Credit limits: A Simile

Consider having finally bought the sports car of your dreams, getting your bills paid, and being able to afford the interest on your credit cards, even paying them down. You drive down the interstate smoothly, and see signs of construction ahead. That would mean a slow-down, but nothing insurmountable. But then you are told to hand the keys over to another guy, a good old boy with whom you've never agreed. But now he has the roadster, and is seeing what it can do. But shortly, through no fault of his own, a rock is kicked up, and cracks the windshield. "Duck this," he yells, and steers that roadster off the pavement and heads out at right angles from the obvious way forward to bounce through the desert. Rocks, gulleys, and sand are not really where a roadster belongs. So this fellow runs up the credit cards to the limit seeing to the incessant need for repairs. And he increases the limit regularly, as he cannot pay the bills. Seeing that this keeps the car running, he wants to see how far he can make it jump. Finally, the car is damaged almost beyond repair. He spends and raises the limit several times, in a last ditch effort to get the car almost running. But then he is told to hand the keys over to another guy: A tall, dark, erudite type with training specifically in aspects of handling a roadster. The new guy tries to steer the car back toward smooth roads, but the car barely runs when he gets it. He spends up to the limit just to keep it running. Then he begs to extend the credit limit enough to make it fully road worthy. But the friends of his predecessor are determined to prevent any extra spending. "Too much!" they cry. They don't feel that the car really needs work. Perhaps it should heal itself. Now, that makes sense!

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A Manufactured “Crisis”

The whole debt ceiling “crisis" is the latest battle in The Republican War on Christmas and, as usual, completely manufactured by Republicans for narrow political ends. Since March 1962, the debt ceiling has been raised 74 times, according to the Congressional Research Service. Ten of those times have occurred since 2001. The debt ceiling has been raised all these times without any of the Republican shenanigans now going on. If a default occurs, it will be solely the fault of Republican hyper-partisanship and completely unnecessary. If a default occurs, our nation's economy will go into the tank as immediately billions of dollars will be extracted from the nation's economy crushing any economic recovery and devaluing stocks by at least one third and causing a loss of US Gross Domestic Product (GDP) of at least 5%. The US economic crash could spiral into a worldwide crash and precipitate another Great Recession or a New Depression. [More . . . ]

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Insider Trading Writ Large

Imagine, if you will, a country in which banking regulations were stripped down so far that worthless paper again becomes a hot commodity. Now consider that this had (as it inevitably must) blown up and caused a crash in the lending market and equities market and thus the economy in general. Further note that a necessary result would be a rapid rise in the price of precious metals, notably gold. After a couple of years, that gold bubble would be ripe. People who had assets remaining when the junk bonds or sub-prime mortgages or whatever collapsed could have conservatively moved their money into gold, further depressing the equities market and inflating the price of gold. But, wait. Because of government investing, the market was recovering too fast! So fast that the wealthy were unable to swap their inflated gold for depressed stocks at the optimum time. What to do? Congress to the rescue! The wholly owned carriers of the banners of freedom and independence could be employed to create a palpably unnecessary crisis with a distinct deadline. Yes! This would quickly depress the markets and allow those holding too much bubble-gold to buy depressed stocks. Meanwhile, those elected to carry the load of screwing the middle class could also jump on the wagon and buy up stocks just before the deadline hits. Then the price of stocks returns to normal levels, and the gold bubble can be allowed to pop. I, for one, would like to see the trading histories of all those involved in the current crisis, and their friends and kin.

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The deficit dispute

I don't claim to have the expertise to cut through all of the yelling about the deficit. I do have some instincts, though, and many of those instincts were reinforced in a recent article by Arianna Huffington:

What's more, these extended, deadline-pushing theatrics are utterly unnecessary. There was no reason an agreement on the long-term deficit had to be coupled to raising the debt ceiling. The latter dates from the days of World War I, and has been raised, routinely, dozens and dozens of times. It was raised 18 times under Reagan. It was raised seven times under George W. Bush.

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