Geithner says Congress must raise debt limit
WASHINGTON (Reuters) - Treasury Secretary Timothy Geithner said on Wednesday that there was no alternative except for Congress to raise the debt ceiling so that the government can keep borrowing.
"Congress has to do it. There's no alternative," he said in response to questions at a House of Representatives appropriations subcommittee.
He repeated a warning that it would be have "catastrophic" consequences for the economy if the debt ceiling was not raised and the country defaulted on its debt obligations.
In the credit boom people making $50,000/yr were tapping home equity lines to take cruises to Cozumel and buy yellow Ford Mustangs. They lived as if they made $80,000/yr. When the party stopped what did they have? A bunch of receipts, no increase in assets. In fact, they were only left with liabilities. What would their banker have said if they used Geithner's line, "There is no alternative, there will catastrophic consequences if you don't renew and increase my equity line!"
When this finally grinds to a halt, there will be a very similar result. The psychology of the borrower and the behavior that characterizes these binges has not changed since we were riding around on camels. Only circumstances and surroundings differ, the human reaction is still the same.
How will you know when this happens? You probably will block it out using normalcy bias as we discussed yesterday.
We leave you with an example that will help explain how this will unfold. The world barely recognizes the name Mohamed Bouazizi but he is the straw that broke the camels back. He gave in to the anger building in many Tunisians who were tired of effects of the autocratic regime and he spoke for many when he lit himself on fire in protest. He died January 4, 2011 with little mention in the major press. He most likely had no idea that he was the first domino to fall.
How does this relate? Use the template. What has been learned from the ongoing revolution in the middle east which was preceded by apparent peace even one day before violence broke out?
One party in a major trade deal will refuse the abused US dollar as a medium of exchange, expressing a personal lack of faith and willingness to trade goods for the paper. This will set in motion a chain of events that will change the way Americans view the world and their wealth. Unfortunately it will be too late for many as John Maynard Keynes will not be here to save them. The printing press will be overwhelmed by the markets and a new fiscal era will be ushered in.
How long will it take to happen?