The velocity of money is a topic that I find even many libertarians do not understand.  Although it is impossible to accurately measure, it is a subject that is very important when looking at the economy.  I have discussed this topic before, but I think it is important enough to warrant more discussion as it relates to the current economy.

The velocity of money is the speed at which money changes hands.  If the velocity is high, then money is changing hands quickly.  Another way to say this is that there is a low demand for money.  Going the other way, low velocity means that money is slow to change hands.  It means that there is a higher demand for money.  In this case of low velocity, people are holding the equivalent of cash, usually in a bank.  It means people are not spending as much.

When more people are paying down debt, I consider this almost equivalent to low velocity.  People have a higher demand for money.  But if someone has credit card debt with a high interest rate, it makes sense for that person to pay down the debt instead of holding cash that is earning little or no interest.

I believe there are two main reasons that we are not experiencing high price inflation, in spite of the fact that the Fed has tripled the adjusted monetary base since 2008.  One reason is that the commercial banks have piled up this new money into excess reserves.  This has prohibited the fractional reserve banking process.  The other reason for a lack of massive price inflation is, I strongly suspect, a high demand for money.

People are not spending money as they were before the fall of 2008.  Although the national government debt is growing exponentially, the average American has actually reduced debt from a few years ago.  Americans (as well as others throughout the globe) are fearful of the future.  There is high unemployment and high deficits.  Future tax rates are uncertain and government regulations are causing huge uncertainty for individuals and businesses.  Many companies are sitting on big piles of money, but they are not investing it right now.  Excessive regulations (think Obamacare) and other uncertainties are causing Americans and American businesses to be conservative, fiscally speaking.

Since Americans are spending less, I believe this has helped keep a lid on price inflation.  If the economy falls back into recession, which seems likely, I would predict that the velocity of money stays low.  Of course, I don’t think we’ve ever really been out of the recession.

It is important to remember that just because there is high monetary inflation, it does not automatically translate into high price inflation, especially in the short term.  On the other hand, velocity can go the other way too.  If the Fed starts up a QE3 program (more money creation) and more Americans start to fear future price inflation, then the velocity of money can turn up quickly.  You can have a scenario where prices are going up even faster than the money supply, especially if people think that the central bank is not going to stop creating new money in the future.

This is actually what can happen in a hyperinflation, or as Mises called it, the crack up boom.  If the Fed keeps creating new money like crazy and people doubt whether it will ever stop, the dollar could actually become worthless rather quickly.  I do not think this scenario is likely as I think the Fed would tighten up its monetary policy before it allowed hyperinflation to occur, although I will admit that anything is possible these days.

In conclusion, while velocity is hard to measure, you should at least know of its importance.  Consumer prices will not always directly correlate to the money supply, at least in the short run.  This is due to the demand for money.  If consumers remain tight with their money, expect price inflation to remain much lower in comparison to the new money in circulation.

The Dow fell more than 500 points today.  The Nasdaq was down over 5%.  Oil was down 6%.  The silver ETF fell more than 7%.  Gold hit new highs and then fell back, although not as violently as silver.  There were two good investments to be in today: U.S. bonds and the U.S. dollar.

I am an advocate of the permanent portfolio.  Part of that portfolio is to put approximately 25% into long-term government bonds.  Some people think this is stupid.  They wonder how anyone could possibly invest in bonds when interest rates are sure to go up.  Well, today is your reason why.  Although interest rates are at near historic lows, they can still go lower.  For some reason, investors still flock to bonds for safety.

Today was also a good lesson on why the permanent portfolio invests in gold and not silver (although the mutual fund PRPFX puts a small percentage in silver).  I am not against owning silver, but I do favor a much higher percentage in gold.  Today was a perfect example as silver was off more than 7%.  While silver has the potential for bigger gains, it also has the potential for bigger losses.

Today should not be a big surprise for readers of this blog.  It should not be a surprise to libertarians and followers of Austrian economics.  When the government’s solution to a recession is more spending, more money creation, and more debt, it is not a surprise that the economy remains weak.  Today revealed to many people that we are going into another recession.  I think a better description is that it is a continuation of the recession.

The government and the Federal Reserve have pumped in massive amounts of money and “stimulus”.  It made things appear a little better over the last year and a half.  The stock market was going up.  But the so-called recovery was an illusion.  It was not built on stable foundations.  A recovery needs savings.  A recovery needs for the correction to have taken place to correct all of the malinvestments.  The government would not allow this to happen with all of the bailouts and spending.

