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Tuesday
Aug022011

Chris Whalen: Why The Debt Ceiling Crisis Is A GOOD Thing

 

Whalen gets it right, while others cry in their miserable pool of panicked hyperbole.

As someone who has been waiting 20 years for this debate to gain attention (see: Land of the Free And Home of the Broke: The United States Of Insolvency), I applaud his measured analysis as he echoes what we've been saying all along.  The partisan fighting is a good thing. The issue has been simmering on the back burner for far too long, kept from the public while the debt continues to grow unchecked.  The deal reached last night cuts nothing, outside of the growth rate of growth in federal spending.  And if it passes this week, the grand opportunity will be lost for another 18 months, while the national debt increases by another $2.4 trillion.

43 cents of every dollar will remain borrowed, and your children will be left with an even bigger bill.  Do not forget that our total national debt was approximately $2 trillion in the year 2000, after 234 years of deficits, save Andrew Jackson's courage to wipe it away, and now we add $2 trillion every 16 months.

$2 trillion every 16 months.  With no end in sight.  Last night's deal does nothing.

Take a look at Chris' latest blog post for Reuters, excerpted below, for a reasoned response to the misinformed, exaggerated wrangling of the mainstream financial press.

---

Why The U.S. Debt Crisis Is A Good Thing

Reuters

Excerpt:

For too long Americans have been on auto pilot, relying upon elected representatives and various flavors of hired agents in Washington and on Wall Street to manage our money and our nation. It’s time to start paying attention again.

Second and more important, the debate over federal spending and the tradeoff between higher taxes and greater fiscal discipline begins a larger discussion about the nature of the American political system. After 80 years of borrow, spend and inflate to finance the Cold War, Housing Bubbles and the rest of the world’s growth needs, the US economy has reached an endpoint. The experiment in corporate statism begun by FDR in the 1930s and extended through and after WWII has brought us to the brink of insolvency.

Of course Nobel Prize winning economist Paul Krugman rightly notes that a reduction in federal spending will result in pain for many Americans. But what he fails to tell these Americans, especially low income working people he pretends to love, is that the cost of the borrow and spend policies advocated by second generation New Dealers is persistent inflation, a diminution of purchasing power that is just as surely killing the hopes and dreams of all Americans.

I have long argued that a low growth, low inflation environment is better for the working people that the manic, boom and bust cycles caused by big federal deficits and following accommodative Fed policies to make this all seem to work in a nominal sense. Americans need to understand that we face not a mid-cycle slowdown, to paraphrase the economist Richard Alford, but a post-stimulus adjustment to economic reality.

Take the time and read the whole piece at Reuters...

---

New clip from Whalen...

Video - Debt Ceiling Row Proves Democracy Works - July 28, 2011

Read a summary of this video...

---

 

Recent stories from Chris Whalen:

Chris Whalen & Josh Rosner With Kathleen Hays On Banks, Bailouts, Europe, Dodd-Frank And The Debt Ceiling

 

Chris Whalen: "Geithner Is Wrong! There Is No Downside To Not Raising The Debt Ceiling"

 

 

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Reader Comments (45)

Aug 1, 2011 at 1:30 PM | Unregistered CommenterDave
p.s. about The Housing GSEs and TBTF Banks Are Blocking the Economic Recovery!

Corporate Crime, Russia, Peter Orszag and Getting Away with Murder

http://corporatecrimereporter.com/morgenson07282011.htm

Obama's Budget Has One Small, Missing Piece.... For $6.3 Trillion Dollars

http://www.zerohedge.com/article/obamas-budget-has-one-small-missing-piece-63-trillion-dollars

Is Fannie bailing out the banks?

http://finance.fortune.cnn.com/2011/01/03/is-fannie-bailing-out-the-banks/
Aug 1, 2011 at 1:35 PM | Unregistered CommenterLiberatedCitizen
what he fails to tell these Americans, especially low income working people he pretends to love, is that the cost of the borrow and spend policies advocated by second generation New Dealers is persistent inflation, a diminution of purchasing power that is just as surely killing the hopes and dreams of all Americans.
---------------------

RUBBISH.

You would have to be a neo-liberal/monetarist to believe it.

The US deficit is too small - hence unemployment, factories silent, and machinery rusting.

The US is not living beyond its means regarding public spending - unemployment is high, factories are silent, people are hungry.

