Thursday, July 21, 2011

The Tea Party and the Erosion of Full Faith and Credit

I don't normally visit Huffpo, but there's an article there today titled "Federal Reserve Actively Preparing For The Possibility Of U.S. Default". The title pretty much says it all. The federal reserve, the treasury department's bank, is getting things in order should the previously unthinkable, a default on the part of the U.S. government, come to pass.

The unthinkable has recently become very thinkable. And that's one of the fundamental problems that is occurring right now. U.S. treasuries, which are issued to bond holders around the world, and, in large measure here in our own country as well, have always always been viewed as sancrosanct, as solid as Mount Everest. And it is that presumption that has allowed the U.S. government to exercise quite a bit of control and leverage in terms of manipulating the various parts of our economic machine, not to mention the global economy.

With increased suspicion on the part of our debt holders as to our willingness to conduct our affairs in order, and ultimately to pay our obliged bills, that presumption is increasingly under assault.

What this may mean is that "even if" our doddering government manages to dodge the August 2nd bullet, a certain amount of damage may already be done and may be irretrievable. Will foreign and domestic creditors continue to buy our bond offerings in the crucial years ahead as we work to reorder our fiscal priorities, exercise better judgement, dig ourselves out of our hole, and attempt to move forward with solid growth and declining unemployment? Probably. But will they demand a higher premium for doing so? In other words, will they demand a higher rate of return to insulate themselves from the increased risk of buying an investment that was previously considered to sit squarely deep in the realm of the unthinkable? As a wise sage once said, "It depends".

Dependability helps to achieve certainty. A feeling of certainty allows business to plan, execute, and grow. When such an environment exists, opportunities spread and the general state of the economy, and the well-being of citizens, improves.

A lack of dependability, by contrast, can be crippling. It breeds fear, inhibition, and retrenchment. Not at all what a struggling economy needs right now.

Good leadership delivers one, and not the other. Good leadership is concerned with the greater good, not personal gain, such as what may be wrapped up in re-election chances within local electorates that refuse to believe a U.S. default would be catastrophic, and further believe that it is worthwhile to cripple government simply for the goal of reshuffling the white house and congressional chairs at the next available opportunity.

This is, in essence is why I, a moderate Republican do not, and cannot, support the Tea Party Movement.

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