Back slapping and smiles abounded as the president and congressional leaders reached a debt ceiling compromise last night.
The deal, they said, will save us from falling over the fiscal cliff.
Do not believe a word of it. The bipartisan deal does not alter the grim fact that the US government is saddled with far greater obligations than it can conceivably meet.
Public debt of $14.5 trillion and long term unfunded liabilities well in excess of $100 trillion are simply an insurmountable burden.
To put it plainly, the US federal government is bankrupt. The only reason its finances have not yet collapsed is due to the dollar’s status as the world’s reserve currency.
Normally when a country acquires more debt than it can carry, creditors dump its bonds and the currency falls apart.
Most of our creditors know that we will not be able to pay our debts. They would love to dump their dollars, but they have a serious problem. There is really nowhere else they can put their money.
Consider the alternatives. Should they sell dollars and buy euros instead? But the euro is as troubled as the dollar is. Or should they try the British pound or the Japanese yen? Those too happen to be heavily over-indebted and shaky.
There are some currencies – such as the Swiss frank and the Canadian dollar – that are relatively healthy, but they are too small to be considered as global alternatives.
The bottom line is that there is at the present time no currency that could reliably absorb the world’s monetary reserves.
The world is in a currency crisis and holders of reserves – whether national banks or private institutions – have no choice but to stick with the dollar for now.
Sensing the train wreck ahead, creditors plead in desperation with our government to do something about its out-of-control spending. Unfortunately for them, American politicians – despite their rhetoric – have no intention of doing anything.
Both Republicans and Democrats want the same thing: They want to spend more. The only difference between them is the kind of programs on which they want to spend.
Even the fiscal hawks in the Republican party become dovish when it comes to cutting. Paul Ryan’s plan The Road to Prosperity, which he released with much noise earlier this year, would not balance the budget for another thirty years.
What this really means is that it would never balance the budget, because it is impossible to forecast anything with any degree of accuracy thirty years out.
The far-off balancing date in Paul Ryan’s budget was only a cop out. That much was obvious. Yet he still got savaged for his supposed fiscal “ruthlessness.”
If the mere pretense of wanting to balance the budget makes one a political pariah, then you know we are in serious trouble as a country.
If you really want to understand what is going on in our capitol when it comes to money and budgeting, you need to grasp one thing: There is only one party in Washington, D.C. It is the party of Big Spending.
This is its modus operandi: The greater our debts, the more it wants to spend.
Let us not forget that it was George Bush and the Republicans that set us on the road to never-ending bailouts and soaring budget shortages.
Obama took it a step further and the Republicans cried fault. They complain about the deficits, but even the most fiscally “hawkish” among them do not want to balance the budget. Instead they pretend that little cuts around the edges will solve our problems.
With an annual deficit of some $1.5 trillion, cutting two trillion over the next ten years is only a drop in the bucket. To have any chance, we would need to cut $1.5 trillion now just to stop the hemorrhage.
This will not happen, of course. With such leadership as we have we are headed for disaster.
The fact is that we are bankrupt, and we will eventually default. Raising the debt ceiling now only postpones the inevitable.
Do not celebrate. Rather prepare for the crash.
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