Wednesday, September 22, 2010

Republicans threatening to shut down the government again!



The continuing resolution (CR) to allow the government to function beyond the end of the fiscal year Sept. 30 is likely the last legislation lawmakers will send to the president before breaking for the campaign’s home stretch. The resolution is needed to avoid a government shutdown, because Congress hasn’t cleared any of the dozen appropriations bills for fiscal 2011.

Here we go again. Just like 1995 when the GOP shut down the government under the "leadership" of Newt Gingrich, they are threatening to do it again.

The U.S. can't default because it is a currency issuing nation and its debts are denominated in its own currency. Under those criteria it can't default. However, if it voluntarily decides to stop paying its debts because these Republican crazies shut down the government, then yes, that's a default.

9 comments:

Tom Hickey said...

Mike, the government can choose politically to default, although there is no operational necessity to do so. However, the courts have upheld suit to force the government to honor its obligations under the 14th Amendment, so technically default is out politically, too.

However, Congress can refuse to fund programs that it has established previously, and that is possible.

In the end, however, gridlock is politically poisonous, which the GOP should have learned when they tried it before. The majority of the public expects Congress to do the public's business.

Mike Norman said...

Thanks, Tom, I didn't know that. That must drive the Republicans nuts.

welfarewarfare state said...

It is true that we can't nominally defualt on our debt because our debt is denominated in currency that we can create out of thin air. But from a creditor's perspective, getting payed back in funny money is a de facto default. When the interest rates inevitably reset higher, despite and ultimately because of the Fed's actions, we won't be able to borrow as easily any more which will put even more pressure on the Fed to monetize debt. This will not end well for the citizens of a country who go down this path.

rvm said...

welfarewarfare, try today's billy blog.

http://bilbo.economicoutlook.net/blog/?p=11627

It's a bit long, but it will answer your question.

If you want shorter but equally sound work, try this:

http://heteconomist.com/?p=578

Cheers

welfarewarfare state said...

RVM, I didn't ask a question. I made a statement. Monetary debasement makes sense if you are the government because you can pay your liabilities and debt with a cheaper currency. An inflation tax is more politically palatable than direct taxation. The saver is punished and savings itself is discouraged. Where is real credit going to come from absent real savings? We have seen what happens when the Fed tries to replace real savings with credit money created out of thin air with the last two asset bubbles. When the phony credit pretends to touch actual capital the bubble will then begin to deflate. We need interest rates to be driven by the supply of avilable credit and the demand of borrowers. The interest rate is the most important price in an economy and it is crucial that it be teling the truth. The Fed's manipulation of the interest rate misleads market actors into thinking that there are more real savings than actually exist. When will this fantasy that increases the number of the medium of exchange is somehow a short-cut to real wealth creation?

rvm said...

Oh, you were making a statement. I am sorry, I didn't understand.

It looks to me that you have to answer a lot of questions for yourself first before making statements, and if you take my advice and read the links I provided, you will be on the way of doing this.

Regards

welfarewarfare state said...

I don't have any questions about how inflation works or bubbles form. I clearly saw the last housing bubble forming immediately after I saw what the Fed began doing in 2002&3. It is the Keynesians who need to start asking questions of themselves given that Keynesianism is the misguided economic model that we have been following for the last 70 years. I don't even think Keynesians deserve to be called economists. They are more like economic witch doctors or social engineers than economists. Our political leaders have been taking the advice of crackpots for too long. I'm not about to read a blog by someone preching crackpot inflationism unless I am in need of a laugh.

Tom Hickey said...

I'm not about to read a blog by someone preching crackpot inflationism unless I am in need of a laugh.

Why are you here?

BTW, were you one of those people who got creamed last year shorting bond in anticipation of hyperinflation. Oh, right, you only buy gold.

welfarewarfare state said...

Tom, I go to sites all over the internet trying to talk sense into crackpot inflationists and tax and spendinistas. And I don't only buy gold. I consider commodities, other precious metals and asian equities to be values. There are a few U.S. energy and mining stocks worth owning as well as a few U.S. companies that primarily export to asian markets.

I haven't shorted bonds, but I understand why many people are. dont' forget that the people who shorted subprime debt may have had to wait 2 or 3 years for the bubble to pop too. Not every person shorting bonds expects hyperinfaltion in the shortrun but merely high inflation. I think the real rate of price inflation is already over 6 percent. This is what private sources calculate and it dovetails closely with my own personal experience. The government weather man can tell me its sunny all he likes, but all I see are storm clouds. I would also point out that the defintion of inflation is an increase in the money supply with the EFFECT being an increase in prices all else being equal. I don't trust the government's numbers when they have every incentive in the world to massage the data. I think hyperinflation which I measure at over 20% price inflation per year will be on us at some point in the next 2 to 3 years. The Fed's bond bubble will have popped before then though.

The interest rates will reset higher when our creditors wake up and realize that they will be payed back in funny money. I consider the Federal Reserve a state-sanctioned cartel and the world's largest counterfeiting operation. The FED can only keep interest rates artificially low for a time without completely destroying the dollar. By the way, I've done quite well over the last decade. Price those U.S. stocks in gold over the last decade and tell me how you have done. I would also add that U.S. Treasuries haven't been gettting nearly the rate of return that many imagine because the real rate of the debasement of the dollar has been much greater than the government's CPI and PPI numbers would pretend. It' why TIPS aren't saef either

Cheers!