Sunday, December 30, 2012

US interest rates should be sky high to match debt, current US fiscal problem mainly due to functions of Bernanke and Geithner

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12/30/12, "Tim & Ben are the enablers," NY Post, J. Krugman

"While most are chastising Congress for not coming to an agreement on the fiscal cliff as shirking its constitutional responsibilities, the real culprits in this macabre tableau go unmentioned. Let’s take a look at the “Great Enablers,” Fed chief Ben Bernanke and Treasury Secretary Tim Geithner.

You see when countries have piles of debt — and we have piles of it: $16.7 trillion and counting — interest rates should go sky-high.

The rise in rates is to compensate for the increased risk that one may not get paid back.

Think of the situation like your credit score, which goes down when you borrow more and thus raise your interest rate on all your loans.

But as Treasury wrote checks all year that it couldn’t cash, the US 10-year bond yield actually went down.

Bernanke’s Federal Reserve interfered with the markets by buying trillions in Treasury bonds. As a result, rates have been manipulated down 

so as to not accurately reflect our real economic woes. 

And thereby the pressure was removed from Washington to address its problems. 

Furthering his enabling action, Geithner chose not to focus on a plan for paying down the cheap debt. There were no weekly meetings to right this wrong.

A letter was released Wednesday night that said America has maxed out its credit once again and will hit its credit limit tomorrow — as if the problem were having a spending limit, not the size of the debt bomb....

It’s clear now — the writing is on the wall — there will be a small last-minute deal, perhaps tonight, to avert going over the cliff.

But whether this happens or not, our debt will be much larger next year than this. Perhaps Washington is waiting until the last minute only to once again kick the can down the road."


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