DOOMSDAY CULTS

Do you ever get the feeling that some non-negligible share of the polarization and disagreement over issues in our society results from people being contrary simply for the sake of being contrary? When we establish that the world is round, someone has to argue that it is flat. When we see two planes hit the World Trade Center, someone has to argue that they were actually holograms to cover up a controlled demolition. I don't even think people who say this kind of thing believe it; they just get off on trolling and watching other people get riled up.

My theory is not well developed yet it might come closest to explaining why we are now seeing economists and people in the banking industry coming out of the woodwork to argue that refusing to raise the debt ceiling, thereby forcing the Treasury to default on its obligations, is a good thing. This "pro-default" "movement" (which must remain in quotes until enough of them appear to justify using the term) consists of either people who are dumber than a bag of doorknobs or the economics equivalent of a doomsday cult. They should probably be off in a field somewhere praying for Hale-Bopp to strike the Earth and bring about the apocalypse.

In the past few days alone Bank of America's Jeffrey Rosenberg and the Cato Institute's Jagadeesh Gokhale have thrown caution to the wind and booked two first-class cabins on the USS Retarded. I can't do this as much justice as Mike or the finance folks could, but I'd like to draw your attention to two of Mr. Sokhale's points:

In contrast, the current prospect of a technical default, from failing to increase the debt limit, would not be due to any real national insolvency. Given today's low interest rates, the federal government could easily raise the resources needed to meet today's contractual government obligations.

In other words, the government can just borrow money to pay the obligations it will default on because it reached the debt ceiling and therefore can't legally borrow any more money. Are you sure this guy is an economist? He worked for the Federal Reserve? No way. Prove it.

Given its purpose is to avoid a real future crisis, by bringing to heel run-away spending on entitlements and other wasteful government programs, here's an opportunity for experiment: Would a debt-limit "crisis" beget better fiscal policies?

After the global economic meltdown, famine, and societal collapse it might.

How might investors really view this ersatz U.S. debt crisis? If some lawmakers' refusal to vote for increasing the debt limit without also passing prudential fiscal policies resulted in a technical U.S. default, it would demonstrate their significant political strength.

By cutting off our nose we will be sending a strong message to the rest of our face.

Might that not actually induce investors to buy long-term U.S. debt — reducing long-term interest rates and improving the U.S. investment climate?

You win, Jagadeesh. Yes, defaulting on its obligations will convince people to buy long-term Treasury debt. We must improve the "investment climate" by reducing long-term interest rates…which are at historic lows right now.

War is peace. Freedom is slavery. 2+2 = 5.

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39 Responses to “DOOMSDAY CULTS”

  1. Nunya Says:

    I have no words. Seriously.

  2. John Says:

    So the US defaulting on its debt will give people confidence to buy more US debt.

    I guess I should talk to a bank and take out a multi-million dollar home loan, and cite these guys as "expert testimony that my inevitable default on this debt will serve to increase your confidence in buying my debt".

    Remember, we now live in a post-"Not intended to be a factual statement" world. If a US Senator can make a bald-faced lie, on-camera and before the congress and the American people, and get away with it scott-free… what reason do these guys have to do anything other than put out blatant bullshit?

  3. HoosierPoli Says:

    "In contrast, the current prospect of a technical default, from failing to increase the debt limit, would not be due to any real national insolvency. Given today's low interest rates, the federal government could easily raise the resources needed to meet today's contractual government obligations."

    Your post was a riot, but I laughed the hardest at this part. It's pretty hard to say two totally incompatible thing in two adjoining sentences; most people have a long-term memory that lasts more than five seconds.

  4. Nunya Says:

    OK, I found a few words. Given the fact that this guy is from the Cato institute speaks volumes to his point of reference. In modern business, strategic default holds no shame or sense of failure. For all of us who took out a loan and believe that our word actually means something, this in incomprehensible.

    In the minds of the true free-marketer, this would allow the great advantage of being able to get rid of any obligations by the Federal government. Just imagine the possibilities. Medicare? Gone. Social Security? Sorry suckers. Federal pensions? Tough luck.

