US Economy: Our Government Plays A
High Stakes Poker Game On Our Debt Ceiling
The Dynamic Wealth Report
April 18, 2011
by Karl Stevenson, Editor
“I’m all in”, I clamored, demanding everyone’s attention with my stern
tone...
That was the last thing I remember saying before I skulked away from the
final table.
Unfortunately, your seat in the game usually disappears when you speak
those words. And this time was no different.
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I thought I had it won. I had weighed the odds and the statistics
were in my favor. I thought, my pocket Kings with no Ace on the board,
would hold up. And on the river, you know what had to show up.
It’s Karma. If you are a card player, then you’ve experienced this
phenomenon. I’m sure you’ll agree.
As the Ace of Diamonds hit the felt, I had a flush of blood enter my
hands and cheeks. And then there was that tingling sensation at the base
of my skull. My entire brain almost went numb.
How did this happen? How did I get beat? “Unbelievable”, I said to
myself in my head. Or maybe I blurted it out loud…
It was the end of my great run in a high stakes poker tournament…
I had managed to make it all the way to the final table in this
particular event at the Borgata. They host an annual World Poker Tour
event, and I decided to step up and see what I could do.
I’ve always wanted to get on TV in one of these events. My hope was to
show the world that not every poker player is a reckless, stupid kid
that wears their hat sideways. And maybe pocket a big check too…
It reminds me of what’s happening in America right now. We are close to
“all in” here in the US, playing games with our debt ceiling. And it
puts us at risk for severe economic crisis.
Let me explain…
It seems we’re playing a high stakes game of poker with our Federal
budget. And the players at this particular final table are President
Obama, the Republicans, and the Democrats. They’re all battling to see
who will come out on top...
No one has called all in, just yet.
While it seems each player has made some excessively large bets, no one
has put all their chips down. For example, earlier this year Obama
opened with a bloated budget that begged for a “re-raise” by the
Republicans.
And on cue, Republican House Budget Committee Chairman Paul Ryan
“re-raised” Obama’s initial “bet”. He put forward an aggressive, record
cost slashing budget which would unlikely be passed as written.
In true partisan fashion, Obama responded to “negotiate” on raising the
debt ceiling while cutting some Federal spending. But he also slammed
Paul Ryan, and his budget, while stating we need to raise taxes on the
rich.
It’s just one big poker game right now and we’re on the verge of getting
nothing accomplished.
But the reality is they’re playing with global financial stability.
Here’s what I mean…
You’ve probably heard the term “debt ceiling” but may not know how it will
impact us if we can’t maintain it. If you weren’t aware, it’s been in
place since 1917 when the Second Liberty Bond Act was passed by
Congress.
The government needs to ensure the national debt does not cross this
solid line. If it happens, we could default on our debt and interest
rates could soar. The results could cause global financial panic.
It also could mean less foreign investment in US debt securities.
Crossing the debt ceiling means we can’t issue any more treasury debt
(bonds). And this could create a situation where the US Dollar would
lose its reserve currency status!
What’s scary is Treasury officials say the government will hit the
current $14.3 trillion limit by May 16, just weeks away!
The Republicans are fighting hard to get spending under control, but in
the end I bet we’ll do what we’ve always done. Simply comply and raise
the roof.
Below is a chart of how often and by how much we’ve raised the debt
ceiling. It’s obvious we have a drunken sailor’s approach to spending…
| Date of Change |
Debt Ceiling
($ In Billions) |
Change
($ In Billions) |
| August 9, 1990 |
3,195 |
+72.3 |
| October 28, 1990 |
3,230 |
+35 |
| November 5, 1990 |
4,145 |
+915 |
| April 6, 1993 |
4,370 |
+225 |
| August 10, 1993 |
4,900 |
+530 |
| March 29, 1996 |
5,500 |
+600 |
| August 5, 1997 |
5,950 |
+450 |
| June 11, 2002 |
6,400 |
+450 |
| May 27, 2003 |
7,384 |
+984 |
| November 16, 2004 |
8,184 |
+800 |
| March 20, 2006 |
8,965 |
+781 |
| September 29, 2007 |
9,815 |
+850 |
| June 5, 2008 |
10,615 |
+800 |
| October 3, 2008 |
11,315 |
+700 |
| February 17, 2009 |
12,104 |
+789 |
| December 24, 2009 |
12,394 |
+290 |
| February 12, 2010 |
14,294 |
+1,900 |
My problem with this chart is we simply can’t afford to raise the
roof any further. Our GDP is only $14.7 trillion. We’ll be at 100%
of GDP with the very next increase in our debt ceiling.
Simply put, the USA will be 100% in debt. How can an economy sustain
itself like this?
It can’t. And economists have testified to Congress exactly
this point. Carmen Reinhart, noted international economist, stated in
her testimony to the US Senate in February 2010:
“Our main finding is that across both advanced countries and
emerging markets, high debt/GDP levels (90 percent and above) are
associated with notably lower growth outcomes.”
We are well beyond the 90% mark here. And for proof of how it
affects a country, simply look at the data provided by the IMF.
Here are the numbers from the P.I.I.G.S. nations. Remember these
guys? They caused the European debt crisis which tanked world
markets.
Country: Debt As A Percentage Of GDP
- Portugal: 97%
- Italy: 130%
- Ireland: 93%
- Greece: 130%
- Spain: 74%
At 100% debt to GDP, we aren’t any better than the “rogue nations”
we pointed the finger at during the debt crisis. And until we can
make meaningful spending cuts, we will continue along the path to
lower growth and may just have our own debt crisis looming.
Until this high stakes poker game over our economy ends, we will pay
in the form of a depressed dollar and near worthless government
debt.
My colleague, Robert Morris, recently explained how to profit from
this very same risk. I suggest you read his article,
How To Profit
From The Outrageous US Debt Crisis, to learn more…
• Platinum and Precious Metals Index (Up 17.9%)
Silver and other precious metals are a hot investment in recent months.
It appears both the Euro and the US Dollar are no longer the “safety
play” they once were. This trend may continue for some time, as both the EuroZone and US central banks deal with rising debt and inflation.
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