Tuesday, August 9, 2011

U.S. Debt Ceiling Compromise Only Postpones Economic Ruin

“By supposedly compromising to raise the debt ceiling, [the U.S.] Congress and the president have now paved the way for ever higher levels of federal spending.”

“Both [political] parties are now pretending that the promised cuts in spending outweigh the increase in the debt limit. But the $900 billion in identified cuts are spread over a decade and are skewed toward the end of that period.” Since the cuts are not binding, there is plenty of time for Congress to suspend the proposed cuts later when further economic pressure provides them an opportunity.

There is also a special committee set up to identify an additional $1.4 trillion in cuts. But these sorts of committees rarely fulfill their purpose.

Congress has not solved the problem. It is politics as usual. They have merely justified more spending while looking like they are interested in actually reducing the debt. Even if all the proposed cuts go into effect, there would still be $7.1 trillion in new debt by 2021. And the deal is based on “rosy economic assumptions that have no chance of coming to fruition.”

“The operative factor is not how much we allow ourselves to borrow, but how much our creditors are willing to lend. That type of ceiling can’t be raised by an Act of Congress. Once our creditors come to the conclusion that they have lent beyond our capacity to repay, they will be very reluctant to lend more. As trillions in short-term treasuries mature, the dwindling pool of buyers will demand higher rates of return to compensate them for the risk. But our government is in no condition to afford those higher rates without gutting the rest of the budget.”

There are three possibilities for the United States eventually, default, huge cuts to domestic spending or inflation. Inflation is the most politically palatable and the most likely scenario. When the United States gets to the point where it has to make this decision, which is likely to be when the U.S. dollar is no longer the world’s reserve currency, there will be very high inflation or even hyper-inflation.

Congress has postponed the day of reckoning. Let us remember the statement in Last Day Events, page 133, 134 that says, “When our nation, in its legislative councils, shall enact laws to bind the consciences of men in regard to their religious privileges, enforcing Sunday observance, and bringing oppressive power to bear against those who keep the seventh-day Sabbath, the law of God will, to all intents and purposes, be made void in our land, and national apostasy will be followed by national ruin.”

The United States is not there yet, though it is getting closer. The angels are still holding back the winds of strife. A debt ceiling compromise in the U.S. Congress postpones the inevitable cascade of economic chaos. When the United States establishes Sunday worship laws, then the final economic ruin will occur.

Forbes News Article