Quote from achilles28:
What's lost in this debate is the forest from the trees.
The Federal Government and Central Bank do not have the luxury of time while they rack up the national debt. That's the point. Time is against us. The ongoing shit-show in Europe is a prelude to our future. That's what they peanut gallery can't seem to wrap their heads around. FED apologists laud our debt-financed interventionism, while major parts of Europe, are insolvent from their own excessive borrowing. Which proportionately, is not much greater than our own.
Reinhart and Rogoff compiled an exhaustive work on the outcomes of net creditor nations that take on excessive debt, and their outcomes. Past 90% debt-to-GDP, the likelihood of a large depression is high. Past 100-110%, the likelihood of a default/restructuring/major depression/currency collapse is high. This is not the first time in history idiots have leveraged their countries into bankruptcy with dire consequences. This has happened over and over and over again. The argument that we are somehow "special", that it "can't happen here", is pure nonsense. Piezoe is convinced we are not Portugal, Spain, or even Italy. Crisis avoided because Piezoe says everything will be a-okay.
The facts are worth repeating and examination. The magnitude of Federal borrowing and Central Bank QE to keep this economy on life support is shocking. State and Local Governments not withstanding, the Federal Government is borrowing roughly 7% of GDP, per year (1.1 Trillion). The FED plans to purchase another 500 Billion, per year, in non-treasury related securities (MBS), to boost the economy further (QE3 or 4??). This amounts to total net borrowings of 1.6 Trillion dollars for 2013, which translates to 10% of GDP. Throw in the fiscal multiplier (~1.6), and we're short about 16% GDP. This is a massive fucking hole. This cannot be "dug out of" with "shovel-ready' "make-work" bullshit rhetoric. We have a serious motherfucking problem here.
The point I made at the beginning of the thread holds relevance. The Federal Reserve is upping it's MBS purchases to take pressure off the budget deficit. It's moving the debt off the public balance sheet, onto the FED's balance sheet. It's more an accounting trick to win market confidence. Either way, it doesn't hide the fact the economy is still short 10% GDP raw (16% GDP with the fiscal multiplier).
What happens next? Assuming the markets can be fooled with the accounting game, the official US budget deficit will be used to calculate debt-to-GDP. At a 7% annual budget deficit, we've got 4 years until America hits 130% debt-to-GDP. That's pretty much where capital markets balked at refinancing Greek, Portuguese and Italian paper. It's where those countries effectively went bankrupt.
The response from Keynesians is Japan. Always Japan. Japan is a net creditor nation. We are not. The total amount of foreign holdings of Japanese sovereign debt are miniscule compared to the BOJ's holdings of foreign securities. The reverse is true for America (and Greece, Portugal, Spain, Italy, France, the UK etc). There is no anchor to the dollar, past a certain point.
The same idiots who got us into this mess, intend to push us to the brink of a currency collapse, in the name of staving off a secular depression. Think about the idiocy of that for a moment. You've got clowns like CTGov who can't see past the transactional minutia, to KTM, who drives a tractor trailer through the rear-view mirror. This type of backward, reactionary, "stability at all costs" policy has dominated Keynesian thought, post-Volker. It's largely political strategy to keep corporate owners happy, with no respect to the principles of true Keynesian economics (raise rates and run surpluses during booms), or for the need to invoke painful short-term decisions to ensure long-term growth and dollar stability. We are led by the same fools who didn't see the housing collapse coming, who caused it, and now want to take us to Italian and Spanish debt levels, to "solve this". Does this sound like a horror movie yet? It should.
We have three options:
1) Continue down the current path, and in 4 years, nationalize Treasury markets and collapse the dollar. This is where we go back to 2nd World living standards. This is exactly where the Keynesian fools are taking us.
2) End all QE, all bailouts, all deficits. Let the economy collapse and ride out a massive depression. We could see a GDP contraction upwards of 20%, but we'd save the dollar, our own asses, and US global hegemony in the process.
3) Invent some type of revolutionary technology, like free energy, faster-than-light travel, or teleportation, that would effectively "soak up" all this outstanding debt, without impacting our living standard in any meaningful way.
However, I would like to personally thank you for engaging in a stimulating conversation without personal attacks. I tip my hat to you, sir, even if you are a Fed Apologist 