The Two ‘Faces’ of U.S. Debt-Ceiling Deal

Originally posted at BullionBullsCanada.com

Mercifully, it appears that the U.S. debt-ceiling farce has finally ended – with an anti-climactic “thud”. It is only fitting that the two-faced regime which negotiated such an agreement should present us with a scenario which has two distinct interpretations. However, before getting into how this deal came to be, it’s necessary to spend a moment doing a reality-check on the actual terms of the deal.

In any rational assessment, this can only be defined as another complete failure for the hopelessly dysfunctional U.S. government. While the talking-heads in the mainstream media will do their best to spin this as “the best compromise available”, the mere failure to commit suicide cannot be construed as a “victory” when this deadbeat economy teeters on the brink of bankruptcy.

The ability of the Federal Reserve to (supposedly) “fund” the U.S. government via its magic printing press ends permanently once hyperinflation officially drags the worthless greenback to zero. As I have detailed previously, in unofficial terms the “fundamental” value of the U.S. dollar has already reached zero.

With the “Emperor” (i.e. B.S. Bernanke) clearly wearing no clothes, each time the Federal Reserve cranks-out a new truck-load of Bernanke-bills (backed by nothing) to “pay” the bills of the U.S. government for one more month, the probability increases that the the sycophantic masses will finally notice this chronic nudity. And by “sycophantic masses” I’m naturally referring to the “experts” in charge of our global monetary system.

Because this absurd “deal” does nothing to reduce the steady stream of those truck-loads of Bernanke’s confetti, in any/every meaningful way it is a complete failure. As is always the case with governments which only wish to pretend to be engaging in fiscal tightening, this deal is heavily “back-loaded”, meaning that any noticeable reduction in the deficit doesn’t commence until 2016, while virtually nothing is being done until 2013. When a chronic deadbeat solemnly proclaims his intent to start acting responsibly two years from now, this impresses no one.

Indeed, in the first year of this “deficit-reduction” a mere $200 billion is being trimmed from the latest, massive increase in U.S. debt. Given the $1.6+ trillion size of the current deficit, this is nothing more than “a rounding error”. With the relentlessly (and intentionally?) “optimistic” revenue projections which this regime has engaged in, by the time the first year of this supposed deficit-reduction is finished, the “unexpected increase” in the size of the U.S.’s annual deficit could easily exceed the total amount of “deficit reduction”. Translation: in the first year of this “deficit fighting”, the U.S. deficit will very likely increase rather than decrease.

This becomes more probable by the day. With this credit-junkie economy now (apparently) deprived of additional stimulus and more of the Fed’s “easy money”, it had already sagged noticeably simply in anticipation of being deprived of its next “fix”. When the withdrawal-pains really begin to set in, we will see this debt-crippled economy once again plummeting like a rock.

Given that the “optimists” in the U.S. government have (as always) proclaimed their expectation of a “stronger second half” for 2011, the actual numbers for this revenue-starved economy are sure to be a “disappointment”. This makes the mere failure of this new deal the best-case scenario. The worst-case scenario is that this feeble attempt at “deficit fighting” will be abandoned before “the ink is even dry”; with either more government stimulus, more Fed money-printing – or both.

In short, the totally juvenile posturing which has taken place in the U.S. government over the past six months – preventing these corrupt stooges from doing anything useful during that period of time – will likely have a shelf-life no longer than the latest “victory strategy” for the war in Afghanistan.

The indictment of how the Republocrats arrived at this deal is equally scathing. Interpretation #1 is that this was an exercise in pure cynicism. Any/every credible economist has already concluded unequivocally that it will never be possible to even substantially reduce the massive U.S. deficit without significant increases in revenues (i.e. higher taxes).  More specifically, as I regularly point out in my own writing, the U.S. government is currently experiencing its worst revenue crisis in history.

With the bottom-80% of the U.S. population already squeezed dry, that leaves “tax increases for the rich” (and/or the multinational corporate deadbeats) as the only, possible source of additional revenues. However, the Republocrats have already been instructed by their Masters that no such tax increases would be allowed. Thus, this last six months of (quite literally) “political theater” has been undertaken solely to prevent the rich from suffering even the tiniest dent in their wealth-hoards.