The US is sovereign and can print as much money as it likes - the deficit is irrelevant in such conditions as present.

Cutting the deficit will make things WORSE. Cutting spending will make things worse. It will reduce activity, cutting tax revenues even more.

Those arguing for reducing spending are attacking the poor and the nation's workforce - THEY WILL MAKE IT WORSE. Unemployment will rise. Poverty will increase. Demand will stall. And then what? Do it all again?
Aug 1, 2011 at 2:56 PM | Unregistered CommenterTLNL
TLNL. Who the fuck are you Robert Reich? We have tried stimulus and printing for 4 years. And it hasn't done jack shit. It's time to take the medicine and cut back. I can't believe you are arguing for more printing. You are either Bernanke or Reich's evil twin. The dollar is getting destroyed by the policies you advocate. Seriously, why don't you just leave the site. There is no one around here who agrees with your massive load of BS.
Aug 1, 2011 at 3:14 PM | Registered CommenterDailyBail
It's a balance sheet recession caused by too much debt, And your solution is more debt. Seriously, get a f'ing clue and stop posting nonsense.
Aug 1, 2011 at 3:15 PM | Registered CommenterDailyBail
TLNL sounds more like Alan Colmes than Robert Reich.
Just another Keynesian crying for more handouts. Has anyone stopped to wonder at the circular foundation of their illogical argument?

No matter how big a stimulus you try, or how many times you try it, you just keep arguing that it "wasn't big enough" and that is your sole justification for the perpetual handout. You can never counter the argument with anything like common sense, because no matter much we spend they can always come back with "it wasn't enough".

That's how we got where we are today. Hearing idiots banging their forks on the table, crying for "more, more" is getting tiresome.
TLNL (Total Loser, No Limits) fails to understand that DEBT is not WEALTH.

Too simple a concept NOT to explain: http://letthemfail.us/archives/10174
Aug 1, 2011 at 3:34 PM | Unregistered CommenterWil Martindale
Debt is not wealth?

Yes it is - any debt is an asset elsewhere in the system - they are two sides of the same coin.

The USA sovereign govt can print as much money as it likes - it does not BORROW it for domestic spending. The deficit can be as large or as small as necessary. What's necessary? EMPLOYMENT, DEMAND, GROWTH.

NO, THERE HAS NOT BEEN ANY STIMULUS. WHAT PUBLIC WORKS HAVE BEEN UNDERTAKEN? WHAT TAX-CUTS HAVE WORKERS HAD?

YOU want to

-cut the deficit, by cutting spending?

That will REDUCE DEMAND, throwing even more workers on the dole, putting more businesses out of work.......further reducing demand.

YOU TELL ME - WHAT WILL RAISE DEMAND?
Aug 1, 2011 at 3:44 PM | Unregistered CommenterTLNL
Aug 1, 2011 at 3:44 PM | Unregistered CommenterTLNL
------
"That's how we got where we are today. Hearing idiots banging their forks on the table, crying for "more, more" is getting tiresome.
--------------------

So, it was workers demanding "a little more" that caused the crises? Oh, I see.......and so DailyBail has it totally wrong, huh?

Isn't there something a little odd about people complaining about the financial mess, and then turning to the same economic theories which caused it as a solution?

The largest deficits in US history occurred during WW2 - then followed the longest period of sustained growth in its history.

------

Note - taxes are at their lowest for 60 years. And still no growth.

So.........what's the solution? If you refuse to raise the deficit, then you will need to raise taxes? That will put further downwards pressure on aggregate DEMAND, lowering tax returns even more.......so....what then?

Cut spending again? That will further reduce demand, costing more jobs and more businesses.....lowering the tax take even more....and raising the deficit again.

So, COME ON, WHAT'S YOUR PRESCRIPTION?
Aug 1, 2011 at 4:01 PM | Unregistered CommenterTLNL
YOU TELL ME - WHAT WILL RAISE DEMAND?

---

NOTHING. You still don't get it. It can't be fixed by stimulus, or policy or prayer. We had a 30 year debt bubble. It's going to take time and reduction of debt in the system. Massive deleveraging. Deal with it. It can't be fixed. The problem is too large. It would take $20 trillion minimum and we don't have the cash. And even if we did, a stimulus of $20 trillion would only make the problem even larger in the future. One would think that the last 4 years of more debt and no response from the economy would show you how wrong you are. Pull your fucking head from the sand.
Aug 1, 2011 at 4:02 PM | Registered CommenterDailyBail
The largest deficits in US history occurred during WW2 - then followed the longest period of sustained growth in its history.

