The biggest mistake being made by all those clamouring for more regulation over the FINANCIAL sector is the assumption that the effects of such regulation would be the same as the effects of the regulation they face in their daily lives. All businessmen and most employees in the developed world know full well that the regulatory morass is choking off their ability to function in what is left of the "marketplace". They know that if the hoops they have to jump through have not yet made the creation of new wealth impossible, they inevitably will if the pace at which they are multiplying stays constant. They also know that the pace is not staying constant, it is continually accelerating. Since regulation is stifling the economy, they assume that more regulation on those who lend money into existence would have the same effect. It would not. Business and economic regulation is designed to raise revenue and to make the "marketplace" dependent on government. Financial regulation is designed to safeguard the issuance of new purchasing power through credit creation. Business regulation is designed to curb the independent production of new wealth. Financial regulation is designed to enhance the "productivity" of the banks and financial markets in issuing the credit money that governments need to function.
A government which lives within its means does not need credit creation. A government which spends more than it dares extract directly from its people cannot do without it. Consider the attitude of the German people to the continuing demand that they pay for the profligacy of most of the rest of Europe's governments on top of their own. Their reluctance comes from the realisation that they have absolutely no control over the spending of these other governments. In reality, they have no control over the spending of their own government either, all they control is who oversees the spending spree.
A government cannot run a welfare state on tax receipts. Nor can it maintain a huge military establishment on them. The attempt to do so will lead to the collapse of any government who tries it. The US government is unique in today's world in the fact that they are running both a welfare state and a military behemoth at the same time. There is no government in the world today more dependent on financial regulation to keep the necessary credit money flowing than the US government…
August 2, which is less than two weeks away, will mark the anniversary of President Obama signing the Budget Control Act of 2011. That was the "law" which authorised a rise in the Treasury's debt limit in return for pushing any decision on the amount Congress spends out to the end of this year. The Privateer described this "law" (Number 684 - August 7, 2011) as follows: "The leaders of both houses of Congress have got together with the Executive branch of the US government and concocted a fiscal nightmare. They have then rammed it through the Congress using the threat of financial Armageddon as the goad."
In the following five months, President Obama signed three more "relevant" bills. All of them authorised increases in the Treasury's debt limit - by a total of $US 2.1 TRILLION. This total was deemed sufficient to "finance" the government through to the November 6, 2012 elections, and perhaps for a few weeks after that. As of July 16, 2012, the Treasury's debt "to the penny" stood at $US 15.884 TRILLION. The problem with this total is that we only get an idea of the trajectory of Treasury debt at the end of the calendar month. Between June 28 and July 2, for example, the official debt rose by $US 110 Billion. Between July 2 and July 16, the official reporting claimed that the debt had actually fallen by $US 4 Billion. As The Privateer pointed out in our previous issue, the Treasury likes to "square" its books only once a month and hope nobody notices. The current debt limit is $US 16.394 TRILLION. If the Treasury keeps up its practice of "month end adjustments" at a similar rate to recent ones, they have between four and five "month ends" to go. In other words, they will almost certainly make it to November 6.
Let's Not Get Ahead Of Ourselves:
In the summer of 2011, the US Congress and the US Administration played a very public version of "Let's Make A Deal!" in front of a disgruntled electorate and an increasingly nervous global public. The deal was made and the fiscal problems of the US were erased from the global media - to be quickly replaced by the similar debt dramas in Europe. The dramas were similar, the outcomes were not. Much of Europe found itself literally priced out of the debt markets while the servicing costs of US Treasury debt just kept on falling. That remains the situation as we near the end of July 2012. The problem for the US Treasury and the US government is that they are facing a replay of what happened in early 2011 when the focal point of the GLOBAL debt crisis crossed the Atlantic. There are signs that it is doing it again.
Here's a very telling piece of evidence, a headline from the Washington Post published on July 18: "US economic fears shift from Europe toward fiscal cliff'". As stated in the article: "...analysts say anxiety about the impact of the fast- approaching fiscal cliff ...is displacing Europe as the primary threat to the nation's suffering economy". This had to happen, of course, it was just a matter of waiting until it did happen. The evidence is now reasonably conclusive that it IS happening.
Both political "sides" in Congress have made it clear that they will not budge from their present positions and will, if necessary, leave it to the post-election Congress to tackle the issue. Even if there were any evidence of a "consensus", time is running out much faster than the five and a bit months between now and January 1, 2013 would indicate. The House recesses for five weeks between the beginning of August and Labor Day (September 3). It is scheduled to be in session for only eight days in September and five days in October before escaping Washington and trying to get re-elected. The "lame duck" Congress - which traditionally never decides to do anything much - does not convene until November 15.
Global financial markets are absolutely sure that the US government will pull a similar stunt to the one they pulled in the summer of 2011 and again at the end of the 2011 when they "postponed" any decision on rescinding tax cuts or lowering spending. They are almost surely right in that. They are also sure that whatever the stunt chosen, it will be accepted by the American people and by the rest of the world. That is a very dangerous assumption indeed - no matter who wins or loses on November 6.
.Ó 2009 – The Privateer
(reproduced with permission)
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