So the news of the day…
The Prime Minster of Greece isn’t quitting today, but has agreed that he will step aside when a new government can take over. The 10 year Greek Debt is approaching 25% interest rate.
Swizterland is losing the battle to keep their currency from being a refuge. They had pledged to keep it aroud 1 CHF (Swiss Franc) = $1.20 euro. If too many euros pile into Swiss Francs, everything Switzerland makes will become too expernsive for Europeans to buy and Switzerland will go into a recssion (but probably will no matter what)… So the rate is up to about $1.24 even with the pledge to throw unlimited francs into the fight.
The same thing is going on in Japan, although Japan is a much bigger economy. In the past few days, Japan’s central bank has bought up around $100 billion in US Dollars to try to keep the Yen from getting too strong.
Italy’s interest rates are going up fast. That means that the cost to borrow new money and refinance maturing loans is going up, which digs the hole for Italy even deeper. Their 10 year debt is about 6.5% now… The same thing will happen here eventually.
We now have $15 trillion in US debt… but it is still “under control” because 10 year US Bonds are paying 2%. 4% is the more nomal historical number – if we just go up that far, that’s another $300 billion a year in interest, wiping out all of those supposed “savings” the supercommittee is working so hard to make up… but the interest is real. You can’t keep tap dancing forever.
So… is the ‘supercommittee’ working on petty stuff such as an anti-dog-eat-dog rule, or are they focused on the really big picture and drafting Directive 10-289?
Mainly they seem to be shaking down campaign contributors.
Here is my plan since they are unlikely to reach an agreement. Take the amount to be reduced, cut that number in half – make the Democrats cut spending by half and Republicans raise revenue (taxes or asset sales) by half
Asset sales are a great idea. But if they try to raise taxes in any significant way they’ll never hit their revenue targets. They’re on the wrong side of the curve; net revenue will drop and wealth will continue to flow out of the country.