Robin Williams once said "Reality, what a concept". If it wasn't so sad, it would be funny. Our current National Fiscal situation is not only a Mickey Mouse operation (with apologies to Walt) but Fantasia is the starring production.
Treasury Secretary Geithner on Friday, formally asked Congress to bump up the Debt Ceiling from where they raised it in Mid-February. He actually called it a "tradition" to make sure the country didn't hit a credit limit and have to stop spending! Geithner raised the specter that the government would (not could) hit the current limit sometime in October, just after the new fiscal year gets started. He did not specify how much he wanted the limit raised, just that Congress has "traditionally" done the right thing.
Tell that to the average US consumer who has seen their credit limits cut, not raised in the past year. Reality is that the consumer can't get an increase in their limit, whether they have an income or not. Fantasy is that the US Treasury Secretary thinks the Government should get a hefty increase.
The Congressional Budget Office has released their long term look at the US Budget and the first sentence is eye opening for any optimist:
"Under current law, the federal budget is on an unsustainable path--meaning that federal debt will continue to grow much faster than the economy over the long run."
The CBO puts the blame squarely on rising costs for healthcare and the aging US population. It also says that to prevent deficits from "reaching levels that would cause substantial harm to the economy would require increasing revenues significantly as a percentage of GDP, decreasing projected spending sharply, or some combination of the two."
Reality: By the end of fiscal year 2009 (September 30th), we will have added 2.3 Trillion dollars in the last two years to the overall Federal Deficit. By the end of fiscal year 2010 (September 30, 2010), the last three years will have produced a deficit of 3.6 trillion dollars for an overall deficit of some 13.4 Trillion dollars. That's a nearly 30% increase in the deficit in just 3 years!
GDP by the way is slightly more than 14 Trillion.
Fantasy: The spending brakes need to be applied, starting at the top. Congress needs to stop the bailouts, trim the largess (starting with their own health and retirement packages), balance the budget and lower their grandiose expectations for new projects. Government needs to pick and choose its battles instead of trying to become a part of everything.
Reality: Congress has no gumption to trim spending, no backbone to stop political bailouts in the name of saving the economy and no desire to trim pork barrel projects or spending. Democrats firmly believe that government is benevolent and all caring, ignoring the fact that humans hold governmental posts and humans are most in it for themselves. Republicans just hate the fact that Democrats are in charge and also don't want to stop their pork or benefits.
Congress may quibble a bit, but will raise the ceiling close to 13 Trillion (guess is 12.9, so the next increase won't seem quite as bad when they breach the 13 trillion level.) and claim the worst is behind us. Of course they might not get the chance, for if the stock market tanks as some believe, political reality is that it's every congressman for himself and forget the women and children.
Fantasy: the economic clouds are breaking up and the sunshine is starting to break through.
Reality: Yes Virginia, there is a Santa Claus(e)
Disclosure: Long SLV, GLD, Physical metal, retirement accounts