---

This shows how ignorant you are. Do you not understand the economic difference between WWII and now? I could write pages on the differences. This one can't be fixed, but you would rather we try trillions in dollar-destroying stimulus anyway. Go to Brad Delong's fucking blog. He and Krugman are the 2 most discredited Keynesians around. You will feel welcome there. Because your idiocy is now officially NOT WELCOME here.
Aug 1, 2011 at 4:05 PM | Registered CommenterDailyBail
Anyone who believes increase in money supply is the drive for inflation, is buying into the same orthodoxy which has been prevalent the last 30 years.......and which led us to where we are today.

A belief that increases in money supply causes inflation is monetarism, neo-liberalism, Austrian school - the reigning orthodoxy: the same orthodoxy held by those whom brought us to this point.

And people here still embrace it! Worse, they call for even more austerity!

Those of you arguing for cuts...............what do you say to workers who will be made unemployed by your policy wishes?

What are they going to do?

And how will demand recover? How will tax-revenues rise, as you insist they must to meet spending? All THIS is the problem......ALL this is what we've had for 30 years. And you people support it - MORE OF THE SAME, ONLY WORSE.
Aug 1, 2011 at 4:09 PM | Unregistered CommenterTLNL
Do you not understand the economic difference between WWII and now? I could write pages on the differences.
-------------------------------

But you can't mention one difference? ok, lol.

Try post-Keynesianism?

Come on - LETS HAVE YOUR PRESCRIPTION AND YOUR REASONING? LET'S SEE IT?
Aug 1, 2011 at 4:12 PM | Unregistered CommenterTLNL
-------
we don't have the cash.
--------


WRONG!

The USA is sovereign, and can print as much cash as it likes. FACT.
Aug 1, 2011 at 4:13 PM | Unregistered CommenterTLNL
A belief that increases in money supply causes inflation is monetarism, neo-liberalism, Austrian school - the reigning orthodoxy: the same orthodoxy held by those whom brought us to this point.

---

Now this is COMPLETE nonsense. We were led here by Keynesians. The Austrian School hates debt. How can you even make this argument.
Aug 1, 2011 at 4:15 PM | Registered CommenterDailyBail
And you still don't get it. There is NO response that will work. It's the downside of debt bubbles. Deal with it. Time and deleveraging are the only cures. Debt in the system must be reduced.
Aug 1, 2011 at 4:18 PM | Registered CommenterDailyBail
The USA is sovereign, and can print as much cash as it likes. FACT.

---

and with your solution of endless printing we won't be sovereign for much longer. The dollar is already on the road to being replaced as a reserve currency. Your prescription will only hasten the inevitable.

Your rambling makes me think of this.

http://dailybail.com/home/print-money-thats-how-im-gonna-fix-the-economy.html
Aug 1, 2011 at 4:20 PM | Registered CommenterDailyBail
Your argument fails to consider what will happen to treasury interest rates once the Herculean printing you advocate begins. They will go much higher which will in turn push interest on the debt to skyrocket leading to absolute default. You can't win this argument. I counsel you to leave this site for much less popular sites that do advocate printing. Brad Delong is my suggestion for you.
Aug 1, 2011 at 4:26 PM | Registered CommenterDailyBail
Interest rates are set by the FED.

You're not giving any prescription at all, let alone a workable one. "THERE IS NO SOLUTION". LOL. Ah, inspiring.


-----
We were led here by Keynesians.
-----

Don't talk such rot. Tell me that Reagan was a Keynesian?

Tell me Bush I or II were?

Tell me OBAMA is?

Tell me Clinton was?

Rubbish! They're all relatively orthodox monetarists - the orthodoxy of the last 30 years.
Aug 1, 2011 at 4:30 PM | Unregistered CommenterTLNL
The Fed funds rate is set by the Fed. Treasury rates are set by the market. You are an economic neophyte, trying to play in the big leagues and you don't even know the issues very well. You simply repeat Keynesian nonsense.
Aug 1, 2011 at 4:33 PM | Registered CommenterDailyBail
Bush added debt thru war and tax cuts. Big mistake. Bernanke is a Keynesian. Obama is definitely a Keynesian. Greenspan was just an idiot.
Aug 1, 2011 at 4:35 PM | Registered CommenterDailyBail
Margaret Thatcher in UK - elected 1979.

