This is exactly how I viewed everything before the recent fake drama in DC.
But after the drama, I am convinced that politicians believed that continued debt expansion is the favorite option and they are working with the Wall Street to engineer it properly.
The debt problem might be too big for men to solve. Quit worrying, knowing the "Invisible Hand" will take care of it somehow. At least that is my new approach.
This is a rational choice.
If each human being is a sovereign entity, then should we align the global debt reset along the line of population, at least among the biggest economies?
Is it true, from Creator's point of view, a person from impoverished Africa region is the same as Mr. Bill Gates?
The debt problem has increasingly become too big to be fixed by men. Maybe we should stop worrying about it, knowing somehow or the other the "Invisible Hand" ( a term coined by Adam Smith) will eventually take care of it.
I guess that the answer is that you should not worry a bit, because this debt problem is already gigantic and is getting bigger. If the Loydd Blanfein of Goldman Sachs is correct, Federal Reserve and the Wall Street only serve as the intermediary of the "Invisible Hand".
When the problem becomes too big to be solved by men, then you stop worrying about it. ;-))
In hindsight, the recent clown show of government "shut down" and "debt ceiling" was obvious staged. As I have argued earlier, neither side of the political spectrum wants austerity programs to solve the long-term insolvency of US finance. It increasingly looks like that both of the sides have committed to short-term fixes such as expanding the GDP at the same pace as the Sovereign debt in order to maintain relative stable debt to GDP ratio. The demographic engineering through Healthcare Reform and Immigration Reform are some of the temporary measures implemented or considered.
If this indeed is the plan of those who proclaim to have done the "God's work", then we know that by 2017, the US real GDP would likely reach $19 trillion (CBO and OMG estimates) with an impressive 4+% annual growth. While the total US sovereign debt could reach $20 trillion, the expected GDP to Debt ratio would held relatively stable.
When, or if, this scenario becomes materialized, the federal reserve might start to remove the backstop, i.e. the trillions of dollars handed over by the Creator (;-)). That is when the global equity market might get volatile, again. But, before that actually happens, the Federal Reserve will likely continue to pump the "Almighty Credit" into the global economic system, prompting the participants in the economy to become more "willing" to engage in the transactions so as to create the money needed to boost the economy.
Some prudent people might ask: what happen when the positive effects of these temporary fixes wear out and the negative effects become dominant many years from now? Since I am no genius nor wizard, I would say: do not need to worry about it because you are dealing with benign "Invisible Hand" here. In the worst scenario, a global debt RESET could be executed, and every country will have a clean balance sheet to start with.
after the news come out: either end of fake "shutdown" or default.
Although the foreign demand helps to firm up the marginal transaction prices on these assets, it is, in my view, the highly leveraged positions taking on by the domestic hedge funds generated most of the demand. As I mentioned earlier, these leveraged positions were mostly financed by the banks and other investment vehicles, which are largely hidden from plain sight. Such ENRON like private financial system have been sanctioned by the government and by the organizations like FASB probably unwittingly, and have been promoted by all level of “grass-root” networks including educational institutions.
I think that it is almost impossible for US government to replicate the private shadowy banking system (i.e. hedge funds, SIVs, etc.) existed before 2007 since it is prohibitively expensive to take the tens of trillion of hidden debt/loss onto government balance sheet. With subdued future investment demand from traditionally current-account-surplus nations such as OPECs, China, Japan, etc., and from badly hurt hedge funds and SIVs, the USD assets could enter into a secular downtrend which would likely last a few more years.
We have now witnessed the first and second stage of this “One-hundred-year flood” — the financial crisis and the economic crisis. I think that the third stage would be the social crisis. The high unemployment and high number of family in financial distress over a long period of time would present a fresh test to the democratic political system.
This American financial/economic crisis is the product of many years of excess built up in the global financial system. Partly because USD is the world reserve currency and partly because the Wall Street enjoys dominant position in world financial stage, the entire private financial system, including commercial banks, investment banks, hedge funds, private equity corps, investment structures such as CDO/CLO, and other SIVs and SPVs, has, during the past twenty-five years, helped to created a false sense of prosperity in America and other developed world by, like a ENRON corp, hiding the loss/debt but showing the profit/wealth.
The persistent demand for USD denominated assets by foreign central banks and domestic non-bank financial institutions such as Insurance companies, pension funds, mutual funds has contributed to the appreciation of USD assets. That trend prompted the creations of many loosely regulated domestic speculative institutions such as hedge funds, which, with the tremendous funding from the banks and investment banks, try to take advantage of pricing trend with highly leveraged bet. Such demand from speculative financial institutions and the greater willingness for the banks to lend have further boosted the assets prices and hence the sense of wealth and prosperity among most American consumers and American corporations (higher stock prices, higher housing price, higher commodity prices, higher wage and labor compensations etc.)
Senator Portman made a proposal about solving US long-term debt problem. But his proposal disappeared from the Mainstream media the next day.
It looks like that nobody at DC wants to have a long-term solution. The fake drama might be played to benefit their Wall Street friends.
Although Oct 17 "deadline" might be another fake, but the outcome really depends how the global bond and equity markets will react. So get yourself prepared when rational decisions in no longer in fashion.
It is hard to understand what the Congress is trying to achieve, since there is no serious proposal yet on how to reduce the debt over longer run and how to maintain the perception of solvency of US finances.
Politicians in DC are playing with fire.
Will we see (1) breached deadline; (2) market crash and panic; (3) Obama implement martial law? Impossible?
Fed does not create money. The consumers and businesses create money through banking system and shadowy banking system. If consumers suffer unprecedented unemployment and businesses forecast sluggish growth due to debt overhand, then no matter how much phantasy money Federal Reserve tries to inject into the system, the positive effect will be temporary.
It is Economics 101, which you will not learn from Harvard Business School.
This debt problem is going to get out hand, once the major demographic shift sets in.
I think that USD will be fine if, five year from now, US can convince Canada and Mexico to join USA and start to use US dollar to price the entire North American economy.
Understandably, the austerity measures are not the best options. But perpetual overspending is even worse.
Sometimes I wonder whether THEY try to artificially pump up this PONZI bubble to extremely high level to crash it.
In the short-run, any stock could be manipulated by market maker, algorithmic trading programs, proprietary traders, hedge funds, mutual fund etc.
But over longer-term, the stock price will be in line with its intrinsic value, which could be at $50, $30, or $0.
Why new QEs will not work? Because as the Federal Reserve is attempting to add leverage in the economy, the investors and consumers will gradually withdraw it.
Yes, deflation pressure is getting stronger and stronger, given the current global economic structure.
Apparently the "debt ceiling" drama is simply a distraction: the DC can decide whether to raise debt ceiling. But DC will not be able to save the slow motion of collapse of the PONZI bubble.
It is all about the signs of out-of-control debt malaise.
The "shutdown" and "debt ceiling" are just fake debate to distract you from the long-term problems: ineffectiveness of QEs; perpetual fiscal deficit; ballooning sovereign debt ..... and the eventual collapse of the PONZI game.