Volcker warns “Prolonging trillion dollar deficits can’t be a reality”

May 10, 2011 by · Leave a Comment
Filed under: Opinion 

Volcker did a good thing taking a moment at this conference to be very clear is what he means.  It is not sustainable to run multi-trillion dollars deficits in a debt based monetary system.   The problem lies that as you create more debt, the interest payments (obligations) continue to eat up a larger portion of your GDP over time until you will literally you can not get out of unless you default debts or print money to cover your federal bond payments.

We are rapidly running head first into a glass wall that is going to be very painful when we hit it.  At the same time this is happening we are seeing record commodity prices and this is not a coincidence.  Holders of these commodities and the “smart money”, understands what is going on and they are require what they see as proper compensation for their assets or goods.

Volcker said another important point that people are not appreciating.   He said “tax reform” and “higher revenue”, that translate into “higher taxes” and that is for sure.  We not only need to cut the deficit to stop the bleeding. but then we need to raise taxes to cover our existing obligations (SSI, Medicare, New Health Care) AND somehow pay down our debt.   Pay attention, things are happening under our feet and most are not aware of it until it will be smack dab in your face.   .02

Reuters – Speaking before the World Affairs Council of Oregon, Volcker said that “prolonging trillion dollar deficits can’t be a reality” and that the United States is on course to have its public debt exceed the size of its gross domestic product.

“One way or another, we do have to return to a balanced budget,” he said in prepared remarks.  Volcker’s speech came on the same day that the Congressional Budget Office said the U.S. budget deficit had totaled $871 billion for the first seven months of the year, which is significantly above the previous year’s pace. On Thursday, Vice President Joe Biden led a bipartisan meeting in an effort to strike a deal with Republicans on cutting the growing federal deficit and averting a default.

They face an August 2 deadline to raise the country’s $14.3 trillion debt limit.

Volcker, who stepped down early this year as the chairman of President Barack Obama’s Economic Recovery Advisory Board, said he was concerned about how the U.S. consumes and borrows “to the point that China, Japan and other foreign countries hold more than 5 trillion dollars of U.S. government obligations.”

“Consider that statistic in the light of prospects for continuing deficits, doubts about future inflation and the international stability of the dollar,” he said, noting that the U.S. is running out of time to fix things.

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