Futures are plunging on news of S&P placing the United States on credit outlook negative, based upon our ridiculous budget issues and pending doom. They want the budget fixed by 2013, or material risks to U.S. debt will arise.
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here comes the fight with deflation and QE3 to re balance or support…..guestimation of course
attempting to reign in the deficit at this time is risky.
and while deficits do matter, because they are inflationary, the debt does not (as it is literally the money supply) and attempting to materially reduce the debt is likely to result in economic calamity. in my view.
all true checklist….this could also create an opportunity for QE3
checklist,
i agree with you for the most part, until interest payments start to grow exponentially–that’s when it becomes an issue. and we aren’t too far from that inflection point.
pedro that inflection point can be held off for a long time….for instance Japan….interest rates have too really pop for that no ?
@cronkite:
IMO, the Japan example just doesn’t work, because they weren’t the world’s reserve currency. who will the buyers be when the Fed stops monetizing? China? Japan? at least Japan had the Yen-carry.
checklist, what you’re saying runs totally counter to everything i’ve ever read…and i like that. totally open to anything that diametrically opposes those ZeroHedge nut jobs. but i’m losing you when you say that it serves a purpose of creating a return on our savings. the interest payments we’re making are to other countries, not to us? most of the debt the Fed holds is at rates close to 0%.
that inflection point can be held of permanently in my view. If I could remember how to write a blog here, I would on this topic.
The debt does not serve a purpose of allowing our government to spend, it serves a purpose of creating a return on savings. This would not be the case if we had a gold standard, but as we do not I believe that it is. This may sound like the ramblings of a madman, but I am reasonably convinced of my statements.
And in fact simply cancelling the debt and giving all debt holders cash would not be an inflationary event, and over time it owuld be the opposite – it would result in less dollars.
Again, I accept the absurdity of those statements in the face of conventional logic and wisdom, but I am willing to argue them in a court of blog.
TLT is barely down.
yeah, investors were just waiting for the great S&P machine to come out and tell them the U.S.’s debt situation was in grave danger…this market sell-off is a joke. BTFD
@pedro
Good point on the fiat stance.
Perhaps the U.S. joins the ranks of Europe and the IMF puts out the international currency while supporting multiple debt problems in G8 nations