The Sequester

Obama agreed to the sequester. He does not want to cut spending, even though he railed against Bush's spending binge. So will the US really get their $85b cut? 2 scenarios to consider here:

No - Once Obama agrees to the cut, memos are going to be sent to the various government departments to advise the heads to cut spending. This may take some time. Some departments will undoubtedly come back with protests and lobbyists. At the end of the day, no cuts will be made in those departments.

Yes - That cut is just a cut from the proposed increase in spending. It's like I'm planning to spend $1000 extra next year, but decided to reduce the planned increase in spending by $85, and I call that a cut.

Even if it's a real cut into spending and not on proposed increase in spending, the cut is so tiny that it's laughable, and they're calling it a catastrophe. Say you overspend by $15,000 on your credit card in a year, and decide to cut back just $85. Every year you overspend by this much, and charge it to your credit card. Now the interest rate is still affordable (actually not affordable, because you borrow $15,000 + interest from your relatives and friends to service the debt). This is quite a close analogy to the current situation in the US. Most of their debt are short-term debt. But wait till the interest rates rise. And wait till those relatives and friends decide to stop lending to you. Or like Mr. Schiff says, wait till they decide to impose a lending ceiling. They will not give a hoot about your self-imposed debt ceiling, because you keep raising it all the time.

Bottom line: US debt continues to grow at an alarming rate. Interest rates will rise eventually because lenders will demand higher rates in compensation for the risks that they are taking. Then we will see a real crisis there, something bigger than 2007/2008.