Saturday, July 2, 2011

The debt ceiling problem even confounds Ron Paul

Ron Paul has recently come out with a "creative" way to skirt the overly hyped-up debt ceiling problem: annihilate the debt between the FED and Government. This would have the effect of reducing the Government debt by 1.6 trillion. But, by his own admission, since the Government doesn't have to pay the FED back, it really doesn't make a difference besides buying time before the Government reaches the debt ceiling.

While I admire Ron Paul - he is literally the only on in Washington with a good grasp of the economic predicament we're in - I am dubious about the efficacy of his plan, in part because I want the Government to reach its debt ceiling. Moreover, there is no substantive difference between his plan and a straightforward ceiling raise to 16 trillion.

Contra most politicians and the brain doping media that serves them, the is no serious threat of default if it reaches the ceiling; being unable to service any more debt is not tantamount to being unable to pay it back. It will simply require vast reductions in spending. Spending cuts that would never have been implemented without sufficient pressure to do so. When left to themselves, politicians will never do the necessary thing until they have to. And while there are more *ideal* and *optimum* ways to dealing with it, this is the only plausible way grounded by the parameters of washington politics.

As will be no surprise, Republicans will succumb to raising the debt ceiling - with or without the spending cuts, not realizing that with the debt ceiling breached, there will be no need for democratic or anybody else's support for spending reductions. They will flow inexorably. Nothing is off the table now.

No comments:

Post a Comment