Fiscal cliffs & Debt ceilings

What about these smoke screens?

Sometimes it is hard to see through the smoke screens, sometimes not. I found this comparison online:
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U.S. Tax revenue: $2,170,000,000,000
Fed budget: $3,820,000,000,000
New debt: $1,650,000,000,000
National debt: $14,271,000,000,000
Recent budget cuts: $38,500,000,000

Let’s now remove 8 zeros and pretend it’s a household budget:
Annual family income: $21,700
Money the family spent: $38,200
New debt on the credit card: $16,500
Outstanding balance on the credit card: $142,710
Total budget cuts so far: $38.50
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This clearly tells us that the recent deal between the demopublicans that is said to have avoided the “fiscal cliff” will not address the problem of the budget deficit, nor the towering debt level. Smoke screen #1.

When it comes to the debt ceiling, this is the next issue that the demopublicans will have a pretend disagreement about and it is only months away. But the issue is not really the debt ceiling; it is how they finance the debt. Nobody is buying the Treasury debt anymore so instead the Federal Reserve is buying it. This makes it 100% money printing. It is like you could increase your credit card balance yourself at a whim. Smoke screen #2.

One strange way of addressing this and that even Paul Krugman has backed is to coin a platinum coin with the face value of $1 trillion. The coin would of course not be worth $1 trillion. It would be something like a one once platinum coin and the platinum content is worth about $1,600 today. The difference, about $1 trillion, is just made up. So while doing this might avoid a tedious fake between demopublicans, it will not address the problem. It is just another way of adding to the credit card debt.

Along the same line, maybe the Japanese gov’t could make a pair of oak bamboo stick and sell to BOJ for $1 trillion, the Canadian gov’t a maple hockey stick to BOC, the French gov’t a really nice cheese to ECB and the Brits a nice pudding for the BOE? Clever, right?

So, it is quite easy to see that all the proposed solutions to things like fiscal cliffs and debt ceilings are merely smoke screens. The household budget is still way off the income mark. They are cooking the books to avoid it.

The problem is still there and it will not end happily if it continues like this. Make sure your investments can handle it.