How America Will Get Its Debt Under Control
How will America get its debt under control? A first step—something most reasonable people could agree on as self-evident—would be to cut spending. That might happen with Mitt Romney but it certainly won’t happen with Barack Obama. While Romney is a lock to slow the debt’s rate of increase, that isn’t nearly the same as paying the debt down.
A second step would be to default, as many Americans have learned. From Time:
U.S. household debt has finally fallen back to pre-recession levels. So, we’ve finally learned our lesson about spending more than we make, right? Well, not really. The real reason our debt has dipped is that so many Americans defaulted on bills they couldn’t pay.
And while Americans can’t legally print money, America can.
So with the national debt equaling GDP, with the states having massive shortfalls themselves (largely in retiree benefits and healthcare), and with other unfunded federal liabilities somewhere around $100 trillion, the debt options are simple: inflation or default.
As was mentioned, since households can’t create inflation, default has become their preferred option.
But since the federal government can create inflation, and since our elected leaders—long reflecting the will of the people—seem disinclined to take action, it will be up to the Fed to solve the issue (even though it’s unconstitutional) where they will effectively create more money via keystrokes. (Image from Goldstockbull.com)
So what’s the lesson? Expect Helicopter Ben or his intellectual heirs to be looking for the password to the ‘print $120 trillion’ Fed function. It will happen sooner or later, but will it be sooner or will it be later?