MONETARISM. Privatisation. Lower taxes, cuts in spending.

----

Want to argue with that?

And from Peter Schiff, we have Reagan's revolution:

The Reagan Counterrevolution

"Peter Schiff
Nov 7, 2008

In 1980, when the U.S. economy was last in serious trouble, Ronald Reagan offered the correct diagnoses that government was the problem and not the solution. His message resonated with voters, propelling him into the White House to implement an agenda of lowering marginal tax rates, reducing government spending and business regulations, restoring sound money, abolishing entire government departments, and basically allowing free market vibrancy to unshackle an economy burdened by big government. "
--------------------------------------

You're saying these people were Keynesians? LOL,
Aug 1, 2011 at 4:41 PM | Unregistered CommenterTLNL
You still haven't given your prescription.

So, come on, let's have it? What is your prescription?
Aug 1, 2011 at 4:43 PM | Unregistered CommenterTLNL
And you still don't get it. There is NO response that will work. It's the downside of debt bubbles. Deal with it. Time and deleveraging are the only cures. Debt in the system must be reduced.
Aug 1, 2011 at 5:00 PM | Registered CommenterDailyBail
It can't be fixed by stimulus, or policy or prayer. We had a 20 year debt bubble. It's going to take time and reduction of debt in the system. Massive deleveraging. Deal with it. It can't be fixed. The problem is too large. It would take $20 trillion minimum and we don't have the cash. And even if we did, a stimulus of $20 trillion would only make the problem even larger in the future. One would think that the last 4 years of more debt and no response from the economy would show you how wrong you are.
Aug 1, 2011 at 5:03 PM | Registered CommenterDailyBail
That's the problem with you big government types. You always think there is a government prescription to solve the problem. That's how we got into the debt problem to begin with.
Aug 1, 2011 at 5:04 PM | Registered CommenterDailyBail
Aug 1, 2011 at 5:09 PM | Unregistered Commenterjohn
Your prescription is that....there is none. Oh wow. That's really inspiring. I hope your readers are listening.

What your readers want, surely, is employment - growth - JOBS - not the cuts, austerity and hardship you say are inevitable.

They aren't inevitable, so long as we dispossess with YOUR thinking - the SAME thinking that brought us to this position.
Aug 1, 2011 at 5:17 PM | Unregistered CommenterTLNL
Christ, you must be the devil himself....

"so long as we dispossess with YOUR thinking" Who is WE? please answer the question and be specific.

"What your readers want, surely, is employment - growth - JOBS - not the cuts, austerity and hardship you say are inevitable."
Didn't you tempt jesus with that once before?

It was greed, fraud and negligence by those in leadershipship positions that got us into this mess, and yes we can deal with it.

As I am inclined to be an athiest and a former fire chief (among a few other things), you sir can go straight to hell as I know I am unwelcome there.
Aug 1, 2011 at 5:30 PM | Unregistered Commenterjohn
Thanks for the photo on Flickr john, and I'm also an atheist.

TLNL. I don't have time your distraction.

Aug 1, 2011 at 5:42 PM | Registered CommenterDailyBail
I think I've read every link & comment today & now I know everything. If you don't believe me, just ask me & I'll tell you that I do.
DAMN!! I'm a genius. Brilliance is oozing out of every pore.
They're coming to take me away,HO HO HE HE HA HA.
Aug 1, 2011 at 7:17 PM | Unregistered CommenterTR
That's a hell of an accomplishment TR. I didn't think anyone read everything I post.
Aug 1, 2011 at 7:34 PM | Registered CommenterDailyBail
Interesting that TLNL (Total Loser No Limits) possesses the faculty to press the sequence of buttons on a keyboard required to form complete phrases and sentences, even if they make no sense. However, not quite motivated enough to check the link I provided.

You say debt is wealth. Fine. You be the lender side of the coin, and I will be the borrower, Give me one million dollars so that we can both be one million dollars richer. I'll buy gold with my million--watcha gonna do with yours?

Deficits don't matter? To who? I understand there's an open position for U.S. Ambassador to China. You're hired for life.

Once a post graduate Princetonite of the Bernanke school latches onto that Keynesian concept of "spending your way to prosperity" they become so fixated upon the fallacy of "something for nothing" they will spend the rest of their lives in pursuit of the free lunch, easy money solution to EVERYTHING.

