"The most significant threat to our national security is our debt," Admiral Michael Mullen, Chairman, Joint Chiefs of Staff, August 27,2010


Monday, October 14, 2013

The sky is falling

Every Chicken Little in the world is having their day.

Their message – America, you had better keep adding to your debt or else the sky will collapse and we all will suffer.  Catastrophic.
Who is to blame?

It is almost too irrational to answer that question.  The Chicken Little’s say the responsibility rests with those who wish to either stop adding to the debt or, at least, stop adding so much more debt.  Can you imagine what you grandmother or grandfather would have said to you if you tried that logic on them?
So, the Chicken Little’s are panicking.  America, don’t default.  Add more debt.
Where are you?  What do you think America’s “leaders” should do?
More debt.
Less debt.
No more debt.
Here is the one thing we offer as you watch this group of weak people, nary a leader among them, wail and caterwaul about this so-called shutdown:
Cui bono?
Who benefits?  Pay attention to who benefits.  To a person, in one way or another, the Chicken Little’s are the beneficiaries.
If you are an enemy of the United States, you are gleefully watching the world’s superpower bow down to the irrational but very selfish motivations of a bunch of Chicken Little’s.
There is not one powerful country in the world that lives off debt.  Not one.  The sky is not falling - the chickens are just coming home to roost.

2 comments:

NDDillon said...

This is a truly unusual post. First, a reader would presume that raising the debt ceiling concerns spending money that has not been approved. That is wrong. The House and Senate have passed bills, which the President has signed authorizing the expenditures.

Second, the post ignores the fact that the government debt as a percentage of GNP is falling. While a default might reverse that course, the debt in terms of a percentage of GNP is becoming less of a problem. For all of the hand wringing about the debt, one would think the author would acknowledge that this "existential" issue is becoming less serious.

Third, the post makes it seem as if there is no basis for believing defaulting on obligations would have a negative effect on the US and world economy. Who has taken that position? Maybe some extremists, but no economist with any bona fides has taken that position. A default would more likely lead to another recession than it would to calling those who believe it would "chicken littles."

The post ignores what can only be termed a fact that a default would cause benchmark interest rates to rise. If bond payments become less certain, the holders will require a greater risk premium. If the interest rate on treasury securities rise, then the cost of borrowing for the government and businesses would rise as well. A default would increase the debt both due to increased interest payments on the debt and reduced revenues, which would result from lower profits. Since the Fundamentals biggest concern seems to be reducing the debt, why is he hectoring for a situation that anyone who has taken an economics course would reasonably understand would lead to higher debt service costs and lower revenues to pay the debt?

the editors said...

cui bono?

perhaps nddillon?