This economy is in major trouble and it will continue to be until the government gets out of the way.  Obama and his Keynesian advisors are morons.  The Republicans rightly blame Obama for making the economy worse.  But they lack specifics.  Most of them also fail to mention that Obama is a continuation of the bailout and spending policies of Bush and the Republicans.

The trouble in Europe is also getting worse.  There is now talk of Spain and Italy needing help.  Greece is a drop in the bucket compared to these two countries.  We are either going to see massive inflation from the European Central Bank or we are going to see a breakup of the European Union.

Meanwhile, the Bank of Japan is going to create more yen out of thin air because its currency has been too strong.  This is more mercantilism.  They are morons too.  The Swiss have also announced a looser monetary policy for the franc.  In other words, two of the strongest fiat currencies will also be inflated.  This is why you should own gold and other hard assets.  All fiat currencies are risky at this point.

This whole thing sets us up for more quantitative easing (QE3) from the Fed.  This will eventually drive the dollar back down and will drive gold up even higher.  Bernanke is a student of the Great Depression.  He thinks that the Great Depression happened because there was not enough money printed.  This is his only solution to the down economy.  I expect more and more inflation.  Prices will rise.  I think “leaders” from other countries will tell him to stop.  If he doesn’t listen, then the U.S. dollar will no longer be the reserve currency of the world.  It will lose this status quicker than most imagined.

Hold on to your hat.  This will be another wild ride.  I recommend keeping your money as safe as you can.  I recommend the permanent portfolio.  I recommend holding some extra cash (in the bank) and gold.  I recommend getting out of debt.  I recommend that you sit back and watch Obama and Bernanke continue to squirm.  These clowns are absolutely clueless as to what to do next.  Their only solution is to spend more and print more.  This has not worked so far.  It has made the problem worse.

Before my recommendation today, I need to preface it with something I often say.  I am a fan of setting up a permanent portfolio as described in Harry Browne’s book, Fail Safe Investing.  I believe that you should have at least half of your investment portfolio in a permanent portfolio setup.  For more conservative investors, it should be even more.

Going beyond this, I think it is acceptable for more aggressive investors to speculate with money that they can afford to lose.  It is to these people that I speak today.  My recommendations are not meant to be part of your permanent portfolio.

Gold has had an outstanding run, particularly this week.  It keeps hitting new all-time highs (in nominal terms).  While I wouldn’t be surprised to see a pullback, there are a lot of reasons to be bullish on gold going forward.

One interesting thing about this latest run in gold is that gold stocks have not managed to keep up.  While the price of the metal is hitting new highs, most gold stocks are off of their all-time highs.  While this trend could continue for a while, I can’t imagine it continuing forever.

Gold stocks are a difficult play.  They are far more volatile than the price of gold.  You are also taking on the risk of owning a company, just as when you buy any company’s stock.  You are at risk that the government of whatever country the company operates in could violate property rights and destroy the company’s investment.  You are at risk of bad management.  You are at risk that the company will not find new gold.  You are also at risk of a stock market crash, as a market crash could drag down gold stocks with it.

With all of that said, I still think this scenario presents a golden opportunity.  If gold goes into a mania phase (which it isn’t yet), then gold stocks could go up exponentially.  There is no guarantee, but holding gold stocks can be like having leverage in the gold market.  If gold doubles in price over the next couple of years, gold stocks could easily go up 3 or 4 times that.  Again, there are no guarantees, but I am just pointing out the possibilities.

Owning single gold stocks is usually too risky for me.  If you are going to try this, don’t put a lot of your money at risk, particularly if it is a small company operating in a risky country.

My recommendation today is to buy either GDX or GDXJ.  These are exchange traded funds (ETFs).  GDX invests primarily in stocks of companies in the gold mining industry.  GDXJ invests in smaller companies in the gold mining industry.  Both are well off of their 52 week highs.

If you are looking for a good gold speculation while wanting to avoid the risk of owning any one stock, these might be worth a look.  You can buy these through a typical online brokerage account.  While I’m not making any predictions in the short term here, I do think these two ETFs have potential for big gains over the next couple of years.

There was an announcement today that the central bank of South Korea recently bought more than one billion dollars worth of gold.  This was supposedly the first time in more than a decade that the Bank of Korea has been a buyer of gold.

