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Sanity Zone 8-1-2011 << Stupid is as Stupid does >>

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Posted 07-31-2011 at 01:49 PM by xan

Hi Everyone.

I thought it somewhat necessary for my intellectual health to write at least something on the foolishness surrounding the so-called "Debt Crisis." I hope you all remember that I have no dog in this hunt, save that I am partial to eating and sleeping safely in my home, working for a wage, and not being persecuted for my beliefs.

For all those who wonder whether it would be catastrophic to allow the US to default on its obligations, the answer is yes. The level of catastrophe will be based on how long it takes there to be a deal. We miss a day, not a biggie, in the grand scheme of things. Miss a week, a month, two months...Our government pays out on Fridays, so, technically, there's a few extra days in there before a real chasm appears.

As someone who is integral with the capital markets, I can attest to the fear of banks and businesses that this Congress cannot make a deal. They are hoarding cash and either not hiring or laying off workers because default at any level means higher borrowing costs. Higher borrowing costs means that less funds will float through the system. Less funds floating through the system means that consumer demand will fall. Consumer demand falling below what it is today means that small businesses will shutter up at an accelerated pace. 70% of our economy is supplied by small businesses.

The writing on the wall for this day came when the Tea Party candidates gained a substantial foothold in Congress 18 months ago and made this date their publicly stated Armageddon. You can, in multiple databases, trace the rapid accumulation of cash by banks and businesses, the reduction in hiring and the slowing of consumer demand to that date. It's like the scene in those old western movies where everyone knows there's going to be a shootout on the main drag, so everyone shutters up, hunkers down and hides until either or both sides annihilate the other.

The debt ceiling is a silly construction with only one purpose: it gives legal license for politicians to be monumentally stupid. When Congress enacts laws that commits the goverment to pay for something, even in the future, that obligation, by Constitutional Law must be met. The government must pay that obligation or be in default. The "debt ceiling" law itself is counter-Constitional. It violates Article III and Amendment 14. An analogy is Paris Hilton running up huge debts, then declaring she has a law saying that any debt incurred above a certain amount means that she doesn't have to pay it, like cell phone bills, anti-vapid pills, or interest on past debts, or her dog food/burial bills. Good luck with that.

The Debt Ceiling and the future deficits are not linked, and should not be treated as such. The Tea Partiers have successfully linked those two, and few Republicans will support any measure that doesn't link them. In the Senate, a bill simply lifting the Debt Ceiling was threatened with a philibuster. Were there not 8 non-stupid Republican senators?

I applaud those who believe that we should adjust the way our government works. Making government more efficient and accountable is the #1 criteria each legislator should use in determining whether any law or bill is passed. Shutting government down, however, does not accomplish anything but pain for the most vulnerable. It also makes growth impossible.

If we have to revisit this issue again before 2013, the markets will eviscerate us. If you think the last 4 years have been bad, the Depression will look like 10 years in a Four Seasons by comparison.

But, hey, what do I know. I'm just a Economics Professor, Investment Banker, Entrepreneur, and Community Activist.

I'm trained to locate stupid. I am pretty certain we've found it.


*****
I want to apologize to my mother in advance for using the term "Stupid." It is ugly, discourteous and not what civilized ladies or gentlemen use to describe the premeditated criminal failings of others.
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Comments

  1. Old Comment
    saintfan's Avatar
    Any attack on the Tea Party or the Republicans for threatening a 'show down' is a valid one only if one will readily recognize the fact that there is not a political party in American's history who hasn't used the very same tactic as a means to the very same end since such a tactic was viable.

    As usual, I agree with you in spirit, but let's not kid ourselves. This 'showdown' isn't new.
    permalink
    Posted 08-01-2011 at 09:28 PM by saintfan saintfan is offline

  2. Old Comment
    xan's Avatar
    I am not suggesting that "showdown" isn't a viable or well worn strategy. This just happens to be that this is the first time in our history that the ridiculous threat of everyone in the world getting hammered mercilessly for the next 10 years in order to agree to pay our bills was used.

    Our problem was never the government spending. It was the lack of revenues to pay for the programs we all voted for. (Don't give me that trite "I never voted for them" garbage. The bills were passed and the spending authorized. Home ownership, Science, Education, Defense, Medicare, Medicaid and SocSec have been around for 50 years or more. There hasn't been a single federal program that any of us hasn't either directly participated in or one of our family members/close friends have utilized.)

    We should be all paying higher taxes for the privilege of living in a country that provides so much.

    If any US citizen can make a verified claim that in no way were they the beneficiary of any US government program on the way to their standard of living, I'll give you my salary for a year. (BTW, if you even walk on a sidewalk, you fail the test... for that matter breathing America's Free air, you fail.)
    permalink
    Posted 08-02-2011 at 02:17 PM by xan xan is online now
  3. Old Comment
    homerj07's Avatar
    Ok you have opened Pandora's Box - I understand what you are saying & I fear for our country.
    permalink
    Posted 08-02-2011 at 07:56 PM by homerj07 homerj07 is offline
  4. Old Comment
    Euphoria's Avatar
    Don't you just love credit.
    permalink
    Posted 08-10-2011 at 11:11 PM by Euphoria Euphoria is offline
  5. Old Comment
    xan's Avatar
    Agreed

    I just love denial. It's like watching your best bud getting abused by some man or woman. He/she refuses to see how nothing is going to get better until they take responsibility and change the dynamic. "You just don't know him/her like I do."

    No, you don't know him/her like WE do.
    permalink
    Posted 08-11-2011 at 08:45 AM by xan xan is online now
 
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