Quote Of The Day: Geithner And The Debt Ceiling

It should come as no surprise that the Treasury is once again asking Congress to boost the debt ceiling as we're fast approaching the current $12.1 trillion limit. Of course, we can expect Congress to again open the retractable roof of this ceiling and comply with Geithner's "request." I was particularly amused by the following quote.

From a letter to Senate Majority Leader Harry Reid:

"It is critically important that Congress act before the limit is reached so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations" - Tim Geithner

So, if I've maxed out my credit card it only makes sense that my credit card company further boost my credit limit so that my other creditors can remain confident in my debt-paying ability. Right.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

An Eternal Debtors Prison?

I love the title of this piece from The Moscow Times: "Church Calls on Debtors to Repay or Face Hell." We'll see if this leads to increased debt repayment or an increase in atheism.

Court marshals are putting their faith in the Russian Orthodox Church to ease their workload as a growing number of people default on debts amid the economic crisis.

The Federal Court Marshals Service and the Moscow Patriarchate have signed an agreement under which priests will denounce the failure to repay debts as a sin in sermons and during private meetings with debtors organized by court marshals, the court marshals service said Wednesday.

"Priests will say that unpaid debt is the same as theft in Christianity," a spokesman for the court marshals service told The Moscow Times on customary condition of anonymity.

Regional court marshals have "occasionally" involved Orthodox priests, as well as Muslim and Buddhist religious leaders, in their efforts to encourage people to make good on their debts in recent years, but the new agreement will take the cooperation with the Orthodox Church nationwide, the spokesman said.

Talks with Muslim and Buddhist religious leaders to sign similar agreements are under way, he said.

In Islam, an indebted person can't make the hajj, the pilgrimage to Mecca in Saudi Arabia that every Muslim has to make at least once in his life, the spokesman said.

Buddhists, who teach reincarnation, believe that people's debts remain with them in each of their afterlives and "burden their karma," he said.

Some Orthodox believers, who face the prospect of hell if their unpaid debts are counted as unforgiven sins, expressed disdain with the church's involvement in the court marshals' debt collection drive.

"It is not the church's business to make people return their debts," said Gennady Titov, 37, a Moscow office manager with an outstanding bank loan. "Court marshals have no right to use the church for this."

A request for comment left with the Moscow Patriarchate's department on cooperation with military forces and law enforcement agencies, which signed the agreement, went unanswered Wednesday.

Court marshals have said their workload has increased amid the crisis.

Twenty-six percent of Russian families have outstanding debt, according to a survey conducted by state-run VTsIOM this month. A total of 52 percent of respondents said the economic crisis had made it more difficult to repay their debt, while 41 percent said the crisis had not affected their ability to pay.

The church has cooperated with the authorities in the past. In December, Orthodox priests took to the streets with Penza region traffic police and preached to violators who were flagged down, Noviye Izvestia reported at the time.

In February 2007, priests in a Tolyatti church integrated traffic rules into their sermons at the request of the traffic police, Noviye Izvestia said.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Debt Bomb

It looks like the size of the latest government bailout will total $700 billion, which works out to an additional 8.2 AIGs or roughly the GDP of the Netherlands. Of course, the U.S. doesn't have an extra $700 billion in savings sitting around to fund this program, so we'll have to borrow it. As a result, our government will yet again need to increase the statutory limit on the national debt, this time from $10.6 trillion to $11.3 trillion.

I'm surprised Congress still calls it a debt limit, since it's nothing of the sort. They've never adhered to any limit. Whenever they bump against it they simply vote to increase it further. Usually, they're far more creative with their nomenclature. You'd think by now they would have changed the name to "Government Stimulus Threshold","Graduated Investment Target", or "Super Patriotic Pro-U.S. Funding Goal."

For those of you keeping score, this latest $700 billion payoff works out to $2,333 per U.S. man, woman, and child. It also works out to $6,350 per U.S. household. The new debt limit of $11.3 trillion comes out to $102,700 per U.S. household. These figures ignore unfunded liabilities (Medicare, Medicaid, Social Security) which conservatively come out to another $50 trillion, or $450,000 per U.S. household. All in, your family's share of our country's debt comes to $552,700.

Are there any proposals to offset this $700 billion with tax increases (which I abhor) or expenditure cuts (which I love)? Of course not. To the contrary, there are discussions about another fiscal stimulus program. McCain and Obama certainly have no plans to lower the debt. We haven't heard either talk of any specific and substantive cuts in expenditure.

This is the problem with Keynesian economic theory. It looks good on paper, but it doesn't work in the real world. Everyone loves the front end of the theory -- borrow money and go on a shopping spree. It's the American way! But when times are good, no one wants to take away the punchbowl, upset the voters who are now dependent on the new government programs, and risk not getting reelected.

So, our national debt spirals ever higher, which is a bit ironic since it was ever-rising debt of increasingly poorer quality that led to the current credit collapse in the financial sector. Increasing debt necessitates the printing of ever more dollars. The more of something that exists, the less valuable it becomes. In light of this, it's difficult to be constructive on the dollar long-term. There is no way we can ever repay this mountain of debt short of inflating the currency.

We owe a debt of gratitude to the Chinese for their delicious food, movable-type, a beautiful wall, their inexpensive exports, and their continued purchase of our Treasury securities. So far it's been in their best interest to fund our debt and keep the dollar from imploding. A dollar meltdown would lead to higher interest rates which would kill our economy and severely impact our appetite for Chinese goods. In addition, a falling dollar and rising rates would decimate the value of their U.S. Treasury holdings. Over time, China will become less export driven and less dependent on the U.S. consumer, and at some point, the Chinese are going to view the risk of increased dollar purchases as greater than the reward. That is the day when U.S. interest rates will begin an ugly march higher.

Ironically, it was the Chinese who invented paper money.

Disclosure: The Rubbernecker is long gold, silver, and the Renminbi and short the greenback and government bailouts.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.