Monday, May 16, 2011

Our Collective Head Just Hit the Ceiling...Ouch!

Just in case you have not been following, the U.S. Government hit the debt ceiling today...$14.294 trillion George Washingtons.

Oh, and to help fund the government until an agreement is found, the Treasury is "dipping" into federal pension plans.  Technically, it "will stop issuing and reinvesting government securities in certain government pension plans."  I think "dipping" is an easier way to say that...and a lot more fun.

In any case, not a great place to be...but have we reached the Banana Republic stage yet?  Not so, according to some.  James Petholoukis says that there is no reason the U.S. would miss any payments just because Congress did not raise the ceiling (and not only is he a former business editor for the US News and World Report, he also is a Jeopardy champion...so there's that).  According to Secretary Geithner, "failure to raise the debt limit would force the US to default on these obligations (debt payments)....a default would be catastrophic..."  Economist Ed Yardeni says that revenues will be available for the Treasury to pay.  Famed investor Stanley Drukenmiller (Duquesne Capital fund worth $12 Billion) says missing an interest payment on a T-bill (income stream) is just one payment...out of many.  He's willing to continue buying T-bills.

I don't know about you, but anyone else confused?  We are either (a) getting ready to fall off a cliff into Banana Republic oblivion, or (b) keep steaming ahead.  Why are there so many varied positions on our economic state?  If this were a company, this analysis would be pretty straightforward and easy to decipher.

Yet, we find ourselves the shareholders of something so mammoth no one truly knows what will happen.  Lots of opinions, lots of advice...some good, some bad.  An organic entity indeed, Professor Hayek.

And what control do we have as shareholders?  If this were a company, I could "buy" my way into control of the company.  As a democratic shareholder, not so much (a good argument could be made saying that the powerful do that already, but that's another post).

Invest or sell?  Boy, that's a good question.


1 comment:

  1. I wonder what will be the actual breaking point for the American people. As our government continually spins out of control, spending our money without any regard to our financial future...what will have to happen before we finally say enough. Enough of this recklessness.

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