Crunch time, gut check; call it what you will, but both sides are gearing up for (another) budget battle when Congress returns next week. If Wisconsin is any indicator it could be a doozey.
Central to the fight is debate about the debt ceiling, and James Altucher's popular piece in The Wall Street Journal in 2009 on the subject is getting new life. Altucher, managing partner of Formula Capital and author on investment strategies, got the blogosphere buzzing back then, and with the looming congressional fight, traffic is picking up once again. Democrats want the debt ceiling raised; Republicans? Not so much. Of course, both sides held the opposite position under Republican control in a similar battle in 2006.
Altucher believes increasing the debt of the United States is the best way to get through rough economic times and flourish while doing so.
Here's why, according to Altucher:
1.) Everyone is worried that borrowing more money will make the dollar weaker. Well, too late. Despite the administration's dollar stance, the reality of a weak dollar is already here after trillions of dollars in stimulus, even if the current Treasury bubble we find ourselves in doesn't suggest that. It's best to borrow now, when interest rates are low, rather than when interest rates have to rise to stave off inflation later. Borrow when money is cheap and scarce.
2). Everyone asks, "How can we pay back this debt? We'll have to tax more." Not necessarily. In fact, not at all. Here's what will happen: We'll borrow this money, and then over time (two to five years) the dollar will greatly weaken, perhaps even cut its value in half compared with a basket of other currencies. In other words, the real value of our debt would get cut in half.
This is exactly what the United States did in 2002 when we were going into debt to stimulate a weak economy and pay for the Iraq war. We borrowed money and the real value of what we borrowed has gone straight down since the dollar has grossly weakened. The foreign countries that lend us money end up losing out on the deal. There are long-term consequences for this (perhaps those same countries will stop lending to us), but that hasn't happened to us yet, despite our repeated use of this "technique."
3.) It's too late not to raise the debt ceiling. What do people want us to do, default on the interest payments? As soon as we passed an $800 billion stimulus bill, on top of TARP, TALF, PPIP, etc., we were destined to increase the debt.
Fed Chairman Ben Bernanke knows that the greatest problem we had in the beginning of the Great Depression was lack of government intervention to stop thousands of banks from going out of business, which in turn resulted in 25% unemployment, bread lines, etc. So the plan becomes, stimulate the economy at every end of the yield curve, borrow money if the world still is willing to lend to us while interest rates are cheap, devalue the dollar to lessen the value of the debt we took on, and live to fight another day.