Tag Archives: Larry Kudlow

CNBC’s Kudlow: Take Away Washington’s Credit Card

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The economists with the financial media are a complete disgrace.

And they don’t want to know better.

They just want to sell news.

How does that go again about capitalism selling the rope that it gets hung with?

The Debt Bomb Is Coming Due

By Larry Kudlow

April 12 (CNBC) — White House press secretary Jay Carney said Republicans should not “play chicken with the economy.” The administration wants a prompt vote to raise the federal debt ceiling quickly. Carney went on to say, “The consequences of not raising the debt ceiling would be Armageddon-like in terms of the economy.”

But then again, if the federal debt limit keeps getting raised without any real new spending-limitation rules, Armageddon for the economy may come just as quickly.

The problem with the rising debt burden is too much spending and too little growth. A spending-limitation of 20 percent to GDP would go a long way toward fixing the debt-bomb problem.

A number of Republicans are proposing such a limit, with real teeth to force automatic spending cuts across the board if the limit is violated. House and Senate Republicans will not agree to an increase in the debt limit without these kinds of serious spending reforms. As they say, it’s time to stop maxing out the credit card. There has to be some discipline in the fiscal system.

The current $14.3 trillion debt ceiling will run up against the wall sometime early this summer. As of the end of March, there’s a $76.1 billion borrowing limit left. Treasury man Tim Geithner says all measures to postpone a U.S. default on its obligations will end approximately July 8, 2011. At that point, government payments — including interest on the Treasury debt — would be stopped.

So the message for investors is tighten your seatbelts. The hard-driving politics of spending reform and debt limits will go down to the wire. At virtually the same time, the Fed will probably have ended QE2. So debt-default worries, along with possible inflation fears, could drive up interest rates and hurt the stock market as well.

But let’s not forget, the debt bomb is coming due, sooner or later. Better for Washington to cancel its summer vacation and put some serious disciplined limits on federal spending and borrowing. Take away Washington’s credit card.

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CNBC’s Kudlow Comments

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He sort of gets some of it.

There are many debates among economists about how to resurrect the subpar, so-called recovery and generate some serious new job creation. But there is also widespread agreement that nations cannot tax their way into prosperity,

Right.

devalue their way into prosperity,

Depends on how you define prosperity. Japan sort of did it this way. Not ideal, due to suboptimal real terms of trade, etc., but that’s they way they set up their system. And as soon as they stop devaluing their currency (buying dollars) they have problems. Europe is in the same bind.

spend their way into prosperity,

This is wrong. The output must be sold, either to the public sector or the private sector. That’s a political choice- public goods or private goods.

or pursue trade-limiting protectionism as a path to prosperity.

This can also work, but as above, is suboptimal in general. And, it is vital when it comes to strategic materials and intellectual knowledge. For example, military needs are best sourced domestically to assure a supply in times of war, etc.

All of this is weakness.

I’d say in general yes, all of his argument displays a weakness of understanding.

:)

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