    This is the kind of mentality that pervades in the business world today. There is no honor, no obligation, no guilt – just profit. If there's the tiniest loophole you'd be a fool not to take it if it helps your bottom line. Screw all of those people who made you rich.

    When I think of the people in the world with the greatest amount of faith in a system, I have to go with the free-marketers. Every religious person I have ever met had at least a moment of doubt. These bastards see it as a commandment from on high, until they need a Federal bailout, of course.

  5. J. Dryden Says:

    Now, now, Ed, as someone who holds Orwell's novel in such disdain, you can't just go and use it as an easy trope. Apt though such a trope would be in this instance.

  6. wetcasements Says:

    I like Cato better when they're defending butt-sex.

  7. David Says:

    "bringing to heel run-away spending on entitlements and other wasteful government programs"

    How in the hell is Social Security, Medicare and Medicaid wasteful? Granted they could be more efficient if Congress allowed them to use their purchasing power to negotiate better deals with pharmaceutical companies but compared to their private alternatives (401K's and HMO's) they're far less wasteful. Millions of American lives depend on these programs and "bringing them to heel" would literally cause deaths either through lack of healthcare, hunger or homelessness.

  8. Ruthie Says:

    "If some lawmakers' refusal to vote for increasing the debt limit without also passing prudential fiscal policies resulted in a technical U.S. default, it would demonstrate their significant political strength."

    And by this reasoning, paying my mortgage each month with my Chase Credit Card, then declaring Chapter 7 Bankruptcy should raise my credit score!

  9. Middle Seaman Says:

    If you study French, you will be speaking fluent Chinese.

    Also, Gokhale is a computer program designed to speak intelligently about economics; it didn't accomplish its desired goals, though.

  10. Iriestx Says:

    What's the alternative? Continue to monetize debt (print money and give too big to fail banks a 3% premium for facilitating this fraud) at the rate of $44b a week?

    Gold and silver are at all-time highs, the dollar is plumbing the depths and we continue to print. Kick the can down the road for another generation.

    The "let's default" movement isn't about causing pain and suffering. It's the expression of the extreme frustration people have while they sit impotent as the oligarchy-hijacked government drives this country off a cliff.

  11. Lord Don Says:

    @Iriestx I can understand the frustration but there are right and wrong ways and right and wrong times to resolve issues. Scorched earth (motherfucker) isn't a desirable goal to aim for.

  12. HoosierPoli Says:

    Iriestix – As nice as it is to see some class consciousness finally (FINALLY) taking hold in the US, we do have to understand that any sort of RAPID change from the status quo will destroy EVERYONE'S economy.

  13. hackenbush Says:

    @Iriestx, @Lord Don: There are a few separate issues here — one, we're propping up large insolvent financial institutions to the ruin of the system, two, we're talking about austerity measures to "correct" this.

    Kill the military industrial complex, kill the pharma industry with a single payer system, regulate pharma costs. Stop invading countries, stop handing out tax "refunds" and breaks to people, stop speculating on commodities (since that just shores up the prices, further spinning up inflation), and for fuck's sake, stop handing money to hedge fund managers. These people need to be regulated, not given gobs of money for the "fantastic job" of having blown up our financial system. Until we get rid of useless spending (which is essentially our military budget, coupled with the wasteful subsidies to the insurance industry and pharma, along with "backdoor loans" to the financial services industry) and learn to treat taxes as a civic duty rather than a burden, we're going to have a hard time of it.

    Too bad we're in so deep with the financial sector. If we hadn't been sold down the river with "401k" plans and the promise of easy money, we could cut those bastards loose and let them twist in the wind.

  14. Iriestx Says:

    I agree that scorched earth isn't a sensible option, but what's the alternative when the only two electable political parties have gone all-in on quantitative easing to infinity?

    http://www.zerohedge.com/article/treasury-hopes-auction-99-billion-bonds-next-week-can-it

    QE3 starts now and they're doubling down from $44b a week to $100b a week. What is that going to do to inflation, retirement savings and the inflation of goods we people need to survive?

    People are starting to panic because they realize that a loaf of bread is going to be $10 and gas will be $15 a gallon in the next 2 years at this pace. Their wages have been flat for two decades, social safety nets have become fiscally unsustainable thanks to wars that both republican and democrat officials fully support.

