"Debt Ceiling 81"
A horror movie with the most predictable ending yet...
By Bill Bonner
"The fiscal recklessness of the last decade has
been like watching a horror movie unfold."
~ Stanley Druckenmiller
Youghal, Ireland - "The debt ceiling…the debt ceiling…the debt ceiling…The horror movie continues with ‘Debt Ceiling 81.’ A sequel…to a sequel…to a sequel…etc. And, this time, poor Janet Yellen is the leading lady. CNBC: "The notion of defaulting on our debt is something that would so badly undermine the U.S. and global economy that I think it should be regarded by everyone as unthinkable," she told reporters. "America should never default."
Unthinkable? We have no problem thinking about it. And guess what. We think it would be a step in the right direction. Clearly, we are in a minority…perhaps a minority of one.
Reuters: "IMF says US default would have 'very serious repercussions' on global economy."
CNBC: "It is 'vital' that the U.S. finds a deal over the debt ceiling, Eurogroup president says."
Benzinga: "Xi Jinping Could 'Exploit' US Debt Ceiling Crisis, Warns Top Pentagon Leaders: 'China Describes Us As Declining Power'"
CNN continues: "If the United States defaults on its debt, it would undermine faith in the federal government’s ability to pay all its bills on time, affecting the government’s credit rating and unleashing massive turbulence in financial markets."
Good and Evil: There are only two options. One way is the path of reason and goodness, in which the debt ceiling is jacked up for the 81st time…and the disaster movie, otherwise known as US government spending, continues without intermission. Or…boo!...some killjoys in the hard right wing of the Republican Party…white supremacists and neo-nazis to a man…somehow prevent an increase. Then, the gates of Hell open wide…like the mouth of the devil himself, swallowing up the whole world economy. But even those knuckle-dragging Republicans who are blocking the debt ceiling increase are only doing so to get ‘concessions.’ Nobody wants a default. Except us.
As our old friend Sid Taylor used to say: “When your out-go exceeds your income, your upkeep is your downfall,” But there are two ends to that teeter totter. Out-go on one. In-come, on the other. All the commentators are focusing on adding some heft to the ‘income’ side. Without presenting any evidence, they claim the US government doesn’t have enough income…and that it needs to borrow more.
Nary a single newscaster or opinion monger – at least that we’ve seen – has looked at the other end…the out-go. Why not lighten up? When a family, or a business, reaches the end of its line of credit, it can of course just call the bank: “Hey…I went to the ATM. But, like, my card didn’t work. I called customer service. They said I have already exceeded my line of credit. Listen, could you spot me a few more dollars? I’ve got bills to pay.”
Downfall of an Empire: If you were a good credit risk…the bank might say “sure…no problem.” But what if you had already asked for an increase 80 times before? And what if there was no plausible way you could ever repay your debt? What if you had already crashed through your real debt ceiling – the amount that you could comfortably and reliably repay….and now you were just digging a deeper hole for yourself? And what if interest rates were on their way up – as they are – and it may soon be impossible even for you to keep up with the interest payments?
And what if you had lied to the bank about your liabilities? Stanley Druckenmiller: "This is what really annoys me, how no one talks about it... Do you know that the $32 trillion [in government debt] assumes the federal government will never make another Social Security or Medicare payment? [These huge obligations are not included as ‘liabilities’ in the national debt.] Only government accounting could think that the government is never going to make another payment, not one. Not to me... not to you guys when you get older. If you actually accounted for those (big) government programs…credible estimates put the value of that debt [total federal liabilities] at $200 trillion."
And what if, in your loan application to the bank, you forgot to mention your alimony payments, your mortgage, or your health insurance? Then, what would the bank say? “Uh…actually, we were just shutting down your account. Your past loans are being sent over to the collections department. We’ve sent someone over to repo your car. And your bank card has been deactivated.” What would you do? You could try to find another banker…perhaps catching him in the warm glow of a 3-martini lunch. But the 3-martini lunch is a relic of an earlier age. Like it or not, you’d probably have to cut back on your spending.
Geezers and Relics: We’re not breaking any new ground here… but the federal government receives plenty of money. It borrows because it chooses to, not because it needs to. This year tax receipts will be about the same as total government outlays in 2019. What are we missing? Was 2019 so horrible? We don’t recall any catastrophe that year. Would it be so awful if the feds couldn’t squander any more in 2023 than they did in 2019? And suppose the federales did default. Then, they’d find it harder to borrow. In effect, they’d have a real debt ceiling, not a fake one. They’d be forced to spend the money they had…and no more.
We watched Ms. Yellen’s speech at the G7 meeting. We had the impression that we were seeing a person, no longer at the top of her game, and not really saying anything. "There is no good alternative [to borrowing more money] that will save us from catastrophe.”
It was a sad show. We presume she once sounded as though she knew what she was talking about. Perhaps it’s time for her to stop talking. Ms. Yellen collected some $7 million for blah-blah speeches to Wall Street between her gigs at the Fed and the Treasury. Wasn’t that enough?
The top echelons of the US government are almost all relics. These geezers – Yellen is 76 – should have retired a long time ago. Their time is over. Their era is past. Their tricks no longer work. Spend, borrow, print…and raise the debt ceiling! You could get away with it only as long as inflation remained on the bench. Now that CPI increases of 5% are running loose on the field, it’s a whole new ball game.
And now, surely Ms. Yellen deserves better. She should learn from Lou Gehrig’s graceful performance in 1939. Gehrig was suffering from ALS, now known as “Lou Gehrig’s disease.” Though soon to die of the disease, he told the fans gathered in Yankee Stadium that he was “The luckiest man on the face of the earth” and retreated from public view. Poor Ms. Yellen’s age, her decrepitude and her incapacity are still on display. Maybe it’s time for her…along with Joe Biden, Donald Trump, the debt ceiling, ‘stimulus’ spending, $1 trillion deficits, and a long list of relics…to go the way of the three-martini lunch."
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