discuss these issues at the White House, but such discussions will be fruitless until the President recognizes economic and legislative reality.

“Our focus should be on getting our economy back on track by making the spending reductions and structural reforms necessary to address our nation’s out-of-control debt. We can do so without raising taxes on America’s small business job-creators. I’m pleased the President stated today that we need to address the big, long-term challenges facing our country. Our nation’s long-term future requires presidential leadership to address those challenges.”


The Hill 
June 29, 2011
House Speaker John Boehner (R-Ohio) called President Obama "sorely mistaken" that the House will support tax increases in a deal to raise the debt limit.

Boehner was quick to respond to remarks that Obama made in a Wednesday news conference, in which the president suggested that the House would vote for a measure to close so-called tax loopholes.

“The President is sorely mistaken if he believes a bill to raise the debt ceiling and raise taxes would pass the House. ... A debt limit increase can only pass the House if it includes spending cuts larger than the debt limit increase; includes reforms to hold down spending in the future; and is free from tax hikes," Boehner said in a written statement. Complete Article

7 Reasons Why America Needs a Good Depression NOW (Paul Farrell)

On Behalf of Grandchildren Everywhere...

Thank You Mr. Farrell

MarketWatch
By: Paul B. Farrell
July 5, 2011

SAN LUIS OBISPO, Calif. (MarketWatch) — No, do not raise the debt-ceiling. You heard me: Block the debt ceiling vote. Don’t raise it. America’s out-of-control. A debt addict. Time to detox. Deal with the collateral damage before it’s too late.

We need to fix America’s looming credit default, failing economy and our screwed-up banking system. Now, with a Good Depression. If we just kick the can down the road one more time, we’ll be trapped into repeating our 1930’s tragedy, a second Great Depression.

Yes, depression. Spelled: d-e-p-r-e-s-s-i-o-n. Wake up America, recessions do not work. Won’t work in the future. Remember that 30-month recession after the dot-com crash? Didn’t work. Why? Because in the decade since that 2000 peak, Wall Street’s lost an inflation–adjusted 20% of America’s retirement money.

And what about the so-called Great Recession of the 2008 credit meltdown? Didn’t work either. In fact, made matters worse: Wall Street got richer by stealing from the other 98% of Americans, the middle class, the poor. And now their conservative puppets in Washington want to make matters worse, widening the wealth gap further to benefit the Super Rich.

Seems nobody really gives a damn about our great nation any more. America’s now a capitalists anarchy: “Every (rich) man for himself.” Proxy battles are fought by high-priced lobbyists in a broken political system. America needs a 21-gun wake-up call. Yes, that’s why America needs a Good Depression. The economy’s bad now. But kicking the can down the road again will make matters much worse later.

America’s leaders lost their moral compass, lack a public conscience
 
This is not our first call for a Good Depression. As early as 2005 we began reporting on excessive debt. In November 2007 we warned of a crash dead ahead. The subprime credit meltdown had been accelerating for many months, although for a year our leaders kept misleading Americans: Fed Chairman Ben Bernanke’s “it’s under control.” Treasury Secretary Henry Paulson’s delusional “best economy I’ve ever seen in my lifetime.”
 
In August 2008 came the original of our seven reasons why America needs a Good Depression. Yes August, just two months before Wall Street banks collapsed into de facto bankruptcy, after many warnings predicting a crisis. This was no Black Swan. In September 2008 we reported on Naomi Klein, author of “Shock Doctrine: The Rise of Disaster Capitalism,” warning of Wall Street’s insidious plan to take over America:
 
“Nobody should believe the overblown claims that the market crisis signals the death of ‘free market’ ideology.” Then as the meltdown went nuclear, Klein warned: “Free market ideology has always been a servant to the interests of capital, and its presence ebbs and flows depending on its usefulness to those interests. During boom times, it’s profitable to preach laissez faire, because an absentee government allows speculative bubbles to inflate.”
 
