Tuesday, July 26, 2011

USA should default and decrease debt ceiling now

It would be just amusing to watch the comedy of USA debt ceiling issue if USA was not the largest economy of the world and the only environment which can produce great innovations. These last 2 weeks showed how uneducated the US public about economy and how the rulers of this country are detached from reality. Visualize a family which can only meet ends by credit card amounting 40% of his salary. His credit card debt ceiling is reached and the father wants to increase the ceiling. Will it save the family? Hell no, it will only save the day. Only one thing can save the family, stop borrowing now and live within your means. Yes it is very painful now but at least you avoid the much bigger pain later. It is much better to default with 14K debt then 28K debt. It is obvious that USA will not grow out of its debt if something age turning like locomotive, electricity, car, computer or internet is not invented. But since resources of USA are extremely misallocations due to endless attacks to free market by Keynesian central banks, it is also very unlikely that something like that will be invented in USA. Do not look at the rest of the world, no other country has the environment for an invention like that.

I do not believe that Americans like their kids. If they did they would take the pain now and prevent a bigger pain waiting for their kids. But it seems like they hope they will avoid the pain and die before they default so their kids can pay their debt.

So I totally agree with Ron Paul when he says "USA should default now, or suffer a more expensive crisis":

"The alternative to defaulting now is to keep increasing the debt ceiling, keep spending like a drunken sailor, and hope that the default comes after we die. A future default won’t take the form of a missed payment, but rather will come through hyperinflation. The already incestuous relationship between the Federal Reserve and the Treasury will grow even closer as the Fed begins to purchase debt directly from the Treasury and
monetizes debt on a scale that makes QE2 look like a drop in the bucket. Imagine the societal breakdown of Weimar Germany, but in a country five times as large. That is what we face if we do not come to terms with our debt problem immediately."

Mark Thornton goes one steps beyond in Mises Institute web site and suggests "lowering the debt ceiling":

"What we really need to do is to lower the debt ceiling. If Congress passed legislation that systematically reduced the debt ceiling over time, the economy could be rebuilt on a solid foundation. Entrepreneurs in the productive sectors would realize that an ever-increasing proportion of resources (land, labor, and capital) would be at their disposal, while companies that capitalized on the federal budget would have an ever-declining share of such resources.


Under a reduced debt ceiling, the federal government would also have to sell off some of its resources. It has tens of thousands of buildings that are no longer in use and tens of thousands of buildings that are significantly underused — about 75,000 buildings in total. It also controls over 400 million acres of land, or over 20 percent of all land outside of Alaska, which is almost wholly owned by the government. There is also the Strategic Petroleum Reserve and many other assets that could be sold off to cover short-term budget shortfalls.

Of course, reducing the debt ceiling would force the government to stop borrowing so much money from credit markets. This would leave significantly more credit available for the private sector. The shortage of capital is one of the most often cited reasons for the failure of the economy to recover.

Lowering the debt ceiling would force federal-government budget cutting on a large scale, and this would free up resources (labor, land, and capital) and force a cutback in the federal government's regulatory apparatus. This would put Americans back to work producing consumer-valued goods."

Source : Lower the Debt Ceiling

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