G
Guns Guns Guns
Guest
"My members won't vote to increase the debt limit unless we're taking serious steps in the right direction," moans Boehner, whose fake tan lends him an uncanny resemblance to Snooki, but her approval ratings are higher than his.
Over the past few weeks, deficit hawks in Congress have been speaking out against raising the debt ceiling. I have heard stupid ideas before, but this, in the words of Warren Buffett, would be Congress' "most asinine act ever."
The U.S. government has a legal debt ceiling that limits how much it can borrow. If it wants to borrow more to finance the deficit, Congress must vote to raise the ceiling. Since we are now quickly approaching the limit of slightly more than $14 trillion and running a huge deficit, a vote will be needed in the next few weeks.
This is hardly a rare occurrence. Since 1962, Congress has voted to raise the ceiling 74 times. While this usually presents a good opportunity for our elected representatives to speechify about fiscal responsibility, they really have no choice but to raise the limit.
Otherwise, we will default on our debts.
You can argue, as I have, that the government needs to get its fiscal house in order. We will probably have to raise taxes, cut spending and reduce entitlements.
But raising the debt ceiling is not about fiscal responsibility. It is about honoring commitments we have already incurred or are in the process of incurring.
Each day, we are spending $6 billion more than we are taking in.
If we refuse to raise the debt ceiling, we will default on some of our debts. Even if we only threaten to do so, we will make our creditors nervous, which will have longstanding severe consequences.
If you stopped paying your credit card bills, you would quickly have your credit turned off. When you tried to swipe your card at the supermarket or the gas station, you would be politely told your card was no good.
If you stopped paying your car payments, the repo man would come to visit. At best, your future credit rating would be severely impaired. If you tried to get a loan, the rates you would pay could be astronomical.
It is the same with countries.
Would you lend money to a person who had just defaulted on his debts? Do you think governments are any different?
Would you give a low-interest rate to someone who told you in advance he might not pay you back? Do you think other governments will?
We have been living the good life, spending money we do not have, while others, like China, Japan and OPEC, have been financing our deficits. These entities accept low rates because they have confidence we are good for our debts.
If Congress refuses to raise the debt ceiling, these entities are not going to keep giving us low-interest loans.
In the event of a default, the dollar would plunge. Imported goods would soar in price. If you don't like $4 gas, how are you going to feel about $6 gas? Prices of clothes, electronics and everything else we buy will also go up sharply.
Foreigners will pull money out of the U.S., not just in bonds, but in stocks as well. If the dollar is going to drop, investments made in dollars will decline in value, so foreigners are likely to move investments to markets with stronger currencies, which will force down stock prices.
Interest rates will surge. Without other central banks and foreign investors to finance our deficits and with the Fed limited in its resources, the government will have to significantly raise rates to get Americans to buy bonds. And money put into bonds means money taken out of stocks, which will be more bad news for equities.
All this means that, in the end, Congress will vote to raise the debt ceiling. But some of the damage has already been done. Other countries are becoming increasingly concerned about our lack of fiscal responsibility.
If we do not see a budget compromise soon, look for the dollar to keep dropping and interest rates to start going up. Neither of these factors will be good for U.S. equities.
As a hedge, I believe investors should put more money in international stocks, especially emerging markets, and in U.S. exporters. Playing with the debt ceiling is a dangerous game.
http://www.nydailynews.com/money/2011/05/10/2011-05-10_playing_politics_with_the_debt_ceiling_is_a_dangerous_game_with_serious_conseque.html#ixzz1Lzg5O96g
Over the past few weeks, deficit hawks in Congress have been speaking out against raising the debt ceiling. I have heard stupid ideas before, but this, in the words of Warren Buffett, would be Congress' "most asinine act ever."
The U.S. government has a legal debt ceiling that limits how much it can borrow. If it wants to borrow more to finance the deficit, Congress must vote to raise the ceiling. Since we are now quickly approaching the limit of slightly more than $14 trillion and running a huge deficit, a vote will be needed in the next few weeks.
This is hardly a rare occurrence. Since 1962, Congress has voted to raise the ceiling 74 times. While this usually presents a good opportunity for our elected representatives to speechify about fiscal responsibility, they really have no choice but to raise the limit.
Otherwise, we will default on our debts.
You can argue, as I have, that the government needs to get its fiscal house in order. We will probably have to raise taxes, cut spending and reduce entitlements.
But raising the debt ceiling is not about fiscal responsibility. It is about honoring commitments we have already incurred or are in the process of incurring.
Each day, we are spending $6 billion more than we are taking in.
If we refuse to raise the debt ceiling, we will default on some of our debts. Even if we only threaten to do so, we will make our creditors nervous, which will have longstanding severe consequences.
If you stopped paying your credit card bills, you would quickly have your credit turned off. When you tried to swipe your card at the supermarket or the gas station, you would be politely told your card was no good.
If you stopped paying your car payments, the repo man would come to visit. At best, your future credit rating would be severely impaired. If you tried to get a loan, the rates you would pay could be astronomical.
It is the same with countries.
Would you lend money to a person who had just defaulted on his debts? Do you think governments are any different?
Would you give a low-interest rate to someone who told you in advance he might not pay you back? Do you think other governments will?
We have been living the good life, spending money we do not have, while others, like China, Japan and OPEC, have been financing our deficits. These entities accept low rates because they have confidence we are good for our debts.
If Congress refuses to raise the debt ceiling, these entities are not going to keep giving us low-interest loans.
In the event of a default, the dollar would plunge. Imported goods would soar in price. If you don't like $4 gas, how are you going to feel about $6 gas? Prices of clothes, electronics and everything else we buy will also go up sharply.
Foreigners will pull money out of the U.S., not just in bonds, but in stocks as well. If the dollar is going to drop, investments made in dollars will decline in value, so foreigners are likely to move investments to markets with stronger currencies, which will force down stock prices.
Interest rates will surge. Without other central banks and foreign investors to finance our deficits and with the Fed limited in its resources, the government will have to significantly raise rates to get Americans to buy bonds. And money put into bonds means money taken out of stocks, which will be more bad news for equities.
All this means that, in the end, Congress will vote to raise the debt ceiling. But some of the damage has already been done. Other countries are becoming increasingly concerned about our lack of fiscal responsibility.
If we do not see a budget compromise soon, look for the dollar to keep dropping and interest rates to start going up. Neither of these factors will be good for U.S. equities.
As a hedge, I believe investors should put more money in international stocks, especially emerging markets, and in U.S. exporters. Playing with the debt ceiling is a dangerous game.
http://www.nydailynews.com/money/2011/05/10/2011-05-10_playing_politics_with_the_debt_ceiling_is_a_dangerous_game_with_serious_conseque.html#ixzz1Lzg5O96g
