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Peter Schiff - Raising the Roof on Debt

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May 17, 2011 – Comments (3) | RELATED TICKERS: GLD , SLV

Today the U.S. government officially borrowed beyond its $14.29 trillion statutory debt limit. And even though the Obama administration has assured us that accounting gimmickry will allow the government to borrow for another few months, the breach has given seeming urgency to Congressional negotiations to raise the debt ceiling. Republicans are making a great show of acting tough by linking their “yes” votes with promises for future budget cuts (that could even slow the rate of debt increases at some uncertain point in the future). But as we go through the process, many novice observers may wonder why we have a debt ceiling at all when our government has never shown the slightest inclination to respect its prior self-imposed limits.

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3 Comments – Post Your Own

#1) On May 17, 2011 at 2:21 PM, rfaramir (29.26) wrote:

Wow, sobering. And true.

The way I see it, the interest and principal we owe on our debt is a higher priority than the promises of Social Security, Medicare, Medicaid, and other welfare programs that politicians have made. The former is backed by the "full faith and credit of the United States", the latter backed by the character of our current politicians. The difference isn't so much to whom we owe the money, seniors will be hit hard either way. It's more like a bankruptcy, where the debtors come before shareholders in the line to get what remains of the corpse.

Raising the debt limit debases our currency. Continually raising it destroys it. And our debt rating suffers accordingly. If we can stop spending too much and stop raising the debt limit, we can keep our good rating (for the right reasons, not by strong-arming the rating agencies), and have a decent chance of actually paying off the debt eventually.

This is obviously true: "more debt weakens a nation’s financial position." So, we need to stop. It's certainly not helping the PIGIS.

"capping U.S. debt at current levels means bringing a future crisis into the present where it can be dealt with in practical terms. This is something that nobody in Washington actually wants." But exactly what we need to do. Pushing it farther out into the future just makes it bigger, a bigger disaster which we will not ride out. The chickens waiting to come home to roost are just getting fatter and meaner while the roost gets taller and ricketier. Pulling it into the present makes it more manageable. It will be painful, either way.

With pain either way, those with no morals will push the responsibility onto those who come after them. It's the easy and wrong choice. Peter is "100% confident that Congress will do the wrong thing" while I am 10% hopeful that it will do the right thing. I fear Peter is wiser than I.

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#2) On May 18, 2011 at 10:53 AM, CluckChicken (27.28) wrote:

If one was looking at the Federal Government in the same way one looks at personal financing then yes raising the debt cieling would appear to be very bad. Because of the size of the US economy and government (all not just federal) it does not play by the same rules that people or even other governments do.

 

I really love how he just glosses over several things as though they are non-events: "If we do today what we have failed to do in the past, we very may well default on a portion of our debt. No doubt our creditors will suffer." & "tell the truth to Social Security and Medicare beneficiaries who have been promised more than taxpayers can deliver." & "They will have to tell the truth to our creditors that the U.S government has borrowed beyond the ability of its citizens to repay."

 

If we default on our payments Japan would instantly fall into a depression, China would be close behind, an unknown number of other nations would follow. Why? Well an number of places use that interest we pay to fund large parts of their economy. Anybody think that having most of the world in an economic free fall would be good for the US? I do not think anybody has any idea on what a US default would do to the value of the USD but all the economist say that it would be extremly bad. Interest rates for government loans are basically based on trust and after defaulting on payments the US would not be as trust worthy, and other governments are not as quick to trust as individuals or larger entities would be.

 

Fine there are some accounting gimiks that keep SS and Medicare/Medicaide seeming more affordable then they may be but what happens if we get rid of those without an affordable alternative (private insurance is not affordable)? Those that get sick will go to doctors (they will go to emergency rooms making things worse there) and doctors will still treat them and just pass the cost along to those that pay, the more that do not pay the faster the costs rise for all. Wonder what the people's reaction would be to night after night of news stories about homeless elderly.

 

If the government really wanted to we could pay off the debt in a couple years but nobody wants to pay 50% taxes on all income, heck the ultra wealthy cry about paying less than 20%.

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#3) On May 18, 2011 at 11:20 AM, eldemonio (98.78) wrote:

We might as well raise the ceiling to infinity +1.

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