Is A Bond Crisis Inevitable?

Is a bond crisis inevitable?  That is the question that Pat Buchanan is asking.  Buchanan is not a libertarian, but he certainly has libertarian leanings.  I tend to agree with him on foreign policy more and economics a little less.  He does not understand the benefits of free trade and that is the main area where I part ways with him.

With this article on the national debt and bonds, he understands what he is talking about.  His last sentence says it all: "We may be closer to the falls than we imagine."

Europe has already seen a lot of problems and they have a lot more to come.  The state and city governments in the U.S. are struggling.  Illinois is on the verge of default and California is not far behind.  It will be amusing to watch politicians, particularly Democratic politicians, having to cut money from their main constituents - union and government "workers".

The big trouble will hit the states and cities before it hits Washington DC.  The reason is the central bank.  The Fed can keep creating money out of thin air.  The Fed can temporarily drive down interest rates and keep bonds attractive.  This allows the deficit spending to go on.  But the day of reckoning is coming for DC too.  The Fed will eventually have to choose between funding the debt and hyperinflation.  I think the Fed will eventually tell Congress to figure it out.  Hyperinflation would wreck their own game and would cause massive upheaval.

It will be an interesting day when the checks from DC bounce.  They will either have to default on the debt or massively cut spending.  Actually, they will probably have to do both.  It has been a long time coming and the moment is almost here.  Even if it takes another 10 years, it will be unbelievable to watch when it happens.  The vote buying politicians will be walking on thin ice if they aren't already.  Let us hope that the American people (along with people everywhere else) finally turn their backs on government and withdraw their consent.