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Quick Comments: From Daily Decision-Stock Trader Editor Richard Meiers
Three on target economic reports, Producer Price Index (PPI), Retail Sales and Jobless Claims have futures fluttering around zero. All the talk of US default has some market watchers nervous. Deal or no deal, not making good on treasuries ain’t gonna happen – period, end of story.
Interest and return of principal is roughly $15-$20 billion a month. The average month sees the treasury haul in at least 10 times that in tax revenues. As you can see, there is plenty of money to cover many other bills too.
The only way a default happens is by choice of Tim Geithner and his boss; which would violate their oaths to uphold the Constitution.
Contrary to what the folks at Moody’s have to say, the best chance of defaulting is to continue spending $1.5 trillion more per year than the government takes in. Throughout the course of American income tax history – no matter how high or low tax rates are – the most the government has been able to bring in is 18-19% of GDP in taxes. Right now we are spending at 24%, and it will go up when Obamacare kicks in. The math doesn’t lie, politicians do.
Until Washington gets these numbers back in line, this debt talk will go on and on and on like it has in Europe for how long now? And it won’t matter and will be background noise until it does matter. When that happens, it is too late.
S&P 500 - Last 12 Month
All the Best,
Richard Meiers.
Editor Daily Decision-Stock Trader
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It's the debt-to-GDP ratio that counts. Stimulate GDP & theratio comes down, whereas, cut spending & risk sending the US into a tailspin that might be difficult to pull out of. the debt-to-GDP ratio rose phenomenally under both the Reagan (Star Wras) & Bush II (War on Terror) administrations. The reason is patently obviously for any inquiring mind to discover; defense spending as a percentage of GDP increased dramatically during those administrations. The US may shoot itself in the foot if it cuts social support. The safer answer is clear, decrease defense spending before its too late. Rome was not overrun by barbarians overnight, rather, Rome exhausted its resources fighting all bararians at the edge of its Empire until it became too weak too resist. History is repeated by those who either fail to learn or outright deny its lessons.