Debt Ceiling: Anything But Spending Cuts
Some pundits say that it is all but certain that the major credit rating agencies (Moody's, and Standard and Poor's) will soon downgrade U.S. sovereign debt. For months, we've been told that such a downgrade would be calamitous, that interest rates would soar and that it would throw us back into recession and make 2008 look like a picnic.
But the ratings agencies don't care about next year's election and whether Congress will have to revisit the debt ceiling issue in the middle of campaigns. The agencies only care about our credit worthiness. President Obama's campaign timetable has nothing to do with that. Yet, raising the debt ceiling enough to get us past the election seems to be the main consideration for Democrats.
So America is looking straight into the maw of an unprecedented credit downgrade, and all that comes with it, merely because of the political calendar and the fortunes of the party that got us into the mess in the first place. The Democrats obviously have higher priorities than whether we fall back into recession. Last March, in "Pimco cuts US Treasuries holdings to zero," The Financial Times reported:
The move by the $237bn PimcoTotal Return fund follows warnings by its fund manager Bill Gross of rising bond yields as the US Federal Reserve nears the end of its massive bond buying programme, known as quantitative easing, or QE2.
Such rises would hit the value of holdings of bonds as their price move inversely to their yields.
Mr Gross, one of the most influential figures in bond markets, said in his March investment outlook that Pimco estimated the Fed has been buying 70 per cent of annualised issuance of Treasuries since QE2 began -- a programme he last year likened to a Ponzi scheme. [Emphasis added.]
Mr. Gross warned of a "void in demand" for U.S. debt by foreign investors. So even if Congress raises the debt ceiling, the buyer for most of that new debt may well be the Fed, which will further inflate the currency, stealing value from dollars that already exist.
This has always been the real issue in these debates: the fate of our currency. If we had to choose, wouldn't it be better to go back into recession than to ruin the U.S. dollar? (Between Congress and the Fed, it's a miracle we even have a currency.)
The bottom-line in the debt ceiling talks is whether Congress will spend less next year. Any debt deal that allows Congress to spend more in FY2012 than this year is a sham, which should result in credit downgrade, painful as that may be. The major credit rating agencies should have downgraded the U.S. long ago. (The agencies themselves should have been downgraded, as they played a big part in the 2008 financial crisis.)
Are Democrats capable of cutting any spending? It is apparent that Democrats either don't understand our current dilemma or have other priorities. Perhaps they may think that they can continue to blame Bush for everything, right through the election.
The most important thing the Tea Party and all true Americans and lovers of Liberty can do right now is to utterly, totally defeat the Democrats next year. Any vote on the debt ceiling that could jeopardize that victory should be reconsidered, as Thomas Sowell recently pointed out at Investor's Business Daily.
If the Senate bill just passed goes down to defeat in the House, the House should immediately pass President Obama's "clean bill," but for only enough to see the federal government through for another month -- about $120 billion.
Oh, the House might tack on one spending cut: Harry Reid's cowboy poetry festival.
Jon N. Hall is a programmer/analyst from Kansas City.