WAKING UP TO ECONOMIC REALITIES

Waking Up To Economic Realities
Ron Paul. Thursday, 28 April 2011

Financialsense: http://www.financialsense.com/contributors/ron-paul/waking-up-to-economic-realities
http://futurefastforward.com/feature-articles/5395-waking-up-to-economic-realities-by-ron-paul-28411

Last week the financial markets were roiled by Standard & Poor’s announcement that they will change their outlook on the fiscal health of the United States over the next two years from “stable” to “negative”. The administration decried this decision as political.

However, it seems the only political thing about this decision is the fact that it took so long. The Washington Post recently reported that the White House and the Treasury Department put tremendous pressure on S&P not to do this. However, if S&P made its ratings based on political pressures rather than economic reality, it would cease to have any relevance to the business community. Even if S&P delayed its announcement that U.S. government bond market would be downgraded, at some point it would become obvious that the finances of this country are out of control and our leadership is out of touch. All credibility would be lost if S&P simply continued to assign U.S. debt a AAA rating.

S&P noted in its announcement that negotiations among leaders in Washington to address deficit concerns did not sound promising, and expressed skepticism that politicians could agree to any viable budget compromise. Of course this has been obvious for years but in the midst of the current debate over raising the debt limit it is perhaps the wake-up call that Washington needs. For decades politicians and government officials have been able to maintain their denial about our real financial situation, patching the system together by passing emergency and supplemental funding bills, issuing more debt, and allowing the Federal Reserve and foreign creditors to paper over deficits with more monetary expansion. I’ve said many times the real day of reckoning comes when fiscal and monetary tricks no longer work and there are no buyers for our debt.

Even the most conservative budget that has been proposed by Republican leadership requires raising the debt ceiling by an additional $9 trillion by 2021. This demonstrates absolutely that no one in power right now has any real intention of addressing our spending problems or paying down the debt. They simply expect to continue to borrow and run up more debt forever, without limit. Yet they always imagine our dollar will have value no matter how many we print. This expectation is foolish and naïve. I guarantee that those buying our debt are not foolish and naïve enough to go along with this charade forever.

The S&P announcement may just be the harbinger of economic realities acting as a restraint on government expansion. Government is not anxious to cap its own growth, in spite of misnomers like “debt limit” or “deficit reduction”. [THE US] Government will continue to grow like a cancer, sapping our country of its wealth and freedom until the laws of economics no longer can be ignored.

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READ ALSO :

QE2 and the Fate of the U.S. Economy
By David Galland04/26/2011
http://www.financialsense.com/contributors/david-galland/qe2-and-the-fate-of-the-us-economy

Extract:

The politicians and their friends down at the Fed can pretend, as they do, that the overhang on the economy of some $14 trillion in debt, and another $50 trillion or so in longer-term entitlements, is much ado about nothing. This view of theirs is confirmed by the current budget discussions that talk of slashing $4 trillion out of federal spending over the next 12 years – but ignore that this slashing still anticipates annual deficits on the order of $1 trillion. There are facts and fictions in this universe of ours, and it’s a fact that the notion of spending our way to better days is a fiction.

And so, in my mind, there is no question that the Fed will ultimately be forced to unleash QE3, and that will be followed by QE4, QE5 and so on through QE15 – or whatever number is in force at the time of the dollar’s collapse.

OPEN: http://www.financialsense.com/contributors/david-galland/qe2-and-the-fate-of-the-us-economy

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OR, READ THIS IF YOU HAVE SOME BACKGROUND ON ECONOMICS:

Monetary Policy in 3-D
By John Hussman PhD. 04/27/2011

http://www.financialsense.com/contributors/john-hussman/monetary-policy-in-3d%20

Extract:

I am so adamant that quantitative easing is an irresponsible policy - we know how these variables are related. Specifically, it will be nearly impossible to normalize interest rates, even slightly, without a massive contraction in the Fed's balance sheet. Likewise, as we approach 17 cents of monetary base per dollar of nominal GDP, even the slightest exogenous interest rate pressure will imply the need for massive reversals in the monetary base in order to avoid steep inflationary pressures. [..]

So while the Fed might have the latitude to pay another 0.25% of interest on reserves, every extension of its present policy course, be it more quantitative easing, or paying interest on existing bank reserves, substantially increases its already untenable level of balance sheet leverage, and the likelihood that the public will quietly need to subsidize that balance sheet.

OPEN: http://www.financialsense.com/contributors/john-hussman/monetary-policy-in-3d%20