Unsurprisingly, it has all turned out to be fake. The choice being presented for public consumption is one between fake spending cuts (Republican) versus non-existent spending cuts (Democrat). Of course, the real issue is the need to keep spending in order to continue the appearance of economic stagnation. Ask yourself this question. What is the magic in the $2.4 trillion addition to the $14.3 trillion debt ceiling?
Answer: $365 billion. That is the average increase in federal debt per quarter since the middle of 2008. $2.4 trillion is six quarters worth of that… which is sufficient to see the current set of politicians safely past the 2012 elections. Assuming that the private sector continues its debt-deleveraging, this means that by the end of 2012, government will account for 27.8% of all debt, the federal government will account for 23.2% of it (up from 10.3% in Q2-2008), households will be at 22.4% (down from 28%) and the financial sector at 24.4% (down from 31.5%).
Speaking of the debt limit, if you happen to be Canadian, I’ve been asked to appear on their 24-hour news channel, CTV, to discuss it. If you are not Canadian, but happen to be so inclined, you can watch the clip here.