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Washington has a deal

Well not really.  As of this morning The Speaker and the Senate Majority Leader have a verbal agreement.   Not nearly the same as voted on and signed at the White House.   However, the pundits seem to think that this is It.   Well what is It?

That is a hard thing to know about Washington.  Remember Speaker Pelosi’s comment that we would have to pass the bill to see what was in it?  I assume that not even the bureaucrats in D.C. can generate 2500 pages of paperwork for this legislation in a day.  So we will get a better and pretty thorough analysis today and tomorrow.

What we do know is there are some cuts on the order of a trillion dollars ( in a year, ten years? )and a new super congressional commission to push through some more this year.  The Debt Limit will be raised and the talking heads will say that Armageddon has been avoided.

What this is not is a solution to the real problem.  The debt ceiling is artificial and Congress could move it any time.  They have in the past.  They could make it $250  quadrillion dollars if they wanted to.  That is not the real problem.   The United States is getting closer to its Credit Limit.  The national debt is about 71% of GDP.  Our Credit Limit is not a neat fixed number like the Debt Limit.  Depending on the economist you speak with, the markets will loan us money until we reach 95% to 105% of GDP.

At that point the Debt Limit is meaningless.  Greece has no debt limit and no one will loan her money at any interest rate.  We are Greece without the nice beaches.  This is the real Armageddon that media is not talking about.  The Government is borrowing 40% of the budget today.  Nearly $5 BB a day.  When we hit the limit those funds will be gone.   That will result in some true nightmare scenarios.

  • True default on the obligations of the US
  • Massive reductions in Defense
  • Eliminations of huge chunks of the social safety net
  • Return of the Carter Era Misery Index

There is an even worse story.  Southern California has started elementary discussions to secede from the state because of the fiscal and political paralysis of Sacramento.  Anyone out there remember the Soviet Union?  She was not conquered or defeated.  She went bankrupt.  Rome was broke before the barbarians stormed the gates.  The Greeks are having to sell islands to raise cash.

Barack Obama wanted to be transcendental President.  No red or blue states, only purple ones.   If the deficit is not seriously tackled, which this deal does not appear to do, he may be the last President of the United States.



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