Last week, Fed Chairman Ben Bernanke made a speech in Chicago where he warned that a long period of interest rates could lead to asset price bubbles or speculative lending ending in a new financial crash. Sadly, Bernanke is like a general fighting the last war. He’s worried about another banking crisis, fearful of another
On Friday, Treasury Secretary Jacob Lew sent a letter to House Speaker John Boehner, informing him that the Treasury will begin taking “extraordinary measures” in order to keep the Federal debt below the legal limit. Such measures could include redeeming current investments in the retirement accounts of civil service workers and would keep things running up through Labor Day.
As you may or may not recall, the last time we butted up against the debt ceiling in late January, Congress opted to push the issue out until mid May. They did so by allowing the debt ceiling to reset to its then current value of $16.394 trillion plus any additional borrowing required to keep things going through Saturday May 18th. (It is interesting that when a discussion of raising the debt limit enters the public realm, there is increased interest in gold and silver.)
Mr. Lew’s letter implores Congress to act sooner rather than later in order to “protect America’s good credit’. Furthermore:
“The global economic leadership position enjoyed by the United States rests on the confidence of Americans and people around the world that we are a nation that keeps its promises and pays all of its bills, in full and on time.”
Mr. Lew did not explain how paying back loans with an intentionally depreciated currency honored the spirit of keeping promises and paying bills in full.
Meanwhile the Congressional Budget Office is reporting that the budget deficit is falling fast due to much higher than expected tax revenues and an increase in payments by Fannie Mae and Freddie Mac. At the current rate they expect the 2013 deficit to fall to just 4% of GDP — close to the 3% that is considered sustainable as it matches long term economic growth rates. But even better, the CBO is predicting a debt to GDP of just 2.1% by 2015 and that it will remain below 3% through 2019. The net result will be a reduction of the total publicly held federal debt to GDP to 71% by 2018-2019.
At first glance that seems like a huge decrease since the current debt to GDP is over 100%. However the CBO specifically excludes, among other things, the debt already monetized by the Federal Reserve, in its total debt denominator. In reality, 71% is only slightly below where we are now. What is interesting about this approach is that it agrees with Ron Paul’s proposal to write off debt already monetized by the Fed. A surprisingly easy solution to the debt ceiling issue, but one that is not taken seriously, as I suspect it would too effectively illustrate the fraudulent nature of central banking to those who do not currently understand it.
Another interesting nugget regarding the CBO is the description of its fears of a long term increasing debt load:
“One is so-called “crowding out” in the medium and long run. In other words, to support higher spending, the government must either raise taxes or borrow more from investors. That would leave less money for the investment in the private sector and productive capital, such as factories. In turn, that can hurt economic output and incomes.”
Isn’t that a rebuke of the entire Keynesian philosophy of using public spending to spur private growth? Rather, it would seem to agree with the notion that government spending kills the real economy.
As far as reducing the the debt to GDP via economic growth, there doesn’t seem to be a strong precedent for it. In the last 33 years, there is only one small period of decline — under Clinton no less, and a far smaller associated burden imposed by the Federal government.
- It’s debt ceiling time again
- Universities’ endowment funds dump Treasuries
- The beginning of the end of the Japanese bond market and its impact on gold.
- Keynesian economics debunked in one graph
- Ron Paul on gold and the dollar
- Don’t get any crazy ideas. Only the dollar is money.
- Don’t get crushed in this smash
- Gold hammered; still bullish
- Bo in Universities’ endowment funds dump Treasuries
- Coin Monger in Industrial demand for silver increases but still not the best reason for buying silver
- Coin Monger in Don’t get crushed in this smash
- Coin Monger in Gold hammered; still bullish
- Bill Haynes in The beginning of the end of the Japanese bond market and its impact on gold.
The following is an excellent presentation by Christine Hughes of Otterwood Capital Management on the beginning of the end of the Japanese bond market and how it has negatively impacted gold in the short term. On April 4, 2013 the Bank of Japan announced their “2-2-2-2″ policy in which they will attempt to create 2%
The entire purpose of modern economics is to obfuscate the truth; to convince the masses to support policies that are contrary to their own interests. In the early twentieth century, economists in the United States realized the opportunity to transform their lot in life from that of dreary academicians to well paid pseudo-celebrities by becoming
With gold and silver having suffered their biggest declines in their 12-year bull market, Bloomberg TV invited Ron Paul to comment. Watching the video, one can easily see that the interviewers thought that they could hammer Ron, a long-time and vocal advocate of gold, because of the price drops. They were wrong. The video is
Neil Irwin over at the Washington Post recently set about reminding the unwashed masses that, only the dollar is money, in his piece “Bitcoin is ludicrous, but it tells us something important about the nature of money.” He starts us out with his “givens”. “We can all agree that the dollar bills in my wallet
Sunday night, sellers continued to smash the metals, driving gold to a low of $1422 and silver $24 on the Globex, an Internet platform for metals trading. Although numerous major banks and investment houses issued bearish reports on gold over the last few weeks, this decline is not warranted. This smash is not the result
As gold was being driven below $1500 earlier today, I received an email about an article titled “Gold’s irreversible trends driving it to $10,000.” The bullishness is based on the world’s central banks continuing to create money at rates never before seen, with some Establishment darlings (Paul Krugman, for example) calling for still more money
Significant in Shinzo Abe being elected Japan’s Prime Minister in December was his promise of a more liberalized monetary policy by the Bank of Japan in an effort to revive Japan’s stagnant economy. Last week, Haruhiko Kuroda, Abe’s appointee as the BoJ’s Governor, delivered in spades with a promise to double the yen in circulation
Now that Europe has reminded everyone that bank deposits are fair game for government confiscation in times of bank or State stress, I’m expecting to see demand for “real hard” assets picking up. And capital flight FROM JAPAN to productive assets to accelerate, including into gold. Quietly at first, then blatantly. (I believe it is
It’s really quite amazing to see the economic fallacies that are trotted out in support of the central banking/fiat money meme. This recent one attempts to blame rising wealth inequality and economic stagnation on the proliferation of robots in manufacturing and automation in general: The alarm over machines posing a real risk to jobs has