“To begin, the national debt has provoked concern over the stability of US debt. Last month Standard and Poor’s revised its sovereign credit rating of the U.S. in the long-term from stable to negative. Last week the US reached its debt limit, which, justified or not, has perpetuated this anxiety. The cause of these fears has its roots in the measures taken to strengthen the economy during the recession. The most notable reason was the $700 billion bailout, which supported the mentality that the government would intervene in times of need.
This mentality is ultimately unsustainable. How can the government indefinitely buy distressed assets? Yet the government has done just that. It diminishes risks for investments and creates the expectation of federal aid. In order to support this aid, the U.S. has increased its borrowing. We are throwing good money at bad investments. Our credit rating is down, members of the White House have engendered fear of default, and we have just reached our debt limit. The solution: Borrow more money. While it is true that we are in a desperate situation, is unfettered borrowing really the answer? This increased borrowing is out of control. The change to a period of government aid has changed how the game is played. With less risk and the expectation of federal intervention, there is an unsustainable debt bubble forming.” Read more.
“Gold Bubble, Debt Bubble, or Both?”
Andrew Simmons Nicholas
Seeking Alpha, May 24, 2011.
Image by chrisroll / FreeDigitalPhotos.net.