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Wednesday, November 7, 2012

WHAT FISCAL CLIFF?

Now we know that Barack Obama will continue on as our President for another four years.  His first problem will have to do with what seems like an overwhelming problem facing the Nation.  My question is:  What fiscal cliff?

To get us on the same page, this contrarian point of view has something do with the debt ceiling (which legally is at $16.4 trillion, but will soon be exceeded, for, if you look at the right column and click on the U.S. National Debt Clock, you will see that this total has passed $16.2 trillion), those automatic cuts in a few things or two and the tax law expiration.  In case you weren't aware, there are 50 of them just related to taxes.  Republicans call this the perfect storm for economic collapse.  Politicians have exceptional skills at exaggerating the truth.  They are also almost all psycopathic, but that is a posting for another day.

In any case, my response to all this alarm is bullsh...  Why President Obama and the Democrats don't tell it like it is is a mystery to me.  Our country is, relatively (compared to China, Russia, Japan, the European Union, Middle East and rest of the World), in great shape and, yes, while the debt costs seem outrageous, the reality is that we are profiting from this glaring imbalance.  Huh?

Well, first, if you're truly concerned, please read my Huffington Post article of 26May2012 entitled:


I start by responding:  ...is to, for now, increase it!  As most of you don't have the time to click on the details, let me summarize.  Most of us think that the Federal government should act as responsibly as we do and not fall behind in our finances.  The truth is that the Feds are more like industry.  They borrow when interest rates are low enough, in hopes of using those borrowed funds to make a profit.  That is exactly what our country has done.   This strategy can be utilized when both the interest and inflation rates are low:


You will note we are now at 0%.  Now this rate is not quite what what we pay China, but a good reflection, for here is the 10 year interest rate:


For the record, today, this Ten Year Treasury Rate is 1.68%.  

If China, say, wants to put their money somewhere, they are not going to trust Russia, Saudi Arabia, Europe, Japan or Africa.  Okay, they can place some into insuring for natural resources in some developing regions, but their surplus is so large that they need to also play safe, so they mostly invest in America.  However, penalties are huge if you pull out funds early, so if they borrow today, they are stuck for ten years.

If inflation suddenly happens, we reverse our position and use China's 1.68% money to lend at higher rates.  We can't lose!  Thus, at current interest rates, my HuffPo declaration of a year and a half ago still prevails.  Forget our debt, borrow as much as possible now because inflation is coming.

One more thing.  Was it worth borrowing at low interest rates over the past few years?  Absolutely, as the world would have gone into depression if we did not spend as we did, incurring this $16 trillion debt.  However, we should have actually doubled the economic stimulus package, as explained in the column to the right under CALCULATE THE CURRENT VALUE OF MONEY.  Nobel Laureate Paul Krugman agrees with me.

Historically, our debt/GDP percentage :


Wow, this hard to read, so:


Thus, our debt/GDP percentage is at 68%.  Scary?  Nah.  #1 is Zimbabwe at 220%, #2 Japan (212%), #4, Greece (162%), #6 Iceland (128%),  #8 Italy (120%), #10 Singapore (118%), #11 Portugal (113%), #12 Ireland (105%), #16 Canada (87%), #20 France (85%), #23 Germany (82%), #31 Israel (73%).... and #35 USA (68%).  China?  #72 at 44%, not that much below the U.S.  

Zimbabwe is about the worst country in the world, so forget about them.  Japan? No problem, as 95% of their debt is to their people at almost no interest.  Well, problem, actually, as Fukushima will keep the country depressed for a long time to come, if not forever.  The European debt crisis is a powder keg, as the interest rates were as high as 7% for Spain last year.  This has settled.

So, about that fiscal cliff faced by the White House and the U.S. Congress in January?  Borrow as much as possible at less than 2%.  Our debt/GDP percentage is tolerable, and will drop when inflation comes.

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