[quote=Rich Toscano]Dan (I called you UR so people would know which post I was responding to) —
I think there is a US funding crisis in the offing (not necessarily imminent, just to be clear about that). The results of a funding crisis would be a weaker dollar (higher import and commodity prices in US$ terms) and higher rates. There is already precedent for the Fed monetizing debt to bring down rates and fill the gap where foreign inflows have not been sufficient to finance our deficit; I think this will increase into any funding crisis, especially if it happens against the backdrop of weak employment. If that were the case, rates might not rise as much, but it would result in an even weaker dollar.
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Actually, our own government tells us this. It’s not really a secret, though you won’t see it on CNBC, Fox or CNN.
Three recently released government reports now point to fiscal doomsday for America; and one of the reports, issued by the Congressional Budget Office (CBO), says so explicitly
* The CBO paints two future scenarios for the U.S. budget deficit and the national debt. But it plainly declares that fiscal disaster will strike in EITHER scenario. Furthermore …
* The CBO states that its fiscal disaster scenarios could cause severe economic declines for decades to come, including hyperinflation and destruction of retirement savings.
* The CBO then proceeds to admit that even its worse-case scenario could be understated by a wide margin due to panic in the financial markets or vicious cycles that are beyond control.
* Separately, in its Flow of Funds Report for the second quarter, the Federal Reserve provides irrefutable data that we are already beginning to witness the first of these consequences in the United States: an unprecedented cut-off of credit to businesses and consumers.
* Meanwhile, the Treasury Department shows that America’s fate remains, as before, in the hands of foreigners, with the U.S. still owing them $7.9 trillion!
* And despite all this, neither Congress nor the Obama Administration have proposed a plan or a timetable for averting these doomsday scenarios. Their sole solution is to issue more bonds, borrow more, and print more without restraint.
