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Who's in charge here?
We have lived through a summer of vacillation and hesitation by the American government. Even the normally imperturbable Federal Reserve seemed to catch the bug this past week when it announced that no, it hadn't really meant to imply that it was going to taper down its program of stimulating the economy.
President Barack Obama had a tough time this summer deciding and then explaining what he meant by the "red line" he had drawn concerning use of chemical weapons by the Syrian regime. Apparently our closest ally couldn't quite figure out what they wanted to do either, and voted against supporting the president in his proposed military strike on Syria.
The lifetime of the proposal for a military strike was briefer than expected -- though long enough both to ask Congress to approve it and to allow the Syrians to move their chemical weapons. But before Congress could get around to debating the question, the Russians came up with a plan under which the Syrians would hand over their chemical weapons to an international force supervised, in part, by the Russians. After having said that you can't trust the Russians on Syria, the U.S. government leaped into their arms -- even though their plan was dependent for both approval and enforcement on a UN Security Council where both Russia and China have a veto.
And in the middle of all this, a group of influential senators from the president's own party attacked Obama's putative nominee to head the Federal Reserve before the choice was even announced.
Yes, indeed, many of the weaknesses of the Obama administration have been on display over the past few months. They include not thinking clearly through the consequences of decisions and not communicating with the American people or world leaders in terms compelling and coherent enough to command support.
And this is the government we are counting on to lead us through a difficult confrontation over approving a spending plan and raising the debt ceiling next month -- a crisis with enormous potential to disrupt the economy and harm American families.
What's at stake here?
The financial system depends on confidence -- confidence that debts will be paid, that governments will support their currencies, that large financial institutions will not fail, and that all the millions of retail financial payments and transactions on which families and businesses depend will continue. A failure or even a significant delay in agreeing on a financing and spending plan for the U.S. government could cause that web of trust and transactions to unravel in several places. And the very prospect of damage to that web could itself trigger a cascade of breaks in the system.
The financial markets are skittish cats, as we have had painful reason to be reminded over the past several years. Consider, for example, the consequences of the inability of the U.S. government to assure an orderly market in the face of low or no demand for U.S. Treasury notes. Consider the impact on the U.S. economy and global confidence if the government were unable to fully meet its obligations under Social Security or Medicare and Medicaid in October or November, or had to stretch out payments to its contractors and vendors.
What have the Republicans in the House said about this prospect? At least some have said they don't care. And this summer has taught us that under great pressure and against tough deadlines, this administration is not at its best.
It would be a cruel outcome for Americans struggling to find work and make ends meet in a fragile recovery if a divided and incompetent government threw us back into a deeper recession.
Fasten your seat belts, please. We are about to experience some turbulence.

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Comment Preferences

  •  Treasury notes are nothing but the Treasury (0+ / 0-)

    borrowing the dollars it issued back and paying the lender a premium for keeping them safe. Why we do that, and I say "we" because, after all, U.S. dollars are our currency and their value depends on OUR good faith and credit, is a mystery. A few months ago, there was a suggestion that the Treasury might issue bonds that pay no dividends. But, though China might be quite willing to make a guaranteed deposit of dollars it doesn't immediately need, our banksters, who are borrowing dollars from the Fed at .025% and then lending them to the Treasury for 3% won't be happy about that.
    How can we wean them of the habit of compounding their monetary holdings by just passing them around in the financial community?
    Do the Tea Party people realize that they are screwing their buds at the country club if they forbid the Treasury from taking their dollars in loans? Do they realize that the bondsmen are unhappy because they can still remember when (1991) the Treasury paid 8.1% on a thirty year bond?
    No doubt the financial people are jittery. They're used to accumulating more and more of something that's essentially worthless. The Fed pours $85 billion into the economy every month and still they don't get the message. The Fed infusions are and are not like blood transfusions. The economy needs the currency and if it's siphoned off, more has to be transfused, which is not a problem because the supply of dollars is virtually infinite. That's the good part when you're dealing with a figment of the imagination. The bad part is that some people don't get what a figment of the imagination is.

    •  No Mystery (0+ / 0-)
      Why we do that, and I say "we" because, after all, U.S. dollars are our currency and their value depends on OUR good faith and credit, is a mystery.
      It's because we're the Investment of Last Resort, it takes unusable money out of the economy until such time as someone finds a use for it.  Interest rates are barely above inflation generally and recently don't even match that.  

      It serves a very useful purpose, but of course, the accounting language used confuses people.

      It's not 'debt' if we are the issuer of currency.  It can't be, we've incurred no obligations by printing a dollar.

      Violence is the last refuge of the incompetent.
      - Salvor Hardin, Foundation by Isaac Asimov
      Permissive Liberal: -7.62, -7.95

      by Zyx on Mon Sep 23, 2013 at 11:08:42 AM PDT

      [ Parent ]

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