But “when those bubbles burst, the ideology becomes a hindrance, and it goes dormant while big government rides to the rescue. But rest assured,” she predicted, Reaganomics “ideology will come roaring back when the bailouts are done. The massive debts the public is accumulating to bail out the speculators will then become part of a global budget crisis that will be the rationalization for deep cuts to social programs, and for a renewed push to privatize.”
 
Totally predictable: No Black Swans in 2000, 2008 … nor in 2012
 
Yes, all was predictable: The events of the past few years were well known in advance. In fact, the events of the entire decade were predictable. The rich got richer off the backs of the middle class and the poor. Why? “There’s class warfare all right,” warns Warren Buffett. “But it’s my class, the rich class, that’s making war, and we’re winning.”
 
And they are also blind and deaf to the havoc their free-market Reaganomics policies are creating, selfishly undermining America, the world’s greatest economic power.
 
Lessons learned? Zero. Why? Wall Street, Washington and Corporate America are focused on one narrow-minded short-term strategy: Economic g-r-o-w-t-h, bull markets, megabonuses, tax cuts. In good times they tout “free markets.” But when greed bombs, they throw free-market “principles” under the Reagan Revolution bus and unleash their mercenary lobbyists to go whining to Congress for huge taxpayer bailouts and access at the Fed discount window, to siphon off more taxpayer money. And they’ll do it again soon.
 
Wall Street and their cronies are doing such a miserable job, America needs a new strategy: First, stop “kicking the can down the road.” Let a good old-fashioned Good Depression do the job that our hapless, happy-talking leaders refuse to do. Take our medicine. Let a new depression clean house and reawaken Americans to core values.
 
Trust me folks, it’s either a Good Depression now … or a Great Depression 2. Here are seven reasons favoring the do-it-now strategy:
 
1: Capitalism’s now a lethal soul sickness, needs a reawakening
What’s the real problem? Not the economy, not markets, nor even politics. Yes, our economic pains are real. But they’re just symptoms. Something’s structural wrong. Since 2000 endless bad news: Greed, deceit, stupidity, corruption, unethical behavior, lack of moral conscience.
 
The real problem’s deep in our character, the “mutant capitalism” Jack Bogle warned of in “The Battle for the Soul of Capitalism.” Sadly, that battle was lost. With it we lost our soul, our moral compass. America’s character is measured by our net worth.
 
2. We’re already in the early stages of a Great Depression
Comparing today with the Great Depression is common sport. In a Newsweek special “Seeing Shades of the 1930s,” Dan Gross wrote: “Wall Street, after two terms of a business-friendly Republican president, self-immolated on a pyre of greed, incompetence and excessive optimism.” Today’s “new normal” economy means high unemployment for years, inflation driving prices, rising interest rates, more debt, chaos.
 
We are destroying ourselves from within. Former U.S. Comptroller General David Walker warns that “there are striking similarities between America’s current situation and that of another great power from the past: Rome.” Three reasons “worth remembering: declining moral values and political civility at home, an overconfident and overextended military in foreign lands, and fiscal irresponsibility by the central government.” We are becoming more vulnerable to external enemies.
 
3. Good Depression exposes our self-destruct bubble-thinking
Before the 2008 crash, “Irrational Exuberance” author Robert Shiller warned in the Atlantic magazine that “bubbles are primarily social phenomena. Until we understand and address the psychology that fuels them, they’re going to keep forming.” Housing inflated 85% in the decade: “Historically unprecedented … no rational basis for it.”
 
Bubble thinking is an toxic virus that infected everyone. Shiller warns of another coming: “We recently lived through two epidemics of excessive financial optimism … we are close to a third episode.”

Keep Reading

Michele Bachmann: handle our debt like an interest only mortgage

"Geithner can very simply pay the interest on the debt first,

then we're not in default."

By Douglass K. Daniel
June 26, 2011

WASHINGTON (AP) — On the eve of her entry into the 2012 GOP presidential race, Rep. Michele Bachmann said "scare tactics" are being used by those warning of an economic calamity unless Congress raises the government's borrowing limit by an August deadline.

