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Albert Einstein once said “Insanity is doing the same thing over and over again and expecting different results.” If one is to use this definition of insanity, he or she must come to the conclusion that Ben Bernanke is insane. On Tuesday, Bernanke warned that if Congress does not raise the debt ceiling America would risk investors losing confidence in purchasing the government’s debt. As of now the Federal Reserve’s policy of buying treasury bonds, known as QE2, will end on June 30th. The ending of QE2 program has put the treasury department slightly on edge because foreign investors have been reducing their holdings of U.S. debt and there is a fear that not enough people will want to purchase U.S. treasury bonds.
Bernanke also remarked that if a deal cannot be reached the United States risks losing its AAA credit rating, while at the same time “damage the special role of the dollar and Treasury securities in global markets in the long term.” It is interesting to note that the dollar fell to a one month low compared to a basket of currencies. This devaluing of the dollar has not gone unnoticed and has many in the market speculating that the Federal Reserve will keep interest rates artificially lower for a longer period of time. If the Fed were to do so they would only further interfere with the business cycle thus creating more bubbles, which will only lead to an even more painful burst.
Yet it is interesting, but not surprising, that Bernanke wants Congress to raise the debt ceiling. However, it appears that Bernanke has failed to realize that the reason we are risking our AAA rating and our currency status is because of our government’s out of control spending policies. If Congress raises the debt ceiling they are giving the green light to all of those who favor big government to keep on spending. They will always tell stories of doom and gloom in order to scare our elected officials into raising the ceiling but we must demand that our representatives stand fast and oppose raising the debt ceiling; despite the fairy tales they are being told.