In short, raising interest rates to counteract a falling dollar is a practical impossibility for our cash-strapped government. That means the greenback will continue its decline and inflation will run rampant
3. Government Spending Cuts Are a No-Win Situation
As stated, any debt ceiling debate won’t result in a default. But if the debt ceiling isn’t raised, total federal spending will have to drop by over $1 trillion in the next 12 months as America is forced to “live within our means.” Some say this is long overdue and for the best – but no matter how necessary these cuts are for the long-term health of America, they will result in much short-term pain. Read about 5 economic reasons Obama is doomed to one term on InvestorPlace.com
Consider that one of the single largest layoff announcements in 2010 was a plan from the U.S. postal service to cut 30,000 jobs by the end of 2011. Also in 2010, the City of New York announced a growing deficit would fire 11,000 workers including firefighters and teachers.
Should we continue to dig deeper into debt just to keep mail carriers employed? Hardly. But it’s naïve to think it’s as simple as just printing up 30,000 pink slips. Taking regular paychecks away from tens of thousands of Americans at a time when unemployment is high and spending weak will have an impact.
What’s more, though some hardcore libertarians would happily wave good riddance to public schools or fire protection, there are many Americans who rely on government services every day. We are so far over our heads that even services most Americans think of as essential need to be reduced or eliminated.
Consider this: Even if we slashed the entire military budget to zero America would “only” save about $690 billion – about half of our nearly $1.5 trillion budget shortfall. If you also eliminated the nearly $800 billion we spend on Medicare and Medicaid each year, however, that would get us to a balanced budget.
When you need to cut the federal budget by 30% to break even, there’s just no good way for things to end.
Jeff Reeves is editor of InvestorPlace.com. As of this writing, he held a long position in Bank of America stock. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.