Sunday, July 24, 2011
Another shot into the vein of the Debt Ceiling?
The wise men of Government and Punditry are now arguing vehemently over the wisdom of raising the Debt Ceiling.
Do we stick another shot of Debt into the collapsing vein of the economy, or do we let the junky go into withdrawal?
The Banks have advised Democrats and Republicans that the junky will die without his next fix.
The Tea Party freshman say, Nonsense: A little Cold Turkey is healthy in the long run!
If and when they resolve this issue, they will simply have to debate it again - and again - and again each time the junky is ready for the next fix.
There are Two Issues here.
A) What will really happen in the short run?
The answer is that it has nothing to do with the few checks that may or may not get written - although that is all that the Brain Dead Pundits want to talk about.
What will happen is this: The markets will realize that the government is so completely inept that it is capable of defaulting on the debt denominated in the world's reserve currency. This means that everything denominated in that currency: Stocks, Bonds, Oil, Gold, Grains, HAVE BEEN MISPRICED. You will see a massive REPRICING OF RISK.
Repricing of risk means chaos in the markets. Because the markets are predicated on a basic understanding of risk premium. If you don't understand the risk of a given investment - especially the currency risk - chances are you will want to unwind the investment. Whether or not it happens Overnight - it will happen. And the eventual results could be devastating depending on how much faith in the pricing of risk can be restored to the system.
This is way more serious than a few seniors dying, or a few service men starving. It means the 401 K's of the Tea Party babies could get wiped out. Then they'll be leading the charge for MORE DEBT.
B) What will happen in the long run?
In the long run the junkey's vein will collapse no matter how much new junk/debt we shoot into it's arm. Because more junk is obviously not a cure for too much junk.
Then see above.