This news has driven the price up about 2% today.  It is currently over $1,650 per ounce.  This happened on a day in which the dollar was up slightly and the stock market plummeted.  For anyone who has employed my speculation strategy of shorting the stock market and going long on gold and gold stocks, today was a banner day.  Of course, one day does not make a trend.

There are more and more signs that the economy is getting worse.  The trouble in Europe keeps getting worse, or at least it is becoming more well known.  And we know the U.S. is in major trouble when the establishment rating companies are threatening a downgrade of U.S. debt.  There are two things that did well today in the investment world.  Treasuries went up and gold went up.  This tells me that investors are flocking to safety.

I don’t think I’ve ever seen so many bullish signs for gold.  Perhaps this means that there will be a correction (being a contrarian), but any dips in the price should just be a buying opportunity.  As we saw today with South Korea, central banks are buying gold.  This is putting a floor on the price of gold.  We have seen pullbacks, but there has been nothing extreme since 2008.

With all of the trouble in the U.S. economy and around the world, I am a pessimist in the short term.  I see either a major recession/ depression or major price inflation.  Let’s just hope that we don’t get both at the same time.

The federal government and the Federal Reserve are in a jam.  I really don’t think they know what to do. They are Keynesians and they are either deliberately lying to the American people or they don’t understand that their own reckless spending and monetary inflation is the cause of all of this.

I am still recommending that you keep at least half or more of your investments in a setup like the permanent portfolio as outlined in Harry Browne’s book Fail Safe Investing.  For speculation, I like a combination of gold, gold stocks, and stock market short positions.  I still would not bet against bonds at this point.  We saw what happened today as interest rates went down again.

Tomorrow I will recommend a good gold speculation for your portfolio.

As I predicted, it looks like the politicians in DC have “compromised”.  Although it isn’t yet official as I write this, it looks as though the Republicans are set to once again throw their constituents under the bus.

The “plan” that will be passed will have less than $1 trillion in cuts with possibly another $1.2 to $1.5 trillion determined later.  The current budget deficit is around $1.5 trillion per year.  But there is a problem.  The 1 trillion dollars in cuts is over 10 years.  That works out to just $100 billion per year in cuts, which is less than 10% of just the yearly deficit.  Even if there is a total of $2.5 trillion in cuts, that still works out to an average of just $250 billion per year.

Then there is another problem.  Most of the projected cuts take place in the future.  I heard that there is really only about $30 billion worth of cuts for the next budget.  The Congress cannot control what is actually spent in 2 years or 10 years.

Then there is still yet another problem.  These supposed cuts are not actually cuts.  It is based on the projected baseline budgets for the next 10 years.  The budget is projected to increase substantially over the next 10 years.  So this “cut” of 1 trillion dollars is really not a cut at all.  It is simply a reduction in the increase that was projected to take place.

I heard Rush Limbaugh on the radio last week.  I am not usually a fan, but he made an interesting point.  He said that if a deal was reached to just hold spending the same over the next 10 years, then according to the Congressional Budget Office (CBO), this would be considered a cut of $9.5 trillion.  If this is true, this just points to the absurdity of this latest deal.  I am not sure of the accuracy of his figure, but the amount is certainly several trillion dollars.  Again, the Republican politicians in DC have once again proven to be absolutely horrible.

As for gold, the price fell a little on the news, but it is still holding well above the $1,600 mark.  Peter Schiff has written a piece about the prospects for gold given different scenarios.  You really only need to pay attention to his “bullish gold case #2”.  This is the scenario of having the debt ceiling raised with symbolic cuts in spending.  He is right that this is bullish for gold.

I am actually baffled that investors could see the latest deal making in DC as bad news for gold.  It should be quite the opposite.  With a massive increase in the debt ceiling, it means there are no immediate plans to cut any significant spending.  It means that the debt will continue to grow.  It means that the Fed will continue to buy government debt.  It means that the monetary base will continue to go up.  It means that the dollar will get weaker and gold will go higher.

I have mentioned this before, but I thought I would share some more thoughts on this subject.  Gold is at an all-time nominal high.  As of this writing, it is near $1,630 an ounce.

There are some who are saying that gold is a bubble that will pop.  They are trying to say that gold right now is like real estate was in 2005 or 2006, or like technology stocks were in 1999.

