Game of Chicken

You would think that theatre of absurd around debt limit is senseless. Not at all. It's politics as usual, only at its worst.

On one side we see ideological idiots from GOP. They want nothing less than reversal of Roosevelt's New Deal. Don't be fooled by rhethorics. They tell you that they want responsible government, staying away from business making everything work. In reality they want the end of Social Security, Medicare, undemployment benefits and other things which construct social safety net. That's big business program running amok, desire to hire people as cheap as possible.

On the other side, mostly no less ideological Democrats, including President. They want big government running everything, clean energy (impossible), end of oil (impossible). Thanks God, they at last abandoned idea of "gun control", which in their lingo means total ban on firearms for population.

Until lately, both sides somehow found compromise in the last 30 years. It was messy, expensive, with a lot of unnesessary spending. Both sides are guilty in that spending, GOP sponsoring no less stupid programs than Dems. Government waste is an equal opportunity sport in Washington.

The problem now i entirely of GOP making. As much as I hate many things Dems do, current crisis was created by GOP. They voted for current budget, but now refuse to authorize increase of debt limit necessary to execute said budget. In fact, they are trying to hold the welfare of the whole country hostage of their interest.

They played game of chicken with Obama. They thought they can call his bluff and force him to agree to any extreme program they can think of. Their problem is that in politics they are children compared to Obama. He saw an opening which allows him not only to win White House next year, but also to soundly beat GOP in both Senate and House. He is going for shutdown of government and possible default. And he is putting the guilt sqaurely on GOP, where it's really belongs. They forgot that politics is an art of possible. They wanted impossible and already lost.

Next steps are obvious. On August 2, Treasury will declare which payments will be stopped first. Of course, accourdint to 14th Amendment, part 4, interest and principal payments to holders of Treasuries will be first priority. There will be a lot of hurt, thousands of people are going to be laid off. Next stage will be delay in payments to all government employees which will not be laid off. Then come payments to unemployed.

I hope that GOP will stop somewhere there. Because if everything is going out of control and US defaults on its debts to holders of Treasuries, all financial hell is going to break loose. It's a financial analogy of 6 mile wide asteroid. When it hits, nothing is safe.

Looks like current generation of GOP is done, losers. They are not going to survive this. It's a pity, because a landslide of Dems next year isn't any better for the country. We really need a divided government. But we also need a government which can compromise and find solutions. Well, that will have to wait until 2016 at least.

What's next? I hope that hard default isn't going to happen. GOP really doesn't have any justification for a hard default situation, they are going to be voted out and be happy that they are not rolled in tar and feathers before kicked out of Capitol. So let's hope that after some bickering they vote for debt extension before the end of August. Everything is going to be OK, right?

Wrong. Very wrong. We are going back into depression no matter what solution of debt limit crisis is adopted. Recovery, while it lasted, was triggered by Obama stimulus. That stimulus was tiny compared to what was (and is) really needed. We needed at least twice as much. And we need much more than that now. Instead, we are getting severe budget cuts. Ain't gonna help recovery. Budgets are cut in states, in counties, in municipalities. Now federal budget is going to be cut. Dozens of thousands of people are going to lose their jobs. Some "economists" and all GOP elected want to tell us that that's OK, that private business, facing less competition from governments, will pick up the slack. That's bullshit. Private business is doing nothing of the kind and is not planning to. We are in depression and business is not expanding, with just a few exceptions. There are no real competition for resources: interest rates are very low, wages are stale, unemployment is high. We are going back into deflation mode soon. The only little hope left is QE3, which is probably coming in October or November. I'm afraid that's not enough.

US got out of Great Depression thanks to World War II. World War III is unthinkable. What is going to pull us out this time? Or maybe developed world is going Japanese way for decades of depression?

What am I going to do with my money? I'm keeping big (for me) cash position right now and will keep it until debt limit crisis is resolved one way or another. I'm going to start investing right after debt limit is raised. Unfortunately, there aren't many places to invest in depression. It's going to be fast growing tech and some dividend paying stocks. Tobacco is out. Dying industries (paper books, newspapers, TV stations, movie studios, cable TV) are out of the question. As usual, I'll play it by ear.