The views expressed in any article published in this blog are the author's own and do not necessarily reflect the views of Joseph Foster or Bob Lupoli.

Friday, April 8, 2011

U.S. Debt Ceiling - just say no to a measly +$2 Trillion

Joe:  last night I saw Charlie Rangel representing the Democrats on the budget issue. I heard him say in effect the budget is just a "guide"…. Imagine a business being run in this manner; it’s pretty clear for most business people that going over your budget, particularly on a company wide basis will result in serious consequences. I suppose,  maybe it is a "guide" but in business we view a budget figure as a line not to cross.

I think it is the same with the Debt Ceiling issue that will be coming up real soon. We only need another $2 trillion! (see link below)
Benny boy likens the debt limit to a credit card balance and warns that we shouldn’t even give the appearance of default since it will have a major negative impact on Treasury bond interest rates. This is certainly true, interest rates would increase, also his analogy to the U.S. misusing a credit card holds water as well. The issue is what to do about it? My uncle once met with his son in law who was complaining about his wife, my uncle’s daughter's misuse of credit cards – my uncle simply took all the credit cards and cut them up. This is where a good percentage of the public is at – the U.S. doesn’t deserve credit cards or a higher credit line! Bernake and his associates want a higher debt ceiling not because it’s good for the U.S.A. but because it makes their jobs easier, a higher debt ceiling is good for the Federal Reserve. Let’s stop paying China and everyone else, let’s negotiate like the degenerate gambler with debt that we are – the U.S. needs a 10 step program, otherwise we might get our legs broken or our knees capped! –Bob

Bernanke said he would "really support a program" for long-term fiscal discipline. And he said that, in theory, he had no problem with the idea of Congress doing that at the same time as raising the debt ceiling.

The risk would be if that effort to link the two raised doubts in the minds of bond investors as to whether the debt limit would, in fact, be raised. Bernanke warned that "even the possibility of default on existing debts" could have negative consequences for Treasury bond interest rates and the economy.

Bernanke used the analogy of a family with credit-card debt to explain how the debt ceiling differs from congressional spending decisions.

A refusal to lift the ceiling would prevent the Treasury from making payments on debts already accrued by Congress. That's like a family trying to solve its finance problems by refusing to make debt payments, Bernanke said.

By contrast, Bernanke said a responsible path is to get future spending under control – like a family cutting up its credit card. But at other times during his testimony before the Senate Banking Committee Tuesday, the Federal Reserve chairman sounded reluctant to see Congress cut up its credit card too quickly.

The Obama administration has been sounding hazard warnings all year on the need to raise the U.S. debt limit, but it has yet to deliver the worst news: Congress may have to raise it by more than $2 trillion.

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