Raising the U.S. Debt Ceiling? --March is the Vote.

As Senator Schumer doesn’t know his 3 Branches of Government correctly, he also doesn’t seem to realize the importance of dealing with the U.S. Federal debt sooner rather than later.  --Although he correctly states that any interruption WILL be felt in the credit markets. This should render the federal government unable to borrow as interest rates would increase. Early March is the first opportunity for a showdown on federal debt, will the legislature beat the bond market? -we'll see.

Rand Paul, seeks to reign in the spending

John Boehner says Obama will have to cut back,

Already the Interest payments on the federal debt are expensive, and that is with low interest rates forced by the Federal Reserve (subject of upcoming blog post). Most of the interest payments go overseas, and most of the holders are now foriegn.

 http://en.wikipedia.org/wiki/United_States_federal_budget#Interest_expense

If interest rates went from their present low rates (the Federal Reserve has it at .25%) to historical norms, you would have the interest payments increase 200--500% or more. The two graphs above are accurate until 2009, I couldn't find any 2010 graphs but you see that the national debt has increased in 2010 from the graph below; 

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Each of the States are all cutting back on spending (facing lower tax revenue), but the Federal government has continued to grow, out pacing the private sector by a large percentage. This debt financed spending by the federal government has boosted GDP, but it is unsustainable, and extracting this spending is going to be painful. See the graphs below for some graphic illustrations of this point.

With continued high unemployement levels, and low salaries, and when the money you do earn buys less and less goods and services, because of inflation, money printing, bail outs, QE etc the consumers with the least extra income will be be squeezed first. Thus until we get a true economic recovery (based on sound money, production and savings), the trend in the graph below should continue.

and prices are rising;

The difference is the public and private sector

Its quite easy to spot the trend here, this spending is in the face of lower revenue, an aging population, a lower savings rate, a devaluation of currencies around the world, inflation seen in food and energy prices, the conclusion; unsustainable.

Someone has to be spending the money, for someone to be receiving the money, when the Federal government is forced (by higher interest rates, or by a vote to not increase the debt ceiling, etc) to reduce its size in the economy, it will have a domino effect, reducing the amount of people it employs, pensions it pays out, and that will impact consumer spending, which will impact housing etc, etc.  -better to do this sooner rather than later.

Within the Union there is a move to lower tax States, this will continue to put pressure (higher interest rates/less revenue) on those States, and munipalities that are experiecing this exodus of their local populations.

The boom will be in low tax burden states for individuals and corporations where America will again be able to start producing more than it consumes, and saving more than it spends, this along with sound/hard money (gold/silver/tangibles based) will lead to a true economic recovery.