The role of the Republican half of this tag-team was a simple one (commensurate with their abilities): “no tax increases for Americans”. The reality that only the top-20% have anything left to tax is a “subtlety” beyond the comprehension of the “Republican base”. The fact that the vast majority of Americans have supported tax increases for the rich in recent polling is irrelevant to Republicans – as they only need the support of their “base” to retain their own jobs in the vast majority of the U.S.’s severely gerrymandered electoral districts.

The “role” assigned to the Democrats was a more difficult one, given that it involved openly and intentionally betraying their own “base”. At least the Republicans are able to pretend that they are serving the interests of their loyal flock of sheep. The Democrats have no such political cover. Their complete and utter capitulation in this pseudo-negotiation cannot be hidden: no tax increases of any kind for the rich, despite the clear “message” from their own supporters.

What this means is that from the first day this entire debt-ceiling farce began, it had already been decided that no agreement would be reached until (literally) the day before default. Thus, the lame excuse which would be put forward today by the limp-wristed “leadership” of the Democrat Party is that they were “forced to capitulate” – because the hopelessly and obviously deluded “Tea Party” zealots in the Republican Party were genuinely prepared to “crash” the U.S. economy if they didn’t get their own way.

Fortunately, The Daily Show’s ever-astute Jon Stewart immediately stripped that excuse from this collection of two-faced weasels. Stewart pointed out that if the Democrats were incapable of “standing up” to the Republicans in a debt-ceiling show-down (because of some sort of genetic “spine deficiency”), that they could have simply used a previous “golden opportunity” to secure a debt-ceiling increase – without being required to 100% capitulate on future taxation policy.

When was this “golden opportunity”? A little more than six months ago when the Democrats previously engaged in 100% capitulation to the Republicans on taxation policy – by extending the massive windfall-to-the-wealthy known as “the Bush tax-cuts” (and again betrayed their own supporters). Stewart pointed out that unlike the latest capitulation (where the Democrats can point to the increase in the debt-ceiling), when the Democrats capitulated on the Bush tax-cuts they obtained absolutely nothing in return.

With the fast-approaching U.S. debt-ceiling already an issue when Obama broke yet another campaign promise on the Bush tax-cuts, it is absolutely impossible for the Democrats to claim that they had “forgotten about” that deadline the last time they rolled-over-and-played-dead. In consistently caving-in to Republicans any and every time the subject of “taxing the wealthy” arises, Obama has revealed himself to be nothing more than the two-bit actor from Shakespeare’s “Hamlet” – whose own, unconvincing denials evoked the immortal phrase “the lady doth protest too much, methinks.”

If this first interpretation of the Republocrat deal on the debt-ceiling reeks of corruption, deception, and cynicism, the second interpretation is simply frightening. The only other possible way to view these events is that the capitulation by the Democrats on the debt-ceiling was not merely an “act”. Rather the clueless ideologues in the Republican Party were not bluffing as they held the debt-ceiling “gun” to their heads, but were fully prepared to pull the trigger.

Understand the dynamics here. This is the same Republican Party in which virtually every one of their “stalwarts” fervently believes that the U.S. can “balance its budget” with nothing but spending-cuts – despite the fact that all leading economists have concluded this is mathematically impossible.

Clearly not one of these numerical simpletons would have the slightest idea of the actual consequences of simply refusing to increase the U.S. debt-ceiling. Despite their complete ignorance on the result of their own actions, and “stern warnings” from literally all over the world of the idiocy and recklessness of such an act, these zealots were prepared to risk the complete destruction of their own economy – simply to blindly pursue their own ideological dogma.

Readers are free to pick their own, favorite interpretation. Was this simply another example of the spineless, devious hypocrites which the Democrats have devolved into; or, does the Republican Party now represent the most dangerously incompetent group of mental-midgets to ever obtain “high office” in a Western democracy?

Readers are also free to select “all of the above”.