Voting "No" May Prevent Default

Default on the treasury debt is less likely if the debt limit extension is not approved. After all, less than $ 10 trillion of the ($ 14.3) national debt is made up of outstanding treasury securities (bills, notes and bonds). Something like $ 2.5 trillion is the social security trust fund (a figment of everyone's imagination) and another $ 2 trillion is held by various government agencies.

Default is virtually impossible if the debt ceiling extension is voted down, since the debt service requires relatively small amounts of money and social security can be completely funded (through the so-called trust fund) without increasing the national debt by a single penny. So where is the default?

Default is almost certain to occur within a few years, if the debt ceiling limit is increased. Within eight years we will be staring at nearly $ 30 trillion in debt with a GDP still in the teens (of trillions). Then, there will be no hope. Too many folks will be on social security and medicare and medicaid and only by cutting benefits to these folks will a $ 30 trillion problem get resolved.

I am assuming no tax increases. If taxes are increased, then overall revenues will decline (as will GDP) and the deficits and national debt will be much, much higher (because of tax progressivity).

The main concern for the rating agencies is not whether or not a deal gets done, regardless of what the deal is. Instead their concern is whether or not the deal will focus on reigning in the entitlements. Nothing proposed by either party will do that. That leaves the rating agencies with no choice but to proceed with a downgrade. Only if the debt limit is not raised is there a serious chance of avoiding a downgrade.

So, Obama tonight can talk all he wants about rich folks and their boats and planes, but this discussion is completely irrelevant. If you confiscated the wealth of every single person with income over $ 250,000, you still could not solve our fiscal problem.

The US has no savings: the public dissaves and the government dissaves. Their is no future for an economy with no savings. To finance investment, we run massive trade deficits and fiscal deficits. But, it won't work anymore.

The combination of large government deficits (federal and state) and absence of saving means eventual economic collapse. There isn't any way out unless someone has the courage to say no to a debt limit increase. In Obama's words, "if not now, when?"

At the end of the day, someone, somewhere in America has to save. With the entitlements discouraging private saving and guaranteeing that the government cannot save either, the future is pretty bleak.

The most charitable interpretation of Obama's position is that he just doesn't understand what is going on. There are less charitable interpretations.

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