2011 August 02 | timiacono.com

Kucinich on Default and the Debt Ceiling

It’s hard to disagree with a lot of what Rep. Dennis Kucinich (D-OH) has to say in this rant the other day about a possible default and raising the debt ceiling (hat tip Patrick.net).

His point about the Fed subsidizing big banks when that money could just as easily be used to fund government jobs programs to build infrastructure and do other things that, over the long run, will actually benefit society, is worth considering, though Congress is not likely to do so or they’ll have to find some other source of funding for their next election campaign.

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Rep. Ron Paul (R-TX) has about the best take on the debt ceiling deal that has crossed my computer screen, most people losing sight of the fact that the agreed to “cuts” are not really cuts at all, at least not in the way that most people use the word in their own finances.

When a Cut is Not a Cut

One might think that the recent drama over the debt ceiling involves one side wanting to increase or maintain spending with the other side wanting to drastically cut spending, but that is far from the truth. In spite of the rhetoric being thrown around, the real debate is over how much government spending will increase.

No plan under serious consideration cuts spending in the way you and I think about it. Instead, the “cuts” being discussed are illusory, and are not cuts from current amounts being spent, but cuts in projected spending increases.

In reality, bringing our fiscal house into order is not that complicated or excruciatingly painful at all. If we simply kept spending at current levels, by their definition of “cuts” that would save nearly $400 billion in the next few years, versus the $25 billion the Budget Control Act claims to “cut”. It would only take us 5 years to “cut” $1 trillion, in Washington math, just by holding the line on spending. That is hardly austere or catastrophic.

What’s most disconcerting about all of this is that we are told we live in a world where inflation is quite low, employers all across the land using this as justification for freezing wages, benefits, and the like while, in Washington, the notion of enacting a simple “freeze” is anathema, an other-worldly concept that, somehow, isn’t even on the radar.

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A Bad Day in Central Falls, RI

Yesterday wasn’t a good day for pensioners in Central Falls, Rhode Island as the city filed for federal bankruptcy protection after retirees voted down massive cuts to their pensions.

There are shades of the housing bubble bust here, in that, people believed the unbelievable. A few years ago it was that home prices would rise in perpetuity and that we’d all be wealthy forever. Today, it’s the notion that governments can make good on the generous public sector retirement packages they’ve promised over the years.

You have to feel former fireman Donald Cardin as his retirement check is about to get cut in half while his wife is suffering from cancer. Then again, counting on keeping a generous pension for the rest of your life after retiring in your early-40s is about as sound a plan as expecting your home equity to pay for your kids’ education and fund your golden years.

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Tuesday Morning Links

MUST READS
Experts: US could still lose AAA debt rating – AP
Eurozone crisis reignites on rescue package doubts – Guardian
Italian authorities to meet on crisis, bond yields soar – Reuters
Debt-Ceiling Deal is an Alarming Bipartisan Mess – Bloomberg
What’s left to trust in the world of money? – Telegraph
Monetary Reform: The Beginning Of The Beginning – Forbes
Central Falls Bankruptcy Casts Shadow Over Rhode Island – Bloomberg
Revolving Door at S.E.C. Is Hurdle to Crisis Cleanup – DealBook
Will ObamaCare Cover What Krugman’s Smoking? – Reason
Kings of the Wild Frontier – Gross, Pimco
When a Cut is Not a Cut – Ron Paul

MARKETS/INVESTING
Oil falls to near $94 as US economy weakens – AP
Spot gold hits record $1,633.39/oz on safe haven bid – Reuters
Gold – a Barometer for the Global Monetary System – Mineweb
More investors begin shorting Chinese yuan – MarketWatch
Japan readying intervention to reverse yen: report – Reuters
‘Fear Trade’ and ‘Love Trade’ may push gold to $3000 – Commodity Online
Bank of Korea buys gold, first time since ‘97-’98 crisis – Reuters
Gold Coins Sell Out in Lisbon as Biggest Bet Sees 22% Gain – Bloomberg
Gold Keeps Its Shine – WSJ

ECONOMY/WORLD/HOUSING/BANKING
The Coming Double Dip – Slate
Is the economy hitting stall speed? – Macroblog
Return to Recession is a Real Risk – Dow Jones
China must psych out inflation – Xie, MarketWatch
High Noon Tuesday at the RBA – DebtWatch
Putin says U.S. is “parasite” on global economy – Reuters
Homeowners who want to trade up are stuck waiting – LA Times
America’s recovery: How accommodating is the Fed? – Economist
Fed May Weigh More Stimulus on Flagging Recovery – Bloomberg
Focus Turns Back to Fed on Economy – NY Times
Debt deal needs a QE3 plan – Fortune

 
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