Greg Hunter’s USAWatchdog.com
The gloves came off in the fight over raising the debt ceiling yesterday. On CBS News, the President basically threatened to cut off Social Security checks by August 3rd if a deal was not reached. Mr. Obama said to veteran newsman Scott Pelly, “I cannot guarantee that those checks go out on August 3rd if we haven’t resolved this issue, because there may simply not be the money in the coffers to do it.” (Click here to see the complete CBS story w/video.) What? So, the President admitted there is no money in the Social Security Trust Fund? Why in heck didn’t Mr. Pelly call the President on this???!!! Is it because Pelly is afraid he will never get another Presidential interview? I don’t know if the President really believes this, but it looks like a political scare tactic to me.
What I do know is the President’s statement is simply not true! According to Social Security, the Trust Fund holds something called “special issues.” Here’s what the government’s own website says, “Unlike marketable securities, special issues can be redeemed at any time at face value. Marketable securities are subject to the forces of the open market and may suffer a loss, or enjoy a gain, if sold before maturity. Investment in special issues gives the trust funds the same flexibility as holding cash.” (Click here to get complete information from Social Security.)
Did you get that? What Social Security holds is the same as “holding cash!” Threatening to cut off funds to seniors and the disabled is more political theater than budgetary fact. It is also a clear sign the budget ceiling fight has turned ugly. I think making political threats like this is a big mistake by the President. This could harm the idea of “full faith and credit” of the U.S. even if a deal is reached in time to make the August 2nd deadline. Hardline politics on both sides could make consumers of our debt run like hell. The President should be reassuring Treasury holders. Instead, the President is not just scaring seniors, but also buyers of our debt. Why would anyone want to go through this kind of drama every year? Wouldn’t you be looking for fixed income investments someplace else? That’s what the biggest bond fund in the world (PIMCO) is doing. Also, every time the debt ceiling is raised (and there will be more in the future), this further devalues the dollar. In short, I think U.S. debt is already damaged goods. Treasury buyers might impose a real debt ceiling and stop buying altogether. Some countries have recently done just that.
If a debt deal is not reached in time, the dollar will be the biggest loser. It would cause panic selling of the buck and interest rates would skyrocket. I think folks on Social Security will get their checks. What people on fixed incomes should really be worried about is how much those checks will buy in the future. Hyperinflation here we come, if the U.S. defaults.
Could the U.S really default? Most experts say no, but in this game of “chicken” environment, I am not sure that either party wouldn’t use a financial calamity for political gain. Both Democrats and Republicans would surely cast blame on the other side if the U.S. goes into another Great Depression. What is going on now is unprecedented in American history. No matter what happens, the country will slide or plunge into deeper financial trouble. At this point, we are only talking about the speed of descent.
Now, there is renewed talk from the Fed about another round of Quantitative Easing (QE3) because the first $12.3 trillion of money printing worked so well to bring the economy back to health. Of course, for a record number of Americans on food stamps (nearly 44million), what’s going on is hardly a laughing matter. I (and my sources) have been predicting there was going to be another round of money printing because the economy is continuing to sink. QE3 is going to happen sooner than later, and I now feel it will be overt and not covert. The Fed is going to want everyone to know it is doing something about the rotten economy because, after all, what we have is nothing more than a confidence game that’s caving into reality.
This past weekend on “Meet the Press,” Treasury Secretary Tim Geithner said, “This is a very tough economy. And I think for a lot of people it’s going to be – it’s going to feel very hard, harder than anything they’ve experienced in their lifetime now, for some time to come.” (Click here for the complete Meet the Press program.) Host David Gregory should have asked about the continued Wall Street banker bailouts at failed mortgage giants Fannie and Freddie and why Geithner forgave Bank of America $127 billion in sour mortgage debt at the first of the year. Gregory did ask about failed policies of the Obama administration, but nothing about the hundreds of billions of dollars in sour debt taxpayers now own. Why aren’t the banks forced to buy it all back? At any rate, what is going on today is just the opposite of Geithner’s bold comments last July on PBS. Mr. Geithner said, “The economy is healing, it’s getting stronger and I’m very confident we’re going to continue to grow and continue to make progress – not just repairing the damage caused by this crisis but building a stronger economy that’s going to create better opportunities for all Americans.” (Click here to get the complete PBS interview.) There is no mystery why Mr. Geithner reportedly wants out at Treasury. He and his policies have been a complete failure. Well, not a complete failure. The banks he will go to work for someday have done very well. As far as the debt problem the U.S. faces, it is going to be with us all “for some time to come.”