The topic headlined above is currently being debated on Capitol Hill, pushed by ‘Little Timmy’ Geithner and either ignorantly or duplicitously reported on by the usual apparatchiks: The New York Times, Bloomberg News, The Washington Post, L.A. Times et al. Lest Obama’s loyal minions embarrass themselves by reflexively supporting this nitwit idea like so many others they’ve embraced in the past, here’s something for them to ponder from The Privateer, one of my very favorite reads. Editor Bill Buckler drops a well deserved turd in the punch bowl with this trenchant and succinct analysis:
“If the US Dollar was not the world’s reserve currency and U.S. Treasury IOUs were not the world’s preferred holding of reserves behind their own currencies and financial systems, the Treasury’s debt limit would have been done away with a long time ago. But the US Dollar IS the world’s reserve currency so the debt of the US government IS the underpinnings of the global financial system. That being the case, the system stands or falls on the continuing perception that Treasury debt paper is a viable form of ‘reserve’ and that the debt of the US government will NEVER become ‘unsustainable’. An announcement by the US government that it was getting rid of any ‘limits’ to its debt-generating capacity would put that perception at risk – quite possibly at grave risk.
“That is the reason why the debt limit remains – even though it has not been an impediment to ever increasing Teasury indebtedness for well over half a century. It is easy to laugh at the seeming absurdity of a Treasury ‘debt limit’ and many people do. Take it away, however, and the fiction that sovereign debt is ’sustainable’ – let alone any ‘confidence’ in its eventual repayment – would be MUCH harder to maintain. Absurdities abound in history, and the more abject the absurdity, the more tenacious it tends to be. Today, a US Treasury debt ‘limit’ is a very necessary absurdity. This does not mean that the debt limit will NOT be abolished. But it does mean that the new Congress convening early next year will be very reluctant to take such a step.”