The feds got over the first hurdle. They cut a deal to keep the government in business a while longer.
But that’s not the end of the story. It’s just the beginning.
The New York Times has the story:
Congressional Republicans are vowing that before they will agree to raise the current $14.25 trillion federal debt ceiling – a step that will become necessary in as little as five weeks – President Obama and Senate Democrats will have to agree to far deeper spending cuts for next year and beyond than those contained in the six-month budget deal agreed to late Friday night that cut $38 billion and averted a government shutdown.
Republicans have also signaled that they will again demand fundamental changes in policy on health care, the environment, abortion rights and more, as the price of their support for raising the debt ceiling.
In a letter last week, Treasury Secretary Timothy F. Geithner told Congressional leaders the government would hit the limit no later than May 16. He outlined “extraordinary measures” – essentially moving money among federal accounts – that could buy time until July 8.
Once the limit is reached, the Treasury Department would not be able to borrow as it does routinely to finance federal operations and roll over existing debt; ultimately it would be unable to pay off maturing debt, putting the United States government – the global standard-setter for creditworthiness – into default.
The repercussions in that event would be as much economic as political, rippling from the bond market into the lives of ordinary citizens through higher interest rates and financial uncertainty of the sort that the economy is only now overcoming, more than three years after the onset of the last recession.
Here’s the story. The feds spend more than they “earn” in taxes – almost 100% more. That gives them only two choices…balance the federal budget, by raising taxes and/or making spending cuts…
Borrowing is a lot easier than taxing or cutting. So, that’s what they’ll do. Forget the grandstanding…forget the agit-prop theatre…
…they either borrow…or they balance the budget.
And they’re not going to balance the budget. Because too many voters expect to get more from government than they have paid for. That was the unstated promise of modern, social welfare governments:
Let us control your lives. We will give you more in benefits than you pay for.
How can you give people more than they pay for? Only by taking the money from someone else. But governments have learned that taxing the rich heavily actually reduces the GDP and the amount of money that can be given to voters. So, they turned to taxing the next generation.
After all, they don’t vote.
Bill Bonnerfor The Daily Reckoning
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010.
There is one other way…
If you can’t keep you current spending below your current income you can sell off some assets.
Surely the United States Federal Government has some things it can sell off?
Must be a few buildings that can be sold…
Sell every road and make it a toll road.
Sell every airport too.
What about national parks? Sell ‘em off!
The rights to offshore drilling.
Sell Sell Sell.
Later if things really get desperate you can sell off a few states. Canada will be interested in Arizona as a refuge from our cold winters.
Question is how long can they keep up the charade?
Japan’s been doing if for more then 20 years, USSR maybe even longer. How will our collapse emerge? This country tends to do things with a lot of grandeur.
Our collapse shall be spectacular too, not a whimper like Japan more like USSR.
If every channel to Rome is impassable, picky is no more a discretion. Action rather than idle. What else … print plus print for the remaining days. After all doom is already in sight.
I really enjoy reading articles on this web site. I think I may find some of them more humorous that some other readers. Sure, I think that QE1 was necessary and that QE2 went too far. But QE2 only went too far at about the halfway point. It’s an interesting arguement to say that the dollar is being devalued to payback debts with a lower value currency. That’s an arguement in most economic textbooks, but it is a little “cutting of a nose to spite the face”. Regardless…
I started buying gold in small amounts in 2001 because gold could be bought then for the mining cost and the fabrication was basically free. To me it represented a way to save which was an alternative to bank deposits. It turned out to be the second best investment I ever made; the other was land. I like to read this site because gold was so good to me. I don’t have the money to invest to save anymore, but I would like to know more about how buying gold can be justified at these prices when major gold mining companies produced gold for an average of $467 per ounce. Today’s price is an over 300% mark up from production cost. If the currency doesn’t collapse, isn’t this period of prices likely to be looked upon as a high point that would take a lifetime to recover from if you bought at these prices.
Bill has been talking about real estate as an investment instead of mentioning gold very often. We are at a low point in prices which represents a good value, and he always makes the point they they could still go lower.
Still, I like to read Mogambo’s stuff. It’s not as funny as a few years ago, but still entertaining. Those bits he used to do about his bunker and burritos and candy bars used to have me laughing myself into tears.
Continuing what I said about precious metals being “expensive” today. As a child, I enjoyed coin collecting with my father. I have some silver coins that I bought in 1984 that have only recently come into a value where I could get a small profit. I don’t care about how long that took because it was a hobby and not an investment. I’d hate to see people buying something today and have to hold it for more than 25 years just to break even. I don’t know what tomorrow will bring. Many say that gold will drop when QE2 ends. But that’s not to say that QE3 won’t happen after the end of QE2 makes equities drop 15%. Then, it would be an interesting environment to see QE3 with rising rates too! I don’t know if even that would be supportive of gold.
But at these prices, my coin collection has dwindled to nothing that has precious metals. I sold most of it, but some was stolen. I had a 25 shilling coin from Somalia that was given to me when I was eight years old. I was excited to find the coin and to finally know more about the country it was from when they tstarted talking about pirates. I was dissapointed to find it stolen from me after a trip I made where I was gone for three months trying to find a job by traveling and sleeping in my car for three months.
The meaning of the term “price” is rather intertwining, confusing or subjecting.
A $10 stock we bought may actually worth a couple of dollars in real term. Which virtually means we had acquired half the piece of A-4 size paper at the cost of a few thousands dollars. A long-life oil field though incurred heavy investment initially, but the gushing is still vigorous after 50 years would almost see the zero marginal cost within striking distance. But, crude remains hovering over 100, notwithstanding. Shrinking housing that has resulted numerous purchaser unable to meet the mortgage is another vivid example.
So, I don’t see any strange behaviour or distortion in precious metal dealing.
We live now for today. We don’t even know what will happen right in front of us – tomorrow.
The dollar in your pocket is worth a whole lot less today than 100 years ago. And you have the Federal Reserve to thank for you. So, as the Fed approaches its 100th birthday, Gregory Bresiger reflects on the controversial institution, relaying the criticisms of several of the Fed's most vocal opponents. Read on...
There's been a lot of press lately about the 3-D printing revolution - much of it right here on The Daily Reckoning. But there is one technology that's already threatening to make 3-D printing yesterday's news. Josh Grasmick examines a new kind of printing... that takes place in the 4th dimension. Read on...
Rejoice! What was perhaps the freest market in the entire world is now ended. Crushed. Wiped out by the swift hand of the state. Wait... That's NOT a good thing? (Sigh)... Oh well. It was fun while it lasted. Dominic Frisby explains why the shutdown of the Silk Road is such a travesty. Read on...
There is one chart, just one chart, that market analysts and gold bugs alike could learn a lot from. It displays clearly the ebb and flow of one critically important trend, where it's headed through the end of the year, and how you can use it to your advantage. Greg Guenthner explains...
China's push towards a more market-based economy could kick into high-gear, as recently proposed economic reforms are some of the country's most radical policy changes in over three decades. But what will that mean for foreign investors and how could it shape the global economy? Frank Holmes takes a closer look...
John Mauldin spoke with Steve Forbes on the future of gold and the Federal Reserve in an interview released yesterday. What he said may surprise you.