Tuesday, July 26, 2011

The circus to the south of us

If you or I keep going deeper and deeper into debt every year we’re eventually insolvent.  You might argue about when that becomes evident to the world but constantly increasing debt defines insolvency. 

The U.S. is insolvent.  Until they figure out how to turn that around they are a worse credit risk than they used to be.  Maybe they’ll inflate their way out of the problem.  It seems impossible that they will actually default but maybe they will on some portion of the debt.  Some of the debt is owed within the country to entitlement programs so if they cut the entitlements and don’t pay everything back that’s a de facto default in my opinion.  The bottom line is that they’re not as good a credit risk as they used to be.  They might still be a good bet compared with most countries in the world but they’re also clearly not as good as they used to be.

So it astounds me when I hear people say “we have to make a deal by Tuesday or risk a decline in our credit rating”.  It seems to me that ship has sailed and its already got a lot of miles under its keel.

The sad part of the whole mess is watching Obama being unpresidential.  He seems to think the election campaign is still on.  Rather than using the power and prestige of the office to advance compromise he seems intent on ramping up the rhetoric. 

On the other hand maybe its working for him.  I’ve got a good friend who keeps referring to the radical tea-party members who are being so “unreasonable”.  I guess that’s because they’re saying all sorts of silly things like “the US can’t pay its bills” and “you can’t tax your way to prosperity”. 

Here’s a little tidbit I included in an email to that aforementioned friend last night:

US Total Debt by Year

Sept 30, 1997


Sept 30, 1998


Sept 30, 1999


Sept 30, 2000


Sept 30, 2001


One of the common songsheets that the left likes to sing from is to blame Bush for the US debt and claim that he turned Clinton era surpluses into massive deficits.  Strangely enough those Clinton era “surpluses” still resulted in steadily increasing total federal debt.  As my father used to say, figures don’t lie but liars can figure.  Personally I think Bush was also responsible for the earthquake and tsunami in Japan.

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