The three-term congresswoman from Minnesota said the U.S. could avoid a default by paying only the interest on U.S. obligations while lawmakers work on a deal to cut spending dramatically as part of a new debt ceiling.

Such an approach has been derided as unworkable by Treasury Secretary Timothy Geithner.

Bachmann, a tea party favorite, planned to kick off her campaign Monday in her Waterloo, Iowa, her birthplace. The Iowa Poll released Saturday night by The Des Moines Register showed her in a statistical tie with Republican rival Mitt Romney among likely caucus-goers.

In an appearance Sunday on CBS' "Face the Nation," Bachmann said she found the poll gratifying but noted that the race for the nomination was just beginning.

The poll showed Romney with 23 percent support and Bachmann with 22 percent among those who said they were likely to vote in the nation's first Republican nomination contest.

The top five included former House Speaker Newt Gingrich and Rep. Ron Paul of Texas with 7 percent each and former Minnesota Gov. Tim Pawlenty with 6 percent.

President Barack Obama planned separate meetings Monday with Senate leaders as negotiations on trimming spending and raising the debt ceiling moved into a new stage. Talks among lawmakers of both parties ended last week when Democrats and Republicans reached an impasse over whether there should be any role for additional revenue in reducing the deficit.

Officials say the nation's borrowing will exceed its $14.3 trillion limit on Aug. 2 and that economic shockwaves around the world would result from the first financial default in U.S. history.

"It isn't true that the government would default on its debt," Bachmann said on CBS. She later added, "It is scare tactics." Geithner, she said, "can very simply pay the interest on the debt first, then we're not in default."



Geithner has dismissed the idea that the U.S. could avoid a default by just paying the interest on the national debt and picking which bills to pay, contending that even trying to do so would roil financial markets and make it more expensive to finance what the government does owe.

"There is no responsible path that avoids default, avoids catastrophe to the economy, that has us decide as a country, we're going to stop paying all our obligations so we can pay interest," Geithner told the House Small Business Committee last week. "It doesn't work. It's not workable. And it will not relieve Congress of the obligation of raising the limit."

Bachmann said she wasn't willing to allow the government to keep borrowing money and putting the country into a worse state.

"One year from now, we'll be back, having this same conversation," she said. "That cycle has to stop."

Although she once suggested that ending the minimum wage would be a boon to employment, Bachmann declined to say she would advocate that position as president and instead would ask a group of economists to consider the idea.

"I think everything needs to be on the table right now, every part of government," she said.

Tim Geithner Antsy to Crank Up Money Printing Machines

"A default would inflict catastrophic,

far-reaching damage on our Nation's

economy, significantly reducing growth,

and increasing unemployment."

The Wall Street Journal
By: Damian Paletta
5/14/2011

WASHINGTON—Treasury Secretary Timothy Geithner warned in a letter to Congress that failure to raise the $14.294 trillion debt ceiling would drive up interest rates, push down household wealth, put more pressure on federal entitlement programs and cause a double-dip recession.

Mr. Geithner's letter to Sen. Michael Bennet (D., Colo.), sent Friday, marked one of the Obama administration's most explicit warnings about the consequences of failing to raise the debt ceiling. The U.S. government is projected to hit the ceiling Monday. Treasury officials say they have until Aug. 2 before the country could begin defaulting on its debt.

Some Republicans have questioned whether the Treasury would allow a default to occur, but Mr. Geithner said in the letter that "failure to raise the debt limit would force the United States to default on these obligations, such as payments to our service members, citizens, investors, and businesses."

"This would be an unprecedented event in American history," he wrote. "A default would inflict catastrophic, far-reaching damage on our Nation's economy, significantly reducing growth, and increasing unemployment."

Republicans leaders have said they want to raise the debt ceiling but only if the White House agrees to accompany its major spending cuts. House Speaker John Boehner (R., Ohio) has said it would be "irresponsible" to let the U.S. default, but "it would be more irresponsible to raise the debt ceiling without simultaneously taking dramatic steps to reduce spending and reform the budget process."