    The populace that has woken up to the reality that we're inflating our way out of this debt and the destruction that it will bring see no way to turn back when both parties promise more of the same. That's why people are advocating scorched earth.

  15. don't know Says:

    @ Iriestx: "The populace that has woken up to the reality that we're inflating our way out of this debt…"

    If we're inflating our way out of this debt, which by the way is the only way Americans are going to get out of debt (its called economic growth), we're doing a piss-poor job of it. Core inflation has been below 2% for going on 3 years now.

    No, methinks the bankers and financiers are doing a pretty good job of buying up votes in Congress to prevent an inflation that would erode the value of all that credit they hold.

  16. JohnR Says:

    I disagree. "War is peace" actually makes some Orwellian sense. These guys have rocketed past the simple "A is actually not-A" universe and have entered some ungodly place combined from the most dizzying viewpoints of Salvador Dali, Hieronymus Bosch and MC Escher (Hammer's Dad). I think they have turned so far inward that they no longer see anything outside their heads. Either that or they've got so carried away by the success of their previous cons that they have come to believe that they can fool all of the people all of the time.

  17. johnsmith1882 Says:

    @Iriestx
    Your position makes no sense. Instead of driving off the cliff let's blow the whole mother up! We have to destroy the economy in order to save it! Methinks you have no position really, unless (to keep the Orwell thing rolling) you are engaged in a classic case of doublethink.

  18. Evan Says:

    Problem, Economists? You're just jelly.

  19. Tim Says:

    I enjoy this site very much, but given the great background graphics – shouldn't it be "tacosandgin"? Just saying.

  20. evrenseven Says:

    That was like a mini FJM.

  21. xynzee Says:

    @Iriestx: Yes many people are feeling *very* frustrated. Something like "seeking 2nd Amendment solutions" would never gain traction if they weren't.

    So what do we do with this frustration? I had this project I was working on in uni where I was trying to cut a stencil using an X-acto. However, because I was trying to cut my stencil on a piece of cardboard on my lap the blade kept snagging and would rip the stencil. After the umpteenth time of this, I vented my frustration by swearing and slamming the knife down on the cardboard.
    Yup, a very *pointed* learning experience was had about how to handle frustration.

    So do we feel our frustration? Do we choose to nuke everything? Or do we drive off a cliff? Or do we think about our options and try to find a sane way to handle this situation? It wasn't just America that got screwed in the GFC, look at Europe, Asia, Australia. Africa has been hurt. What do you think really caused Egypt and Tunisia to melt down?

    I was all for a temporary propping up of the banks, so that they could be dismantled in a controlled demolition. These are your parents' and grandparents' retirements that went, as well as ours. So letting them fall is out of the question. The situation would have been whole lot worse.

    Where it went wrong was that some *very* nasty hooks weren't put in place and some very draconian regulations on the banking and finance sector as well. Of course the libertarian ideologues just don't get it.

    As for your concern about inflation, ie. $10 for a loaf of bread and $15/gal. let's look at the *basic* fundamentals of economics. So why was crude going at $112/barrel today? Well there's only so much of it yes? Americans have this attitude that they entitled to have it for cheap and that's that! (If we're going to talk about cutting entitlements this is the one to start with). Europe has always had very expensive petrol in comparison to the U.S.
    Because of this sense of entitlement and the subsidising of Oil market, Americans go out and buy these whopping great big engines. A friend was whinging about how much it cost him to fill his SUV the other day. Another one of his friends told him to get an economy car instead. He rebutted that the economy car can't tow a boat.
    Hopefully you can see the connection here. Because he entertains himself by burning gas frivolously, he needs something that guzzles gas to allow him to do so. This of course puts strain on a finite product, and as he's not the only one who needs/wants/uses this finite product the price goes up.

    Now the farmer *needs* some kind of fuel for his equipment that allows him/her to produce food stuffs. Now because my mate and many others are entertaining themselves by frivolously burning gas and requiring huge and inefficient vehicles to enable themselves to pursue this frivolous pastime, it lowers the amount available to the farmer. Which of course drives up prices (supply and demand) of fuel for his equipment. Well the farmer is in business and will work the price of fuel into the cost of production and so up will go the price of the loaf of bread.

