Tags: wiedemer | aftershock | spending | inflation

Don’t Blame the Messenger: Inflation to End 'Free Lunch'

By Robert Wiedemer   |   Wednesday, 03 Aug 2011 12:18 PM

During the debt ceiling debate, a lot of criticism was thrown at Tea Party members for holding up a compromise. No question that focusing so much on cutting spending rather than blindly raising the debt ceiling, as we have done for so many years, made it harder to raise the ceiling.

But, is that really a problem with the Tea Party or a problem with a massively rising debt? Would it be better if we ignored the debt and not worry about cutting spending? In a short-term sense, of course it would. The more we can ignore the problems we have created the better it will be — short term.

But, how long do you want to ignore the long-term problem? I know, everyone says we should wait until times are better. But, when times are better, no one cares about the debt.

There really is no good time to cut borrowing.
_________________________________________________________

Editor's Note:
3,981 People Received Millionaire Status Yesterday.
Today is Your Turn.

Don’t listen to ANYONE who says you’ll never have a genuine chance at achieving life-changing prosperity. Get Your New Millionaire Success Kit 100% FREE. Click Here.
__________________________________________________________
 
Also, we have made a big change in the rate we accumulate debt. I like to point out that we borrowed more in February of this year than in all of 2007. There is clearly a large and growing problem long term and, as I always point out, that long term may be a lot shorter than people think. It’s not our children's problem; it is our problem.

The real problem isn't that the Tea Party members focused on the problem — the real problem is that others aren't. Did Tea Party members do a perfect job of politics and compromise — probably not.

But, they face a lot of disinterest from members of Congress bred from years and years of ignoring the problem. It’s not an easy position to hold.

Many Tea Party members feel they failed in the recent compromise. Admittedly, the cuts weren't very substantial — only $21 billion in 2012. The rest of the cuts are longer term and unpredictable. But, like any change in long-term behavior, this will take time.

What has happened is that the debate has changed. You can bet when the next debt ceiling debate has to take place, which is only another 18 months or so away, there will be increased focus on reducing spending.

The real question is whether we will change our behavior on our own, or whether reality will force us to change.

By reality, I mean the reality of the markets. There will come a point where the bond markets react and don't easily lend us the massive amount of borrowed money we need.

That already happed during the financial crisis and the Fed stepped in and printed money to keep the bond markets stable. And, don’t worry, the Fed can step in again and buy more of our bonds with printed money if needed.

All of that money printing helps put off the day of reckoning. But, it comes at a price.

There is no free lunch and that applies to printing money. Printing money will create inflation. Right now, everyone thinks it is a free lunch, which is why there is little market pressure on Congress to make changes.

But, that will change and when it does the wrath of the Tea Party will seem quite mild in comparison to the wrath of inflation and the bond markets.

About the Author: Robert Wiedemer
Robert Wiedemer is a managing director of Absolute Investment Management, an investment-advisory firm for individuals with more than $120 million under management. He is a regular contributor to Financial Intelligence Report, the flagship investment newsletter of Newsmax Media. Click Here to read more of his articles. Discover more about his latest book, "Aftershock," by Clicking Here Now.

© 2017 Newsmax Finance. All rights reserved.

1Like our page
2Share
RobertWiedemer
During the debt ceiling debate, a lot of criticism was thrown at Tea Party members for holding up a compromise.No question that focusing so much on cutting spending rather than blindly raising the debt ceiling, as we have done for so many years, made it harder to raise the...
wiedemer,aftershock,spending,inflation
644
2011-18-03
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved