The Two 'Faces' of U.S. Debt-Ceiling Deal

Mercifully, it appears that the U.S. debt-ceiling farce has finally ended – with an anti-climactic “thud”. It is only fitting that the two-faced regime which negotiated such an agreement should present us with a scenario which has two distinct interpretations. However, before getting into how this deal came to be, it's necessary to spend a moment doing a reality-check on the actual terms of the deal.

In any rational assessment, this can only be defined as another complete failure for the hopelessly dysfunctional U.S. government. While the talking-heads in the mainstream media will do their best to spin this as “the best compromise available”, the mere failure to commit suicide cannot be construed as a “victory” when this deadbeat economy teeters on the brink of bankruptcy.

The ability of the Federal Reserve to (supposedly) “fund” the U.S. government via its magic printing press ends permanently once hyperinflation officially drags the worthless greenback to zero. As I have detailed previously, in unofficial terms the “fundamental” value of the U.S. dollar has already reached zero.

With the “Emperor” (i.e. B.S. Bernanke) clearly wearing no clothes, each time the Federal Reserve cranks-out a new truck-load of Bernanke-bills (backed by nothing) to “pay” the bills of the U.S. government for one more month, the probability increases that the the sycophantic masses will finally notice this chronic nudity. And by “sycophantic masses” I'm naturally referring to the “experts” in charge of our global monetary system.

Because this absurd “deal” does nothing to reduce the steady stream of those truck-loads of Bernanke's confetti, in any/every meaningful way it is a complete failure. As is always the case with governments which only wish to pretend to be engaging in fiscal tightening, this deal is heavily “back-loaded”, meaning that any noticeable reduction in the deficit doesn't commence until 2016, while virtually nothing is being done until 2013. When a chronic deadbeat solemnly proclaims his intent to start acting responsibly two years from now, this impresses no one.

Indeed, in the first year of this “deficit-reduction” a mere $200 billion is being trimmed from the latest, massive increase in U.S. debt. Given the $1.6+ trillion size of the current deficit, this is nothing more than “a rounding error”. With the relentlessly (and intentionally?) “optimistic” revenue projections which this regime has engaged in, by the time the first year of this supposed deficit-reduction is finished, the “unexpected increase” in the size of the U.S.'s annual deficit could easily exceed the total amount of “deficit reduction”. Translation: in the first year of this “deficit fighting”, the U.S. deficit will very likely increase rather than decrease.

This becomes more probable by the day. With this credit-junkie economy now (apparently) deprived of additional stimulus and more of the Fed's “easy money”, it had already sagged noticeably simply in anticipation of being deprived of its next “fix”. When the withdrawal-pains really begin to set in, we will see this debt-crippled economy once again plummeting like a rock.

Given that the “optimists” in the U.S. government have (as always) proclaimed their expectation of a “stronger second half” for 2011, the actual numbers for this revenue-starved economy are sure to be a “disappointment”. This makes the mere failure of this new deal the best-case scenario. The worst-case scenario is that this feeble attempt at “deficit fighting” will be abandoned before “the ink is even dry”; with either more government stimulus, more Fed money-printing – or both.