Default is the lesser evil

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Monday August 01, 2011 · 5:34 AM PDT

2011/08/01 · 05:34

The main reason everyone has been saying default is so bad is that the US will lose its triple A bond rating. No one knows that and now there are rumblings that the US will triple A bond rating anyway. The next reason everyone has been saying is that losing the triple A bond rating means that interest rates will go up. The Fed decides whether or not interest rates will go up, not bond buyers or bond holders. If the Fed holds interest rates low and bond interest rates are almost always higher than Fed interest rates, then it would take a fool not to buy US bonds by borrowing from the Fed. Of course most with that ability have shown themselves to be fools, but who knows rational thought may yet win out.

The deficit can only be solved by increasing productivity. Productivity will only be increased if there is more demand. Demand can only be increased if people have jobs. Slashing spending reduces jobs and reduces demand. Government spending will increase demand. That will only work in the short and immediate term.

Over the long term there must be a broader distribution of wealth. This mess was in large part created by two factors, low taxation of the wealthy and deregulation. Hard to believe that the wealthy pay a smaller percentage of their income in taxes than the middle class. And then there is deregulation that enables the wealthy to con us all. Yup many wealthy citizens are little more than Bernie Madoffs, Rupert Murdochs or Ken Lays. Oh they aren't blatant about it, but they are con men non the less and we are stuck in a game of three card monte or the shell game, only there is no pebble.

The problem with the "deal" and the "deal" ain't law yet, is that through spending cuts the economy will get worse and the wealth will both shrink and become more concentrated. Demand will yet again decrease and the vicious cycle will repeat. The broader distribution of wealth must be both in the US and all over the world. All people need to have comfortable lives, being well fed, well housed, well cared for, well educated, and on and on. Only through a system that enables everyone's needs to be fulfilled can we live in peace and harmony. There will still be natural disasters and man made disasters, but overcoming the disasters will be relatively simple, not easy, but less difficult than today.

Default will harm us over the short term. But default is less harmful than the deal is over the long term. Further we need to educate all that broadening the distribution of wealth is not socialism, but is the only way for capitalism to work. Narrow distribution of wealth kills capitalism. I believe in capitalism, a highly regulated capitalism where all can work and be compensated for their work. I do not believe in a centrally managed economy, but rather one with a broad distribution (not equal) of wealth. This means high taxes on the wealthy and broad opportunity for all. It means regulation that promotes wealth and doesn't starve the wealth creators. It means education, education, education for all not just the rich who can afford it.

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