Monday, February 6, 2012

A Government Induced Coma

From The Market Ticker:
What Mr. Schwab is missing here is that The Fed is hardly an "independent" central bank.  It is in fact beholden to Congress, which has pumped up $5 trillion in debt over the last three years.  That debt has a servicing cost, and it is the "ultra low" interest rates that make this temporarily affordable. 
How is Congress going to service this debt when the rate of interest rises?  More to the point, where are the adults in the room in Washington DC?  We've had this on both sides of the aisle -- "we must stimulate the economy!" -- with borrowed money.
Outright bribery of the electorate both hasn't and can't work to lead to a durable recovery.  Instead, it has backed Bernanke and Congress into a corner.  When rates rise to just a blended 4% Congress will be facing a $600 billion annual interest bill.  From where will the money come?
This is the trap into which Japan fell and what we are facing today.  It is an extraordinarily destructive cycle that is very, very difficult to break, because it requires pulling the liquidity support at the same time Congress dramatically raises taxes, cuts spending (real cuts, not the imaginary cuts from "baseline" budgeting) or both.  In short it requires admitting that we took fiscal heroin to avoid pain and accepting the accumulated damage for a period of time, accepting the "deferred depression" that we all tried to hide.
Our economy is in a government induced coma.If the economy was to take off and grow,it would cause a rise in interest rates that would make our national debt unserviceable.So our 'masters' in Washington -who sold us down the river to China- must keep a lid on our economy,lest we risk economic collapse because we can't pay the interest to our debt.

This is why Obama wants to raise taxes on richest 1%,just to pay the interest to the national debt.That's why also,he is leaving Iraq and Afghanistan,to reduce costs just to pay the interest to the national debt.

If we don't balance our budget now and get a handle on our national debt,it will swallow us whole.

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