No Good Crisis

It is ironic that President Obama's use of crisis to affect change may ultimately tear down The Great Society.  He actually thought that he could use confidence eroding terms like "government default" and "economic catastrophe" to his advantage by getting congress to pass more spending without forcing hard decisions on what the country can afford.

The U.S. is not yet to the point of being unable to service debt with generated revenues.  Speaking so publicly and repeatedly of government defaulting on its obligations means one of three things: 1) its simple scare mongering meant to strong arm others to go along, 2) the U.S. would actually choose NOT to pay creditors first, or 3) and perhaps most ominously, we physically CANNOT choose who to pay when, because we have not built the information systems necessary to prioritize payment (I cite "Bracing for Fallout If Debt Talks Fail" by Damian Paletta, page A4, The Wall Street Journal, July 23-24 2011).

If the United States would actually choose not to pay creditors, and thus send payments to fund domestic obligations first, can one imagine what will happen to interest rates?  Can one imagine what would happen to banks that hold no reserve against the change in value of U.S. treasury bonds (which will naturally plummet)?  No responsible financial manager would ever do this, even if the news headline reads "China Gets Paid Before Grandma", unless that planner were a narcissistic politician...

Is it possible that the most powerful country in the world, with the most advanced technology in the world, that spends more money on government than any country in the world, did not add payment prioritization mechanisms to its financial management system, after the debt debates in the 1990's?  Irony truly indeed if we actually have the cash to service our debts yet we cannot sort the debt service payments from the Great Society payments.

Mr. Obama as the chief executive of the government, will be presiding over the most unprecedented spending prioritization exercise of the Great Society ever imagined.  In other words, a tear down.  His cynical strategies have come full circle.