Posted on 05/20/2011 11:08:07 AM PDT by frithguild
More and more I like the idea of not raising the debt ceiling. I like it financially and I like it politically. If congress leaves the debt ceiling where it is, then assuming that Obama is responsible enough to continue to make debt payments, we’re talking about roughly a 29% across the board cut in spending. That’s steep and would no doubt hurt, but it wouldn’t be the end of us.
So long as Obama gives every indication that he is going to continue to make our debt payments, the markets will probably like it. It would put a real floor under Treasuries and very likely push rates lower as supply rolls off. But even more important, it would then be a real rate, not the ‘pretend rate’ we’ve been seeing since the start of QE. And with that, prudent companies will show better results than imprudent ones and the market can begin to reward winners and punsh losers - instead of the other way around.
Since the start of QE, equity implied correlation has been at historic levels, and credit upgrades and downgrades have been ignored completely by the market. That means the the difference between a good company, and a bad one was considered irrelevant and the market treated all of them the same. The only thing that mattered was their relationship to the S&P index, and how much money they could get from Washington. It made the value of the dollar the principle risk in equities, and that overshadowed any difference between various stocks.
But capping the supply of Treasures would in effect increase the effectiveness of every dollar printed by the Fed. They could get more accomplished with less - substantially reducing the risk of hyperinflation.
It would in effect turn off the treadmill, so the markets can begin to act rationally again. The need for QE will be greatly diminished, and even if it is needed again, the amount required would be a fraction of what it is now to achieve the same effect. In fact - the effect of a Treasury supply freeze might be so pronounced that the fed may be able to keep the same target rate while removing liquidity. Market volatility will go up a little, but so long as Obama acts like an adult, it won’t be enough to cause concern. In short, the markets will be healthier.
Meanwhile down in ‘rainbow and unicorn land’ in DC, Obama will be the one who is forced to decide what is cut and what isn’t. This will give a real window into what actually is an ‘essential’ government service and what is not. Maybe that means the Whitehouse will try to cut all of the money out of the defense department, but there will be serious political consequences to something irresponsible than that. DC republicans can simply stand back and say that they trust Democrat to act responsibly and make these decisions - and then force them to live with it at election time.
Keep in mind, I’m not some breathless activist with ammo and MRE’s in my basement hoping the reports of the rapture are true. I’m a professional investor with 21 years experience. I don’t get my ideas from talk radio; the guys on talk radio get their economic ideas from guys like me. And the more I think about what will happen if the debt ceiling isn’t raised the more I like the idea.
It won’t solve all out problems, and it will create quite a few. But the problems it will create are the same as those that are created for a college kid when their parents cut up their credit card. And I think Washington Democrats can do with a few problems like those. They’ll survive it, and so will we. It won’t be the end of everything.
And the markets will not react as badly as the folks in the media and the Democrat pitch men would have you believe. Until Obama and the Democrats decide that it's more important to provide a windmill subsidy than it is to keep our triple A credit rating, the markets will not rebel at this. Unless you believe that Obama and the Democrats are prepared to blow it all up, (and take 100% of the blame for it) you should support the idea of leaving the debt ceiling where it is.
I really think we should do it. Let’s leave the debt ceiling where it is, and watch the squirming as Democrats try to figure out how to find the money. Lets see how many Muslim outreach programs, illegal alien healthcare proposals, and rode cowboy festivals are essential then.
So long as you believe that DC Democrats are both competent enough and responsible enough, then you should support leaving the debt ceiling where it is.
Ping
I like the way this guy thinks.
Me too!
You want the USA to have junk bond status credit rating? Really?
This is a bargaining hip to get exactly what we want. Use it.
No. Read Part I. I should have posted the link. Sorry.
http://www.freerepublic.com/focus/f-bloggers/2722032/posts
This article is wrong in it’s headline, and precedes from bad data and surrenders the battle over baseline scneraios for the US and world economy to economists who are absolutely opposed to any form of austerity.
Using realistic baseline scenarios brings one to the conclusion the Federal Government must be reduced by 40%.
BY surrendering the actuarial and forecasting to Progressive economists and bureaucratic fiefdom economists in the government, you are allowing for the government to remain at least 11% larger than it must be reduced.
It’s a huge number in real dollar terms, and it can not be a battle surrendered without a fight every day to control the definition of terms in the media and the bureaucracy..
Raise it until the default, and let’s get this thing over with.
Gallup: For First Time, Majority of Americans Favor Legal Gay Marriage
http://www.freerepublic.com/focus/f-news/2722729/posts
No, I believe we would be talking about cuts to discretionary spending alone, which would be far larger than 29%. Cuts would not be made to debt payments and could not be made to any of the non-discretionary programs without Congress voting them.
That’s true. Social Security and Medicare account for $900B, which means cutting $1.7T out of $2.8T, or 60%.
I still say it must be done.
I also say spending cuts alone — or austerity measures — are not going to put us back on the right track. There is a fundamental attitude change that has to take place. People need to acknowledge that expecting others to carry their burdens has been tried and it has failed. The future must be based on guarantees that your success will not be stolen from you to compensate someone else for their own shortcomings.
This means lobbying must be seen for the corruption and purchase of political favors that it is. It means a flat tax. It means the end of collective bargaining and other extortion schemes. It means the end of all subsidies, deductions and tax credits. It means cracking down on illegal aliens and other freeloaders. Spending alone didn’t ruin this country — the whole panoply of progressive ideas did that.
They are going to have to figure something out. For the moment the republicans seem to have found a spine. They can only rob money from so many places before they run out. Then it is up to OBAMA to figure out where the money is going to come from (or be cut from).
Good luck buddy! You ran for the office. Now it’s yours. Deal with it.
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