Corporate Worship Songs

Obama Crislet and the Fiscal Cliff

I thought we would see a little boom if Romney was elected, but I had not thought about the flip side—an Obama Crislet. It is interesting that before the election there was almost no talk from the punditocracy and especially Obama about the large tax increases scheduled for 2013. Now this is on the agenda for immediate action, sort of. 

So President Obama has to make a decision, almost immediately, about how to deal with continuing Republican obstruction. How far should he go in accommodating the G.O.P.’s demands?

My answer is, not far at all. Mr. Obama should hang tough, declaring himself willing, if necessary, to hold his ground even at the cost of letting his opponents inflict damage on a still-shaky economy. And this is definitely no time to negotiate a “grand bargain” on the budget that snatches defeat from the jaws of victory.  

That was from everyone’s favorite Nobel prize winner Paul Krugman. 

Here is my advice to Speaker of the House Boehner: 

My answer is, not far at all. Mr. Boehner should hang tough, declaring himself willing, if necessary, to hold his ground even at the cost of letting his opponents inflict damage on a still-shaky economy. And this is definitely no time to negotiate a “grand bargain” on the budget that snatches defeat from the jaws of victory.

Obviously I know that there were few Republican victories last Tuesday, but if Obama really takes the line that Krugman suggests, and since this has been his line for the last two years this seems likely, then Boehner will have no choice. Four more years of extend and pretend will lead to a catastrophic failure.  It is better to have a lower deficit now, rather than ignore spending and tax increase as an option. 

We are better off with the two trillion forced spending cut combined with a 4 trillion tax increase than to do what Washington does best, nothing. Yes, there will be a recession next year. Yes, Obama will blame the Republicans. Yes, he will get away with it. But the deficit must be cut. 

As a second best alternative, letting Obama have free reign might be the best partisan option. That way when the crisis comes, the blame will be fairly placed. The economy will get worse no matter what happens. 

The biggest risk is that blame will be put upon free market policies. We do not have free market policies, and have not for decades, if then. If that happens, then we might end up with the troika of Argentina, Venezuela, and Greece as the modern template for a “modern” America. 

I think , as Ron Paul suggests in this clip, that we are already over the cliff, the question is, how hard will we fall? 

An Open Letter to America

This is an interesting interview with a member of the British Parliament. 

Zero Probability of Default

Alan Greenspan is right and wrong in what he is saying.

Yes technically the Federal Reserve could print all the money it wants and pay all spending or debt it wants to pay. By law, in a de jure way, Federal Reserve notes cannot legally be refused to pay a debt. Paying off debt in such a manner would in reality, in a de facto way, be a default.

If the US is unable to roll over its bonds, if it is unable to find buyers, then the Federal Reserve can print money. Imagine for a moment if the currency in circulation suddenly over a few years went up by 5 to 10 trillion. The effect would have to be grossly inflationary.

This is why I think that if the Treasury was unable to roll over its debt it would default. As bad as default is, hyperinflation is worse. The US has defaulted on several occasions, one as recently as the 1970’s.

The only way to know what a future president would do is to consult the crystal ball. Mine is cracked.

Yes, the US can print all the money it wants. But this should not be a point of glee, but a sensation of impending doom. 

Drums 101

Starts a little slow, but the drummer is outstanding—he is worth waiting for.