|
President
Obama has continued and increased the reckless spending of the previous
Administration. Now, as the federal debt reaches its statutory limit, he is
spreading fear and panic in the hopes of having it raised.
Many of the
key people responsible for America's historic mess, including the President,
Treasury Secretary Geithner, former NEC Director Summers, and Fed Chairman
Bernanke, have pronounced publicly that a failure to lift the debt ceiling
will cause a catastrophic Treasury debt default.
This is
simply not true. The US Treasury has tax revenues that cover the service of
its current (staggering) debt of some $14.3 trillion.
Yet, that
doesn't mean the US government won't be forced to default in other ways.
Failure to pay the nominal interest and principal on bonds is only the
narrowest definition of "default."
When a
broader definition is used - which includes the use of inflation to erode the
real value of US debt - the US government has in fact been in a state of
continuous default for almost a century.
A 2011 dollar
is worth just four cents in terms of a 1914 dollar. As that new money
circulates, your dollar will lose some 53% of its purchasing power,
productivity increases notwithstanding. That's just in the last three years!
However,
despite this continued stealth default and the constant underfunding of
government obligations, hitting the debt ceiling would represent a very
serious escalation of the United States' insolvency. For, while Treasury
bonds would continue to be honored, many other obligations would not. This is
the time when seniors and soldiers should being paying attention.
If the debt
limit were not raised, the Administration would be forced to literally choose
which checks to send and which to cancel. On the chopping block could be
Social Security checks, Medicare reimbursements, military salaries, federal
pensions, and myriad boondoggles that the federal government has taken upon
itself to fund.
Perhaps the
President would cancel his next campaign stop to save the expense of fueling
Air Force One? Not likely!
While
President Obama would find himself walking through a minefield of special
interest groups as he chose where to cut, I expect the overall effort to be
broadly popular. This is, after all, what the boisterous American Tea Party
has been demanding all along. And the ultimate result would be a renewed
faith in the US dollar and Treasuries.
In fact, the
Republicans have in their hands the opportunity of a lifetime, the chance to
force the Administration into good sense, while avoiding the political
fallout.
Increasingly,
it appears likely that the Republicans will buckle. If they do, Americans
will be faced with a package that both sides will claim as a victory. The
losers will be hard working, patriotic Americans and those around the world
who believed the United States was good for its word.
John Browne
Senior Market Strategist
Euro Pacific Capital, Inc.
20271 Acacia Street, #200 Newport Beach, CA 92660
Toll-free: 888-377-3722 / Direct: 203-972-9300 Fax:
949-863-7100
www.europac.net
For in-depth analysis of this and other investment topics, subscribe
to Peter Schiff's
Global Investor Newsletter. Click here for your free
subscription.
Click here to download Peter's latest Special Report: My Five Favorite Gold & Silver
Mining Stocks.
Be sure to pick up a copy of Peter Schiff's just-released economic fable, How an Economy Grows and Why It
Crashes. Click here to learn more
and order.
|