While gold has made a consistent run for the last 10 years, I do not think it is in a bubble.  I think this may be the case in the future, but we are not there yet.  I am not making any predictions on how high gold will go, but I think a more reasonable analogy is to say that gold right now is like real estate in 2002 or technology stocks in 1997.  Again, this is not a prediction that gold will peak in 2 years.  It is a prediction that gold will go higher.

During a mania or bubble, people are trying to buy.  Because there are so many interested buyers, it drives the price higher.  When people expect higher prices in the future, nearly everyone wants to buy in the hopes of selling later on for a profit.  In 2005, you didn’t see a lot of recommendations for selling houses.  Most of the stories in the press talked about buying houses as an investment.

I do not see the same situation for gold yet.  There is a lot more advertising than in the past.  In fact, if you listen to conservative talk radio or if you watch some of the cable news channels, you may hear advertising for gold.  These ads are telling you that you should have gold as part of your portfolio.  I have to admit that these ads have become far more common than they were just 5 years ago.

At the same time though, there seem to be just as many ads telling people to sell gold.  I have heard commercials on the radio saying that gold is at an all-time high and that now is a great time to sell.  There are also ads telling people to take their jewelry and scrap gold and mail it in.  In return, they will send you a check based on the weight of the gold.  This does not sound like a bubble.

There is still a very small minority of the population who own gold, outside of small amounts of jewelry. It is becoming a little more common for investors to put a small portion in their portfolios, but even here it is still a minority of investors.  Again, this does not sound like a mania to me.

Gold has gone up in the last 10 years for good reason.  There have been multiple wars.  The national debt is over $14 trillion now.  The Fed has more than tripled the adjusted monetary base in the last 3 years.  If the banks decide to lend out their new reserves and the Fed does nothing to stop them, we could see serious price inflation quickly.

The dollar has done very poorly compared to the other major currencies, even though gold has gone up against all of the currencies of the world.  Or perhaps more accurately, the currencies have gone down against gold, due to central banks inflating.

I think we may see a gold bubble before it’s all over, but we are not there yet.  There are good fundamental reasons for gold going higher and I don’t see the mania there right now.  The other point to remember about bubbles too is that they always seem to go on longer than they should.  We are going to see big ups and downs over the next several years, but I expect the overall trend for gold to be higher.

I recently spoke to someone regarding 401k plans.  This is her field of work.  She said that many companies have rules for withdrawing money.  If you are currently working for a company and you have a 401k through your employer, then your employer actually makes the rules regarding withdrawals.  In many cases (perhaps most), you are not allowed to simply withdraw money.

She said that the employers do this because they don’t want you dipping into retirement savings.  This rationale tells me one thing: the nanny state is everywhere, not just in government.  These companies that don’t allow regular withdrawals will only allow you to take “hardship withdrawals”.  You have to have a good reason according to the company’s policy.  For example, you may have to show that your house is being foreclosed on or that you have unusually high medical bills.

You actually have to submit an application and provide documentation for your hardship.  If you are allowed to withdraw money, then you will still owe a 10% penalty (tax) to the government, along with any income taxes.

This is supposed to be your money in your account.  Obviously that is not the case, especially when you are working for an employer that has these rules.

This makes me rethink my 401k strategy.  I have been an advocate of contributing, but only up to the employer match.  I don’t think it makes sense to contribute any more than this, especially when you are locking up your money.  Any additional money would be better put into a Roth IRA (where you can at least withdraw your principle), a brokerage account, gold, silver, real estate, or any number of things.

Now I wonder if people should contribute at all, depending on your employer’s rules.  I always thought that if the government were to try some kind of an additional tax or confiscation on retirement plans that there might be enough warning to withdraw some of your money.  Apparently, many people would not be able to withdraw any money if they wanted to, at least for those under the age of 59 and a half.

I think your decision should depend on your situation.  If you already have a lot of money in a 401k and you don’t have a lot of liquid assets, you might consider cutting back your contribution, even if it means missing out on an employer match.  If you have a lot in the way of liquid assets and little in retirement accounts, then perhaps contributing to your 401k plan and getting a match would be beneficial.

It is not only a good idea to diversify your investments, it is a good idea to diversify where and how you hold them.

As a libertarian, I am strongly in favor of not raising the debt ceiling at all.  It would force the federal government to cut spending by about 40%.  While this would be a tough short-term adjustment for many, it would be highly beneficial in the long run.  It would mean that government would spend 40% less in the next year and hopefully it would continue.  It would mean that there would be an extra $1.6 trillion for the private sector to have instead of the government.  It would mean a much better economy in the long run.

