It's getting very hard to do, isn't it? As this is being written, the Republican-controlled House has passed their second version of a debt limit bill. This one was hard to even get to the floor for a vote and passed by a very narrow margin. It gives the US government permission to borrow another $US 900 Billion or so - which might or might not let them see out the year. It purports to cut spending by roughly the same amount - with both the details and the timing of these cuts left mostly to the imagination. And it tacks on a vote for a constitutional amendment to balance the budget as a precondition before the next debt limit increase can be passed. How and when the budget is to be balanced is also left to the imagination.
Like its predecessor, the bill has been pronounced dead on arrival before it even shows up in the Senate. And in the pretty well inconceivable circumstance that it should pass the Senate, the President would veto it anyway. There would not be the support in either house of the US Congress to override such a veto.
Officially, the US government today borrows 44 cents out of every Dollar it spends. That is the figure put out by the government itself. To "balance" the budget, spending would have to be cut pretty well in half. Neither "side" of US politics is willing to look at so-called entitlement programs or military spending. And as Ron Paul pointed out in his criticism of the first Republican bill - the "Cut, Cap and Balance Bill" - without drastic cuts here a balanced budget is an impossibility.
So we have come down to the proverbial wire. The Republican demand that any debt limit rise be "matched" by spending cuts is an hilarious farce. The budget cuts are pencilled in over the next decade. The equally large debt limit rise is to be the law of the land. A rise big enough to see the government through to the end of 2012 - seventeen months from now - would have to be at least $US 2.7 TRILLION. And as for the Democrats, as exemplified by President Obama, they are even more blatant in their claims that the only thing that needs to be done to "fix" the entire problem is to give the US government permission to borrow a LOT more money - with no or next to no strings attached.
Nobody wants to discuss anything in the way of a fundamental issue. Well - almost nobody - there is Ron Paul. The entire debate is being conducted on the assumption that there are no fundamental issues involved. The word "unsustainable" has never had any meaning in Washington DC because it implies an interval of time before an unworkable system ceases to work. The vast majority of those in Washington DC cling desperately to the notion that the only thing that is required for ANYTHING (no matter how blatantly irrational) to "WORK" is for them to pass a law. Sure we can dicker about the wording in the law, but that shouldn't stop the law from being passed. Especially when it is NECESSARY - for the continuing functioning of the US government in the way to which its members have become accustomed.
Even more pressing for those in government - in Washington and everywhere else - is the need to preserve the illusion that the only way to ward off a recession is to keep borrowing and spending. European politicians buckled under to that imperative last week. Now, it is the turn of US politicians. The great fiction pervading the economic part of the "debate" is that prosperity is produced by government borrowing and spending. Cut off (or even curtail too greatly) the government's ability to borrow and you are bringing on a financial and economic collapse. That has long been economic holy writ.
If the events in the wake of the Lehman crash almost three years ago now have not exposed that BIG LIE, it is hard to imagine what will. Government borrowing and spending have guaranteed a big daddy of a recession/depression no matter what happens from now on. The claim, expecially from Mr Obama and the Democrats, is that the only thing between us an financial armageddon is more government borrowing. The problem is that they have run out of "future generations" on which to push the consequences. They are happening NOW.
And here is the ultimate in hilarity. The message that shines through loud and clear when the mainstream US media interviews "financial managers" on Wall Street is a variation on this theme: "This is risk most people thought was inconceivable!" That comment pertains to the actual possibility of a US Treasury "default", of course. And what if it were to actually happen, even by ratings agencies' standards where a "default" is basically anthying they say it is? "The big change will be what people consider the risk-free rate". How's that for living in fantasy land? Treasury debt paper is considered "risk free" because it underpins the entire global system. Being "risk-free", the rate on the paper is used as a base line to assess the rates on every other type of debt paper that exists.
In fact, there is no type of investment which pays a rate of interest conceivable which is "risk free". There is always a risk when exchanging present goods for future goods which is what a creditor does when lending money - or anything else for that matter. To imagine otherwise is to imagine that goods are conjured up by magic. But today, it is only "money", or what passes for it, which is conjured up by such methods.
At this point, the "price" of Gold is becoming increasingly irrelevant. Yes, it has now been surging for a month in US Dollar terms. Yes, there is a possibility that it will surge the other way if and (probably) when some kind of compromise agreement is cobbled together. But Gold remains the ONLY existing media of exchange which is NOT somebody else's liability. In the REAL world, a money cannot be somebody else's liability. That issue is still in the too hard basket which the politicians are striving to keep a lid on. There is still no debate about the fundamental nature of money. That will come.
(Chart appears here in original analysis)
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The significance of the table above is that it shows the all time high for Gold denominated in what is probably the most representative major "commodity currency" in the world - the Australian Dollar. That high was set on February 20, 2009.
Gold in terms of the other three major currencies shown in the table has since gone on to set major new highs considerably above the levels reached in February 2009. After April, the only recent (May 2, 2011) all time high for Gold had been on the $US price. That changed on May 25 when the Euro Gold price set a new all time high of Euro 1085.10. And during July, Gold has gone to all time highs against most of the major currencies in the world, including the US Dollar, the UK Pound and the Euro.
When Gold reached its all time high in Aussie Dollar terms, the Aussie Dollar was trading at $US 0.6377. This was at the height of the huge US Dollar rally which took place in the aftermath of the Lehman Brothers crisis of September/October 2008. The Aussie Dollar gained parity with the US Dollar (for the first time in nearly 30 years) on November 3, 2010, the day that the US Fed officially announced QE2. It has been climbing steadily since then and accelerated in April 2011. On April 29, the Aussie Dollar reached almost $US 1.10. Over the last week of July, it hit that level for a second time.
As already stated, Gold in terms of the other three currencies in the table is a long way above the level it reached in February 2009. In terms of the only "commodity currency" in the table - the Aussie Dollar - Gold still lags behind. At current (July 29, 2011) exchange rates, it would take a Gold price of $US 1717.30 for the Aussie Gold price to equal the all time high ($A 1571.60) it set more than two years ago on February 20, 2009.