    The best solution is: You own a Hummer, we shoot you in the face. Own a Hummer to tow your boat, we shoot you and your kids in the face as you've been teaching them really stupid stuff and we need to weed it out completely.

    America really *must* get over this sense of entitlement to the World's oil supplies.

  22. xynzee Says:

    @ Ed: have you tried a sloe gin and tonic? Not bad, bit on the sweet side. The tonic makes the sloe gin less cough syrupy.

  23. truth=freedom Says:

    To whine about the price of gas when you've constructed your life around the idea that it's cheap despite numerous warnings ("price signals" in econo-speak) since the 1970s that the prices were 1) volatile, 2) not in the control of the US Govt, is just obscenely arrogant.

    I'm not sure what to do about it, but xynzee's solution, while appealing, seems a tiny bit drastic. I mean, they're just whining, right? It's not like we're going around the world killing people so we can have cheap gasoline, right?

    Oh.

  24. Arslan Amirkhanov Says:

    "The best solution is: You own a Hummer, we shoot you in the face. Own a Hummer to tow your boat, we shoot you and your kids in the face as you've been teaching them really stupid stuff and we need to weed it out completely."

    I'm all about the face shooting, but we have to save bullets. For people like that you need an Ironic Punishment Department(term courtesy of Simpsons Little Treehouse of Horror IV, The Devil and Homer Simpson). For example, they have to take their hummer to work every day. That means they have to push it from the Gulag barracks parking area to the useful shit factory they'll be working in for most of their life. This is just a rough draft but you get the idea.

    I reserve face-shooting for billionaires, pundits, think tank employees, Aaron Selzter and Jason Friedman, Dane Cook, the staff of Family Guy, Penn and Teller, and libertarians(did you know libertarians bleed green blood? Stab one today and see for yourself!)

  25. xynzee Says:

    @Arslan: Such a much more elegant solution to the problem. I raise my glass of sloe gin and tonic to you.

  26. Arslan Amirkhanov Says:

    I love my work.

  27. acer Says:

    1765: "Give me liberty or give me death."

    2011: Give me luxury or blow up the world.

  28. Noskilz Says:

    Maybe some people like this are just what one might call useful idots or compensated lemmings – those hoping to use the upcoming debt ceiling situation as a bargaining opportunity need to be able to give themselves some maneuvering room, and shaking the bushes for people with the right paperwork incompetant or depraved enough to play along is how that performance space gets built. Even if Dip Stickington has been saying this sort of thing with no outside inducement, people who need that sort of position pushed are going to be doing their best to promote his work for their own reasons.

    On one hand, prostituting one's credentials in this way does tend to end hopes of being taken very seriously in whatever the chosen discipline might be, on the other there's the attention, opportunities, and compensation that might not otherwise be in the offing.

    I can't help feeling that while there are certainly some people who just like to be contrary for it's own sake, that it's more often the case that it's more about buying into whatever fantasy makes them happiest or is most useful to them – if reality happens to gibe with whatever they'd like to see, awesome, if not, they're under no obligation whatsoever to include objective reality into their own worldviews. Although I suppose that's an horrible take on the situation, since if accurate, it means that people who go in for that sort of thing can't be swayed from their positions by logical arguments or factual information, but will only change their stances whenever a given position stops working for them and probably only to the degree that is absolutely necessarly for whatever qualifies as works for them.

    As long as subjective and objective reality don't cross paths, one can ride that fantasy forever, but putting the two on a collision course tends to end badly, and there seem to be many apparently unavoidable collisions approaching.

  29. Sarah Says:

    Hm. Well, it seems that these people may not appear so paranoid after all.

    http://www.dispatch.com/live/content/insight/stories/2011/04/17/recession-wary-family-stockpiles-food.html?sid=101

  30. Bitter Scribe Says:

    What's really funny is that TARP was the last major bipartisan policy initiative. And it did save the economy, make no mistake about that. If the dominoes had been allowed to fall, huge amounts of people's money would have been wiped out. I'm talking real people, you and me. Checking accounts, 401(k)s–all vaporized. Yeah, it sucks that things got to that pass, but the adults in the White House and Congress, both Democrats and Republicans, did what needed to be done.

