The government has been “quasi” shut down since last Monday. Markets have stayed open, banks have stayed open and the sun has risen each day. We have had many such shutdowns over the years and they served the purpose of at least some fiscal restraint. At a minimum at least the problems of creating a working budget and whether to increase the debt limit has come to light each time. This is not new; we have had government shutdowns since the early years of the country as the founding fathers debated the very same issues of increasing or even using debt.
It is different now though because in the early days the debate was whether or not to take on debt to actually build something whereas to today increasing debt is no longer a “luxury.” I say luxury because we have crossed the Rubicon and cannot turn back as we need to continually borrow more to prevent the banking and financial systems from deflating and to pay (roll) old debt and interest. Another difference with the current shutdown is the lengths that government is going to scare and inconvenience the population. Parks are being shutdown, the WWII memorial has been shut down, even our military is no longer receiving video feeds of baseball or football games and unbelievably they are trying to “shut down the ocean.” What’s next?
In many cases, the government is using more manpower to make sure that no one uses the parks, memorials or whatever than it would take to just leave them abandoned. This is foolish to say the least but is just another illustration of the growing nanny state. This course of action may actually backfire as people see for their own eyes how wasteful this is. Another description could be “spiteful.” Why is it important that people are not be allowed to use a park or visit a memorial? One anonymous park ranger has said that their orders were to make it as “difficult and inconvenient” for people as possible. Why?
I don’t want to play political volleyball here but President Obama has said that the shutdown happened because “they (Republicans) just want to mess with me.” This is simply wrong and wrongheaded. This is not about him; it is about the future, the viability of the United States. We are now less than 2 weeks away from the Treasury actually running out of “extraordinary measures” (rabbits) to pull out of their hat. The current shutdown is a joke compared to the coming debt ceiling debate. It is unfathomable to think that the debt ceiling won’t be raised but as I’ve said before, this is an embarrassment and another admission to the world that without the ability to borrow more…we are broke and cannot pay our bills.
This is the reality. In order to keep the doors open we must borrow more. Without the ability for the Treasury to borrow more, everything will stop in its tracks…everywhere. And to think, THIS was considered an “AAA” credit just 2 years ago and is now an “AA+” credit. Think about this. Think about the “stability” or lack of, the entire global financial system is based on a foundation that is no longer viable without the ability to borrow “more” than an already “too much.” The reason your bank account is still accessible, your bonds still pay interest, your debit and credit cards still work…is solely because the U.S. Treasury can still borrow more.
Of course, even with a rise in the debt ceiling to “make it legal,” we are no longer even borrowing from the rest of the world. We are borrowing more ONLY because the Federal Reserve has stepped up to purchase $100’s of billions of Treasuries that the world no longer wants nor is willing to buy. Meanwhile gold has value because it “is.” It has no backing, no laws that “make it” money or wealth other than those of Mother Nature. Gold has only “(un)official obstacles in its way” while fiat has the help of every possible dirty, underhanded and illegal trick in the book to help it levitate. Any “hiccup” from Congress could be enough to turn the whole system upside down. The Democrats will blame the Republicans and vice versa while both sides of the aisle are equally as guilty. President Obama will blame Congress and may even try to pull a “King Canute” and legislate a rise in the debt ceiling from the Executive branch. Just as the King could not legislate the tide, President Obama nor anyone else can legislate the U.S. into a position of fiscal and monetary solvency. No matter the outcome over the next 2 weeks, there is no upside and negative surprises can lead to the “exits” being nailed shut virtually overnight.