The White House and Republicans have begun deficit-reduction talks. Early signs of progress were reported last week, but they haven't reached an agreement and talks aren't expected to pick up again until June. Policy makers have discussed ways to reduce the deficit from what it would otherwise be by close to $4 trillion over 10 years.

Mr. Geithner, Federal Reserve Chairman Ben Bernanke and other government officials have warned for months about the consequences of defaulting on the country's debt. Because the U.S. government is projected to run a $1.5 trillion deficit in fiscal year 2011, it must borrow to cover its obligations unless it makes huge spending cuts or enacts giant tax increases. To borrow, the government issues debt to investors, but it is much harder to issue debt once the country hits the debt ceiling.

A default would make it more expensive for the U.S. to borrow money by selling Treasury securities, Mr. Geithner said, and this would have wide repercussions.

"Treasury securities set the benchmark interest rate for a wide range of credit products, including mortgages, car loans, student loans, credit cards, business loans, and municipal bonds," Mr. Geithner wrote. "Accordingly, an increase in Treasury rates would make it more costly for a family to buy a home, purchase a car, or send a child to college. It would make it more expensive for an entrepreneur to borrow money to start a new business or invest in new products and equipment."

Mr. Geithner said a default would have the "perverse effect" of making the country's debt problems worse. He said it would lead to a recession, which would drive down tax revenue, while putting more pressure on "social safety net programs."



This would "channel a larger share of our national wealth toward paying our creditors rather than reducing our debt or making productive investments in education."

Many Democrats have joined Republicans in calling for a deficit-reduction plan to clear the way for a debt-ceiling increase. But in the last few weeks, business groups have begun urging lawmakers with more urgency to raise the ceiling soon to avoid a premature reaction from bond investors.

"It is absolutely urgent and essential that we craft a comprehensive plan that materially reduces the deficit," Mr. Bennet said. "But as this letter states, playing politics with the debt limit would rattle the capital markets, blow an even bigger hole in our deficit and would likely throw our economy into another deep recession. That is unacceptable, especially since Congress has the power to prevent it. We need a responsible and comprehensive approach to deficit reduction, not political games that put our country and our economy at risk."

Geithner Extends Debt Ceiling Breach by a Couple of Weeks

Geithner Extends Date to Raise Debt Ceiling

The Wall Street Journal
By Jeffrey Sparshott and
Jefff Bater
2/2/2011

WASHINGTON—Citing better-than-expected tax receipts, the U.S. Treasury Department on Wednesday extended its estimate of when the country hits the debt ceiling to somewhere between April 5 to May 31.

The new deadline came as part of the Treasury's quarterly refinancing announcement. Treasury Secretary Timothy Geithner on Jan. 6 told lawmakers the U.S. could reach the congressionally imposed debt limit of nearly $14.3 trillion as early as March 31 and probably no later than May 16.

The new dates range from April 5 to May 31, with the possibility of extending that by up to eight weeks if the Treasury takes additional, extraordinary measures.

Failure to raise the debt limit would precipitate a default by the U.S. and have catastrophic economic consequences, Mr. Geithner said. But Republicans are first demanding spending cuts as they look to trim borrowing and reduce the budget deficit.

Dylan Ratigan and Ron Paul Discussing U.S. Debt and Pending Debt Ceiling Increase

Dylan Ratigan discusses current level of U.S. Debt with Ron Paul and the upcoming vote to increase the Debt Ceiling. Ron Paul believes Bernanke's program is based on the U.S. defaulting. Bernanke wants to destroy peoples' savings via slamming the value of the U.S. Dollar.

Ron Paul also addresses the issues facing young adults and their need to position themselves to be more self sufficient for their future as the government clearly can't continue down the increased debt path. All empires end due to debt levels that can't be paid.