Even the question: WHAT WILL RAISE DEMAND?

This betrays the fallacy of your thinking, in its state of Keynesian delusion. It is not for governments to "raise demand" any more than to "create jobs". What raises demand is for the market (not manipulated by neo-fascist Keynesian cronyism) to decide. Perhaps a nation of producers, has saved the excess wages from production such that these producers create a higher demand now for items they could not previously afford.
This is not for governments to engineer, but for markets to decide. When governments get out of their own way with over-regulation, taxation and complication, they ENABLE (not create) jobs. But jobs, like demand, are created by the marketplace, through innovation, discovery, new technology, resource utilization improvements, etc...

By all means spend a little time at the Austrian school with Mises. Reality isn't that harsh once you get used to earning your keep in this world.

Your debts are only assets in the system until they default--then they are liabilities. Increase in money supply doesn't cause inflation? Why then has the dollar lost 95% of its 1913 value? Surely not due to monetary contraction. You have a few jumbled thoughts from pieces of this and that, but it's not coherant.

Deficits don't matter and debt is wealth. If so, what's all the grumbling about. The U.S.A. is rich with debt beyond our wildest dreams and our deficits are simply stellar so let's kick back and do nothing. We'll surely get the most bang for our buck doing that--since something for nothing is obviously your preferred fantasy.
Aug 1, 2011 at 8:04 PM | Unregistered CommenterWil
Nicely done Wil.
Aug 1, 2011 at 8:07 PM | Registered CommenterDailyBail
@Aug 1, 2011 at 7:34 PM | DailyBail ,
You caught me in a LIE. I can't read. MO VIDEOS, MO VIDEOS, MO VIDEOS
Aug 1, 2011 at 9:18 PM | Unregistered CommenterTR
My fear is that the elimination of the debt ceiling will even further stifle meaningful debate on fiscal issues. We will institutionalize the debt a la Argentina and Mexico of thirty years ago, with nominal payments made to the entitlement holders -- payments destroyed by inflation. Remind your readers, of the colloquy between Alan Greenspan and then- SBC Chairman Richard Shelby (R-AL), when the former said that the Social Security payments will be made, but what would the dollars buy? That is why we need a regular, even monthly vote on the debt ceiling and a couple more elections."

Chris Whalen sent the above comment this evening by email. I thought I would add it to the story here in comments.
Aug 2, 2011 at 12:14 AM | Registered CommenterDailyBail
I smell smoke, he's toast. Excellent Job Wil!
Aug 2, 2011 at 12:17 AM | Unregistered CommenterSagebrush
My pleasure gentlemen. I may even post about it later today, as it takes ua back to the beginning of the central argument. If governments just stopped rewarding failure and punishing success, the economy would take care of itself. Ergo, LET THEM FAIL!
Aug 2, 2011 at 8:25 AM | Unregistered CommenterWil Martindale
@Sagebrush

I've been searching for the story I posted on the main page that you wrote last year. I couldn't find it. Do you remember what it was called or can you find the link. Thanks.
Aug 2, 2011 at 12:08 PM | Registered CommenterDailyBail
My file shows - July 15 2010
Audit The Fed Hall Of Shame -- 114 House Members Co-Sponsor HR 1207, Then Vote Against It
Aug 2, 2011 at 4:08 PM | Unregistered CommenterSagebrush
Thanks Sage.
Aug 2, 2011 at 11:47 PM | Registered CommenterDailyBail
TLNL, Christ, you must be the devil himself....

DB , that Nut Job has yr hart rate up tonight for sure........He thinks like a 14 year old, what do you mean im broke, I have 97 blank checks left........

I do know one thing, I want his addrress so i can send him all my bills and he'll just print the money and pay them..... I was lookin at a Xenon Gyrocopter today and would like a pair of Wipline Floats, but were past broke.

I may have found a way to pay for them......TLNL may be my new friend..............

I would say we just may have found the ( "Def-A-Nish-Ion" ) of a Democrat, but He would make the 2 good ones we have Look Bad..........................

I dont think our Gobis, could take much of this guys Crap..........................He is so full of it he reminds me of the almost a president we have, in flight on our Dime....................
Aug 3, 2011 at 11:16 PM | Unregistered Commenter"Texas Dar"

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