This is why I believe that the debt ceiling will be raised.  My bet is that it will happen before the August 2 deadline, but if not, it will still be done before there are any major cuts or any major defaults (like interest payments or Social Security checks).

I heard John Boehner on Sean Hannity’s radio show yesterday.  The guy is even worse than I thought (Boehner that is).  I don’t much care for Sean Hannity, but one could say that his core listeners are at least somewhat fiscally conservative.  For this reason, I figured Boehner would at least put on a show for his target audience.  But he couldn’t guarantee that there would be no tax hikes.

Then he started talking about some plan that would cut $1.1 trillion over the next ten years.  Hannity asked him how much of it would be in the next fiscal year.  Boehner said it would be $30 billion.  This is a joke.  That is less than 2% of just the yearly deficit.  To top it off, it looks like even this amount is a phony cut.  It would be a cut in the projected spending, which is of course higher than the previous year. In other words, Boehner wants to cut a deal that would make essentially no cuts in the next budget.  This is the only period that Boehner and this Congress can control right now.  They can’t make cuts on behalf of any Congress 10 years from now or even 2 years from now.

I was getting a haircut yesterday and it is always amusing to listen to conversations in a barbershop.  There was an older guy who said he figured he would get a haircut before Obama took away his Social Security checks.  Then he criticized Obama for not wanting a balanced budget amendment.  Then he said that there are 536 clowns in DC that can’t work together.  He said they should be able to get along and make a deal.

He used the number 536.  He is counting 435 House members, 100 Senators, and 1 President.  He should have said 535.  Ron Paul should not be included with this group.

This guy, unfortunately, is like the typical American.  He says in one breath that he wants a balanced budget.  Then he says they should work together for a deal.  For anyone who wants a balanced budget, they should not want a deal.  For anyone who wants a balanced budget, there is only one thing to advocate in this case: DO NOTHING!

This is why it is a joke that so many of these politicians are talking about a balanced budget amendment as part of a deal.  If you want a balanced budget right now, simply do nothing.  Just don’t raise the debt ceiling and the budget will have to be balanced.

As I pointed out the other day, even if the politicians didn’t want a balanced budget right now but really wanted spending cuts, then just raise the debt ceiling by a smaller amount.  If next year’s deficit is projected to be $1.5 trillion, you could raise the debt ceiling by $100 billion each month for the next year.  This would force a cut of $300 billion from the projection.  I am not in favor of this, but I am just pointing out how easy it is for the Republicans in the House to cut spending if they really want to.  If the Senate rejects it or Obama vetoes it, then the ceiling will not get raised.

The Republicans in DC are a bunch of frauds.  Ron Paul is an exception.  Even most of the Tea Party politicians will sell out.  If you are a libertarian, you should be an advocate of doing nothing.  This will cut spending drastically.  Any Republican (or anyone else) who supports raising the debt ceiling is not really worth your support.

This whole debate is a good thing.  The debt ceiling will get raised, but it is serving as a good educational vehicle for the American people.  More people are realizing that the politicians are not on their side.  More people are realizing that the politicians are serving themselves first.  More people are getting fed up with big government.  As time goes on, hopefully more people will withdraw their consent from government.  The empire will come crashing down.  Don’t be in the way when it does.

Something bad is going to happen in the economy.  The Fed has more than tripled the monetary base since the fall of 2008.  Meanwhile, the federal government is running deficits of $1.5 trillion per year with the national debt now exceeding $14 trillion.  The government is trying its Keynesian tricks of spending its way out of a crisis.

Not only did the government not allow the full correction to take place from the recession that started a few years ago, but it is continuing to make things worse.  With all of the money creation and huge government spending, it is only distorting the market and misallocating resources.  The more this happens, the worse the future recession/ depression will be.

Something will have to give eventually.  The Fed may go to QE3 (more digital money printing) in which case we are more likely to get rising prices.  The big excess reserves held by banks have helped keep price inflation low.  The low velocity (high demand for money) has also helped counteract the inflationary policies of the Fed.  But if the Fed creates enough new money out of thin air, it will eventually send prices soaring to the sky.

If the Fed slows down or stops its money creation, we are more likely to get another recession (if the previous one ever actually ended).  If the government does not try hard to stop it, this will be a deep recession.  It will be worse than 1981/ 1982 because there has been far more damage done this time around.  This scenario is actually our best case scenario in realistic terms.