Visit msnbc.com for breaking news, world news, and news about the economy

Republicans Ready to Implement "Pledge to America", well maybe after they Raise Debt Ceiling

We Have a Pinky Promise from the Republicans

and they Titled it:

"Pledge to America: The New Republic Agenda"

(in small print of course):

Roll back non-discretionary spending to 2008 levels before TARP

and stimulus (will save $100 billion in first year alone)

Establish strict budget caps to limit federal spending going forward

Require congressional approval for any new

federal regulation that would add to the deficit

By David Lawder, Andy Sullivan
and Glen Somerville
1/6/2011

(Reuters) - Republicans acknowledged on Thursday they will have to sign off on more deficit spending to avoid a debt default that would roil financial markets and bring the government to a grinding halt.

Treasury Secretary Timothy Geithner pressed lawmakers to raise the nation's $14.3 trillion debt limit to allow the United States to borrow more and avert a crisis in the coming months.

House Budget Committee Chairman Paul Ryan, a Republican, said he recognized the need to allow the government to go deeper in debt.

"Will the debt ceiling ... have to be raised? Yes," said Ryan, who leads Republican efforts to slash deficit spending.

But he called for deep spending cuts in 2012 and the Pentagon announced it would trim its budget by $78 billion as both government and opposition in Washington vied to outdo each other in promises of tighter spending.

Geithner said the federal government may hit the ceiling by March 31 on the amount of debt it is legally allowed to issue, and urged Congress to raise it before then to avoid pushing the United States into default.

"Even a short-term or limited default would have catastrophic economic consequences that would last for decades," Geithner said in a letter to Senate Majority Leader Harry Reid, a Democrat.

Republicans won control of the House of Representatives in November elections on a promise to cut government spending and reduce debt but are faced with having to compromise on the debt limit.

They say any vote to increase the ceiling must be paired with a commitment to lower federal costs over the long term.

"The American people will not stand for such an increase unless it is accompanied by meaningful action by the president and Congress to cut spending," House Speaker John Boehner said.

DEFAULT DANGERS

A debt default would throw markets into turmoil and dramatically increase government borrowing costs for years to come, further increasing the U.S. debt burden and sapping resources from the economy.

Bond investors remain wary of the safety and soundness of sovereign debt after the bailouts of Greece and Ireland last year, but Treasury officials said they did not see any evidence of such concerns pushing up U.S. debt yields at this time.

A Treasury official urged lawmakers preparing for a new budget not to mix up the debt limit issue with calls for greater restraint in government spending.

The official, who spoke on condition of anonymity, expressed confidence that Congress will raise the debt limit if only because not doing so would be so damaging. The rest of the sad story

For those of uswith a memory beyond 2 years,

DEFAULT DANGERS sounds an awful lot like

Hank Paulson's GLOBAL FINANCIAL ARMAGEDDON

if TARP was not approved. Are we at Level Orange Yet?

Mr. Boehner, you are now cued up for

shedding another tear.

Ron and Rand Paul discuss raising the debt ceiling and dad states the U.S. is bankrupt

Ron and Rand Paul discussing current U.S. Debt and the Republican Pledge to America. Rand Paul notes $50 bil in savings does not scratch the surface. Republicans Pledge was at least $100 bil year one however they are now lowering the bar to less than 1/2 of the pledge.

Ron Paul: "we have to face the fact that we are bankrupt and we can't pay our bills."

Sadly, Congress will once again raise the debt ceilling and dump in on our grandchildren. It remains morally criminal that the "adult generations" remain fiscally irresponsible at our grandchildrens' peril.

Most recent debt ceiling increase: February 12, 2010 (P.L. 111-139) raising the debt ceiling by $1.9 trillion to $14.294 trillion.

Debt Ceiling Raised by $1.9 trillion

Not to be outdone by the Senate, today the House of Representatives approved raising the debt ceiling by $1.9 trillion. 231 to 195 was the final score. No Rebublican voted yes and 20 Democrats voted against the raise.

426 members cast their vote and 231 of them clearly do not care about the impact this out of control spending will have on our kids and grandchildren.