“It’s a farce, it’s a sideshow, it really shouldn’t happen”
On Friday I spoke to RT America about the mockery of a sham that is US public discourse on the debt ceiling issue. First of all, the US government creates dollars. They can always manufacture more if they so choose. It’s a rubbish argument to suggest the US is going bankrupt because of its deficit spending. Second, If people want to reduce deficits, cut spending or increase tax revenue by creating jobs or raising tax rates. It’s as simple as that. The debt ceiling issue is "a farce It’s a sideshow. It really shouldn’t happen." It is politics pure and simple –cynical and dangerous politics to be sure. I say a deal will be reached but only after an irresponsible period of posturing and pandering for the 2012 elections. Of course, the tail risk – default – is there.
On the debt issue, the concept that the Chinese are going to dump dollars is ridiculous. They have pegged their currency to the U.S. dollar. Revalue the currency and the accumulation of dollar reserves goes away. It’s as simple as that. The reason the Chinese are not revaluing more aggressively is because they know doing so would cause a massive disruption which would imperil their economy, already wracked by a massive capital investment bubble. Moreover, a massive revaluation is the path to mutual economic annihilation as surely as the old Soviet-US mutually assured destruction on the nuclear front was. Call it murder-suicide. It won’t happen.