The head of the International Monetary Fund has warned that a default on the debt of the United States government would create an international economic crisis. The Secretary of the Treasury says the same.
Indeed, the entire establishment of international debt warns that the ever-growing debt of the U.S. government is central to the prosperity of the world. This debt not only cannot be paid off, it must not be paid off. Without this endless expansion of government debt, these highly paid experts assure us, the world will fall back into recession.
Clinton was praised because he balanced the budget, sort of, by counting rising Social Security debt as income. But those days of praise are over. Today, we are told, the United States government must absorb the thrift of the world, or at least absorb the expansion of counterfeit money by the world’s central banks.
A Reuters story in the Australian newspaper sounds the alarm.
Top officials of US and international financial institutions ramped up warnings overnight that failure to raise the US debt ceiling to prevent the world’s largest economy from defaulting would deal a serious blow worldwide.
The warnings from the US Treasury, the head of the International Monetary Fund and central bankers at home and abroad amounted to a shot across the bow of lawmakers on Capitol Hill whose failure to agree on a funding bill has already led to a partial shutdown of the US government.
The Secretary of the Treasury warns of dire consequences if the House does not raise the debt ceiling. The nation will fall into recession.
The US government spends a lot more than it takes in, so not raising the debt limit would leave it unable to pay all its bills, which range from pensions for the elderly to interest on money borrowed from China.
Take a look at how the U.S. government spends money. Notice the percentage spent on paying interest. It’s 6%.
In short, debt maintenance is peripheral in the budget. The federal government can keep paying its bills by cutting defense spending and discretionary spending a few percentage points.
The threat of default is a fake threat. It’s a Halloween goblin to scare moderate House Republicans. The government can and will continue to pay interest to the world’s central banks, including the Federal Reserve.
“The US has a special responsibility”: IMF Managing Director Christine Lagarde says it is imperative for the global economy for the US to raise its debt ceiling.
Why should we listen to the head of the IMF? The IMF uses government-guaranteed money to lend to governments that cannot pay their debts to Western banks. It is a giant funnel of money to make sure Western banks get paid. If you doubt me, read John Perkins’ book, Confessions of an Economic Hit Man.
Economists say the biggest risk is that America might miss debt payments, setting off panic on Wall Street.
Which economists? We are not told.
Default would be worse, however. The Treasury says that if Congress does not raise the statutory debt limit, it will run out of room to borrow by October 17, at which time it will be down to its last $30 billion, which could be exhausted within weeks.
It has been down to its last $30 billion ever since May 17, when the Treasury stopped reporting any increase in the debt. It has been locked in, as if by magic, at $16,699,396,000,000. It has not moved up by one dollar.
The Treasury is obviously cooking the books. Wall Street does not care. No one cares. So, let them keep cooking the books. Since reality in accounting does not matter at the Treasury, why worry about it at this late date? Just keep doing it.
“No one knows with certainty how bad the consequences are if we cross the line,” Treasury Secretary Jack Lew told the Fox Business Network.
So, if no one knows, they all ought to shut up. They should stop telling us about a looming crisis.
Global financial leaders are concerned a US crisis could slam economies across Europe, Asia, Africa and the Americas just as the world is making an uneven and uncertain recovery from the 2007-2009 recession.
US Treasury debt, long deemed risk-free, is the foundation of the global financial system. Assets around the world use US Treasuries as a benchmark for their value.
“It is mission-critical that this be resolved as soon as possible,” IMF chief Christine Lagarde said in a speech. “Failure to raise the debt ceiling … could seriously damage not only the US economy but the entire global economy.”
It’s getting close to Halloween. It’s time for goblins and scary things.
“There is a lot of uncertainty, it makes people very nervous. It creates a lot of, maybe, distrust about government’s ability to actually lead this country,” San Francisco Federal Reserve Bank President John Williams said in San Diego.
Then it is a good thing.
Christian Noyer, a member of the European Central Bank’s Governing Council, said he could not imagine that the United States would default on its debts.
“We’ve got an event that is creating a risk for American growth, a serious risk if it lasts too long … and given the importance of the American economy, a global risk,” he said on BFM Business TV. “I don’t dare imagine that will happen.”
So, the endless expansion of federal debt is the salvation of the world’s economy.
This is Keynesianism. It teaches that the U.S. government must absorb the world’s capital (or at least its recently counterfeited money), so that the world’s economy can grow. If the U.S. government were to balance its budget, thereby freeing up funds to lend to the private sector, this would plunge the world into massive recession.
If this sounds nuts, that’s because it is. It is Keynesianism.