They are playing a kabuki dance on the debt ceiling | Beaufort County Now | What they're doing in Washington is nothing more than a Kabuki dance of politics. The debt ceiling crisis is nothing more than a manufacturered crisis designed to accomplish partisan political objectives.

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    Publisher's Note: This article originally appeared in the Beaufort Observer.

    Proof: Obama threatens to veto a balanced budget bill

    What they're doing in Washington is nothing more than a Kabuki dance of politics. The debt ceiling crisis is nothing more than a manufacturered crisis designed to accomplish partisan political objectives. The real problem is not the debt ceiling but rather the real problem is the tepid economy and the cause of that weak economy is that Barack Obama has depressed investment via his socialistic policies. Until those policies are changed the debt will not only continue to be a problem, but will grow into an even worse problem.

    This will be a big week for the Kabuki dance being played out in Washington, called the "debt ceiling negotiations." But then again, maybe it'll be next week. Or the next.

    Let us go ahead and deal with how this is going to turn out. We offer this to David Gregory of Meet the Press who got all fluttered-up Sunday when he could not get what he considered to be a good response from Senators Durbin and DeMint to his question: "how does this end." We'll tell him.

    They'll kick the can down the road David. What they will NOT do is solve the problem. A little of this, a little of that, a great deal of spin (we suspect Obama's spin doctors have already written the Teleprompter's speech) and we'll be right back where we are in a few (take your pick) weeks, months or maybe a couple of years. It will likely be at least after November 2012. They'll use some smoke and some mirrors and claim major cuts in spending, most likely many years after they retire and we taxpayers will end up paying more in taxes, higher interest rates and inflation. Count on it.

    Nonetheless, we see where Moody's is suggesting that we solve the "unsustainable debt" problem by abolishing the debt ceiling. Yep, that'll do it. Just like changing the DUI level from .08 to .20 will reduce drunken driving. This stuff gets more absurd by the day. We really wonder about these people who claim the world will come to an end if the U. S. "defaults" on the debt. Do they not understand basic economics or are they just trying to create a crisis to use as an excuse to raise taxes? Hmmmm.

    The USA is not going to default on its debt. Mark our words.

    Let's look at it rationally.

    The national debt is nothing more than government bonds that have been purchased by people with money they want/need to invest. They buy bonds for many reasons, but one of the primary reasons is that they view them as a safe investment. They are. They guarantee your premium and certain kinds guarantee a specific interest rate.

    It does take a certain amount (actually a certain "kind") of confidence to accept this guarantee. The investor, who is willing to give his money to the government, has to believe he will get it back. So how many people with money to invest do you suppose believe investing their excess cash in U. S. bonds is less risky than investing those funds somewhere else? Or to put the question differently, what chance do you think there is that the USA will go out of business and cease to exist during the life of the bonds? The correct answer is: Very low.

    But if your answer is "high" then the issue for you, if you have extra cash, is not whether you will be buying wallpaper when you buy U. S. Treasury instruments but rather, how many fools are out their that you might be able to sell your paper to. In other words, your real guarantee is the market. And if you haven't checked the Treasury market lately we'll just tell you that the market shows no signs of believing that the USA will "default" or do anything else on August 2, or whenever it is that Tim Geithner and B. Obama have said the world will come to an end if we don't give them the deal they want. Nope, the bond market is not moving in accord with the likelihood of a debt ceiling deal or not, but rather it is driven by supply and demand.

    And that means the market is being impacted much more by the supply of treasury paper than anything else.

    So let's just boil it all down. The only risk in this debt ceiling thingy is that we will continue to need to borrow more and more money. And that is a real risk, if Barack Obama gets his way. Shucks, it's not even a risk. It's a sure thing, given that he says flat out that our national debt will increase more under his plan than it ever has under any president's monetary policy. Indeed, if that were not true, he would not need the debt ceiling raised.

    The question then is not whether the USA defaults, but rather can it sell more debt, and at what price. And that will not be determined by a "debt ceiling deal" in Washington. In fact these people would be using their time more wisely if they were figuring out how the price of gold is going to impact American monetary policy. Gold is an alternative to Treasury paper. The higher the price of gold, and the higher it is anticipated to be, the less demand there is for Treasury paper and the higher the interest will be that we have to pay to sell that paper.

    The other 900 pound gorilla in the room at the White House where they are doing their Kabuki thing is that none...absolutely none...of the numbers they're "projecting" amount to a hill of beans. The ability of the U. S. to manage its debt is much, much more related to the GDP than it is to either "spending" or "revenue enhancement" (i.e. taxes on the rich).

    Here's the simple truth. If economic growth (GDP) does not return to the 4-6% range we will never be able to manage the existing debt, much less more debt. But if GDP grows to >8% without significant inflation then the debt will "go down" much more than by cutting spending or raising revenue as they are debating. Remember, selling our debt is mainly a function of confidence on the part of investors and that confidence is directly related to the health of the eocnomy (GDP).

    So what does it all mean? It means that either those people in the Kabuki dance failed Economic 101 (which is quite likely we suspect) or they are performing Plato's Allegory of the Cave.

    Reality is that we must turn this economy around. We must reduce the chronic unemployment. We must stimulate business investment. And in order to accomplish that business must have confidence that if they invest in growth and development that they will achieve an acceptable return on that investment. Once they invest, if they are allowed to do so as they deem most beneficial to them, then productivity will increase. And it is that increase in productivity that will cause the debt to be manageable. The amount of debt is not what is important. It is the relationship between the amount of debt and the productivity of our economy.

    And it is there that the policies of the Obama administration, and the Bush administration before him, have caused the problems in the economy that have resulted in the "debt crisis." Simply stated, the policies in recent years have promoted growth of government and demoted growth of private enterprise/productivity. And that is what must be changed.

    We have previously documented why this Administration's policies have created the problems we now face and why those policies will prevent the solutions we must achieve. In a nutshell, the problem is that Obama has redirected the American economy away from free markets and private enterprise and toward a socialistic economy. ObamaCare is the prime example, but actually virtually every action Obama and his "non-business" agents have taken since 2008 (yes, even before they took office) has been in the direction of moving our economy to a government controlled economy and suppression of the free markets. It matters not whether one looks at the health care sector, the energy sector, the automotive sector, the financial services sector, housing or even agriculture. If socialism is defined as "government control" of the means of production then Obama has been on a relentless quest to socialize the economy.

    As a result of these policies, the "producers" in our economy are not investing in growth and development of the production of wealth. As wealth decreases, tax revenues decrease and as more and more people become wards of the state, whether it be in health care, employment or whatever, the level of government expenditures goes up while revenue goes down. Viola, there is your debt crisis.

    Put another way, Obama is trying to use socialistic approaches to fix a capitalistic system that has revolted against him. That approach has never, ever worked and it will not work now.

    So they can vote to do whatever they want on the debt ceiling, but the problem will remain. It will not be corrected by a "deal" to prevent "default" because the default is being caused by socialistic policies and unless and until they are changed to encourage and reward the producers we will continue to slide more and more toward bankruptcy.

    The solution is to stop trying to redistribute wealth and begin creating wealth again.
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