    Now, with things like the debt ceiling limits, the Refucks are showing that they're perfectly willing to trash the economy to make some idiotic political point. As long as Obama is in the White House, he'll take it in the shorts for the shitty economy, and that's all that matters to them.

    Fuckers.

  31. Brian Says:

    1.I thought the term "U.S.S." was for American warships. I think it should be "S.S."
    2. Yes, #1 is petty, but I'm at the airport and bored.
    3. The United States Federal Government does not need to either tax or borrow to pay for things (its obligations are dollar-denominated, and it controsl the "supply" of dollars). This is a fact. Look at what Federal spending actually is. It is moving numbers around on a spreadsheet. This nonsense about debt cielings and takes and revenue and "default" is infuriating. This is not to say that it can spend at will under any circumstances. That would be nuts. But right now we have a massive demand-side problem, and our Galtian Overlords aren't solving it. Too much Atlas tugging, I suspect. The entire concept of the Federal Government being "bankrupt" is utter nonsense.
    4. Q.E. is NOT "printing money" in any sense of the term. It affects over-night lending rates, not the money supply per se. I am not defending the policy of engaging in Q.E., that's a whole other topic. But it is NOT "printing money" and it is not inflationary, per se.
    5. Gas and food are "volitile" and not included in core inflation measures, for good reason.
    6. These "let's default" lunatics are cult-like, and it scares me profoundly that they are not treated like the raving street lunatics they are. Thanks, as always, Ed.

  32. Chicagojon Says:

    @Ed
    After the global economic meltdown, famine, and societal collapse it might.
    Maybe, probably not, Maybe. But are these maybe's a bad thing? I think we could use a little global economic meltdown – I'm not a fan of the current growth-at-all-costs boom/bust mechanism and it seems that this last cycle will go the way of the previous ones and be ignored into history thanks to some new boom cycle.

    @don't know
    Core inflation has been below 2% for going on 3 years now.
    *sigh* this is nonsense. I don't know what the 'real inflation' rate is, but the CPI & published core inflation is bullshit. Believe what you will, but some combination of anarchist truth seekers (Shadowstats.com), understanding of how the CPI is calculated vs. how others do it (e.g. China counts food & beverages as 33% of their CPI while the US counts it as 16.4%. I don't know about you but I tend to like food and drink), listening to people and economists worrying about inflation instead of published economic reports, & personal experience (I can't get bacon for under $3.99/lb these days and pork products are consistently $1.00/lb higher than they were 1-2 years ago) all support a much higher inflation than 2% and reasonable fears that it's only going to get higher.

    @BitterScribe
    What's really funny is that TARP was the last major bipartisan policy initiative. And it did save the economy, make no mistake about that.
    Which part of the 'saving the economy' should I be happy about? The rampant unemployment? The destruction of the mortgage markets? Rising inflation? Increasing deficits? Further separation of rich from poor?
    Maybe I'm making a mistake, but I thought there were other options at the time and I still do.

  33. Andrew Says:

    Reply to wetcasements: They ARE defending butt sex, it's just that working Americans are on the receiving end and it's not consensual.

  34. Arslan Amirkhanov Says:

    "anarchist truth seekers" = oxymoron.

  35. xynzee Says:

    Maybe the idea of this *isn't* to force the country into receivership, but something a bit more obvious. Such as forcing the Gov't to "sell assets" to make things happen.
    The Gov't holds vast tracks of land in common eg. Alaska's oil fields, Yosemite, Yellowstone, and so-on. Many of the National Forests while logged it's with heavy regulation. Now these areas would have to be sold and these National treasures would now be open to total exploitation.

  36. Den of the Chaldes Says:

    Gorden's Gin & Tonic and Roberto's (#19 in San Diego), Oh the morning after was foul, smelling of gin and wearing some shredded beef, crumbly cheese, Guac & possibly bits of Jalepenos on me and the leather couch(Jalepanos meant pain on the toidy during the morning constitutional)… glad I lived alone back then.

    I was 20 back then (52 now). Thanks for reminding me what early 2012 society might feel like. The financial hangover will be henous