I'm sure we can all relate to this scenario: you stroll up to the cash point and put your card in, only to be confronted by a message reading 'insufficient funds'. You ring up the bank to get to the bottom of this and, to your horror, you are told that you are $14,294,000,000,000 in red. What is the solution to this conundrum - tighten the purse-strings? Start going to Lidl instead of Waitrose? Scale back the foie-gras consumption? Of course not: the most sensible option is to borrow some more money. After all, if you owe money you may as well borrow so more to cover the gap. What could possibly go wrong with that?
To any normal person this should, quite rightly, sound like insanity. To the Obama Administration, however, it’s a way of life. Yesterday, with the issuing of $72,000,000,000 worth of notes and bonds, after which each US citizen owes $46,000, the US government finally reached its legally-binding borrowing limit. President Obama was soon on TV calling for the borrowing-ceiling to be raised. On CBS he claimed:
"If investors around the world thought that the full faith and credit of the United States was not being backed up, if they thought that we might renege on our IOUs, it could unravel the entire financial system."
Maybe he is right, although S&P's once-inconceivable downgrading of America's debt outlook to 'negative' last month shows confidence is already waning. Even more ominously, as early as November last year the Chinese rating agency Dagong downgraded America's debt from AA to A+. With mounting concerns over the infeasibility of US debt levels, what is Obama's solution? More borrowing. More debt.
And where does all this money go? Into either the immediate black-hole of government entitlements spending or into propping up companies destined to failure. A mere $600billion was rolled off the presses for the Keynesian nightmare of QE2. $50billion was pumped into the over-unionised General Motors to produce more poorly-built cars destined for the scrap-heap. With Obama unwilling to face the realities of America's precarious fiscal position and his ill-fated anticipation of being able to purely grow out of this economic dilemma, it seems there will be no end in sight.
If I were an American taxpayer I know the course of action I would prefer: take the medicine, and take it now. Facing up the realities of fiscal illusions may be painful but it will happen eventually. If only that would be sooner rather than later.