The other possibility is a repeat of stagflation of the 1970’s, although I would expect this time around would be even worse.  The previous malinvestment is huge and it all needs to be flushed out.  We could see this scenario where the Fed creates new money, although at a much slower pace than we have seen in the last few years.  It would be enough to raise prices significantly but it would not be enough to send the economy into a boom phase.  We would see price inflation over 10%, while economic growth would be very low or even negative.

If the inflation scenario plays out, then there will eventually be a crash anyway, so that is the worst case scenario.  The absolute worst case would be if the Fed did not stop and we went into hyperinflation.  That could be a very dangerous scenario given our high division of labor society that uses U.S. dollars as money.

There is one final scenario that is possible, but highly unlikely.  We could see some huge technological breakthrough that makes our lives significantly better and easier.  It would have to be really big to overcome the massive malinvestment that has previously occurred.  In this case, it is technically possible to have a correction but still have positive growth due to the explosiveness of the free market.  But again, I give this a very low probability because it would have to be a huge breakthrough to overcome the massive government spending and distortion that has already taken place.

In conclusion, this economy will suffer some hard times ahead.  I am optimistic that we will eventually turn towards liberty and less government.  When this happens, we will see what happens when 21st century technology meets a truly free market.  Things will change very quickly at that point and it will be mostly for the better.

The issue of the debt ceiling is still the top national news.  August 2 is supposedly the date that the ceiling has to be raised or else all chaos breaks loose.  In actuality, the chaos would be happening mostly in DC where the politicians would actually have to drastically cut federal spending.  This is why we are not likely to see this happen.

There are rumors of all kinds of different plans being worked up.  It is hard to know what is true and what isn’t.  As we get closer to August 2 with no deal, there is reason for slight optimism (from a libertarian point of view).  However, I am not naive.  Most of these politicians want the debt ceiling raised.  Right now, they are posturing for their constituents.  Republicans know that they will be in trouble with the voters if they allow tax increases.  Democrats know that they will be in trouble if they don’t demagogue the issue and play class warfare.

For all we know, there may already be a back room deal that is worked up.  Again, it is hard to tell who is telling the truth.

If the Republicans in DC actually wanted to cut spending, there would be no debate at this point.  They don’t have to do anything.  They can just do nothing and the debt ceiling won’t be raised.  Then the spending cuts would have to come unless Obama tried to declare himself dictator.  Instead, the Republicans are pushing for the phony balanced budget amendment.  Amendments to the Constitution are very difficult to get passed and it would take years.  If the Republicans really want a balanced budget, they just have to not raise the debt ceiling (do nothing) and the budget would be balanced.

Even if Republicans argued that they want a balanced budget in the future, but it would be too difficult to do it all at once now, they could still cut spending by just raising the debt ceiling a very small amount each month.  They could agree to raise the ceiling by $50 billion each month for the next year.  This would be $600 billion for the year.  This would force a cut of almost $1 trillion.  Why don’t they do that?

I am not in favor of the debt ceiling being raised at all, but I used the above example just to show how easy it would be for the Republican majority in the House to cut spending.  They can pick any amount they want and raise the ceiling by the difference with the projected deficit.

The problem here, for anyone facing reality, is that the Republicans just aren’t that interested in substantial cuts.  They will say they are to appease their constituents, but words don’t mean much, especially when coming from politicians.

Approximately two-thirds of the federal budget is made up of military, Social Security, Medicare, and Medicaid.  These are the sacred cows.  Politicians don’t want to touch them.  If none of these are touched, it is impossible to balance the budget, even if all other spending were completely eliminated.  This just shows how far off things are.

The Tea Party agrees on their dislike of Obama and Obamacare.  They generally agree that taxes should not go any higher.  Beyond that, there is not much agreement.  As a group, they are not demanding specific cuts in spending.

Only two things will cause a dramatic cut in federal spending.  It will either be the laws of economics or angry voters.  There are some angry voters, but most of them are not calling for significant cuts.  About half of the American people say they don’t want the debt ceiling raised.  But a majority of this group do not understand the consequences.  This would mean drastic cuts in just about everything.  This is what I favor, but there is only a small minority who really want to see an end to all of the unconstitutional federal programs.  Until these demands come, or until the government officially goes broke or destroys the currency, then the debt ceiling will get raised.