Diary

Default, Deschmalt. There is no default until somebody misses a payment.

Do your personal creditors claim you’re in “default” when your family’s budget becomes tighter than usual?  Does your lender run to the courts and try to seize your home, claiming you’ve defaulted on your mortgage because you were thinking about paying your cable tv bill later than normal this month?

No – because nobody is in default until somebody doesn’t get paid.  That’s just a plain fact… all the rest of the noise coming from Washington is just that… noise made by politicians who want to stampede the electorate in a certain direction for their party’s political gain.

According to an article in The Washington Post based on information from the White House OMB, the total yearly tax intake of the U.S. Government is $2.57 trillion.

The same information shows that the annual interest on the U.S. debt is $251 billion.

For those who are zero-impaired (like me), that means each year the government takes in TEN TIMES the amount of money it needs to pay the interest on its debt – in other words, to keep the big bad “Default Wolf” from the door.   As long as our creditors are getting the expected interest on their money, who’s in default of anything?

Sure, D.C.’s profligate spending and rudderless ways may affect our future credit rating and our ability to borrow money in the days and months ahead, but the operative word there is “FUTURE.”  And how concerned should we be at our ability to continue to borrow limitless sums of money that future generations are going to have to pay back on our behalf?  Is that really something we should be worrying about right now?

What’s going on in Washington right now is all such a lot of “horse-pucky.”  Obama simply doesn’t want his credit card taken away, because he won’t be able to finance the bribing of the Democratic constituency (since taking office, Obama has increased the Health & Human Services budget by roughly 29%, raising it to more than $850 billion per year!)   Oh, and his Department of Labor budgets have received nice gooses, too.  Defense was cut (no surprise.)

And though their proposals are the only ones on the table that *MAY* lead to fiscal sanity, the Republicans (many of whom are the same bunch who enjoyed the “Budget Kegger” that was the Bush presidency) are mainly in it to break Obama’s chances in 2012.  I have no doubt that, if they again had the upper hand, there’d be no talk about balancing the budget.

Without money to spend, politicians have no power.  And power is the only currency that matters in Washington.

The damage to the U.S.’s economic reputation was done months and years ago.  What creditors around the world have needed to know about our economy and leadership they have known for years; and they have been hedging their bets ever since they saw the insane scrawling on the wall.  That’s the bad news.  The good news is that as lousy as our reputation has become, it’s still one of the best bets in the world.

Really, where else do big-time, serious world investors go where they want a reasonable expectation of long-term stability and return? Russia?  Old Europe?  New Europe?  Africa? South America? China? Sure, China continues to grow… but have you ever done business there?  China likes playing the Western game… until it doesn’t.

Just ask Steve Jobs about the fake Apple Store that just opened up there, or any other global business whose copyrights and trademarks are trampled on in China without repercussion.  Doing business there  has always been a love/hate/love/hate proposition for western businesses.  Right now it’s in a “love” part of the cycle.  But that will someday change.  And when it does, investing in the U.S. economy will start looking good again.

Bottom line:  if your annual income was ONE MILLION TIMES the amount you needed to service your Visa and Mastercard bills, would you worry about “defaulting?”  Neither should we.