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Our Debt and Unfunded Obligations: Bankruptcy Is Our Only Hope
National Review ^ | 10/16/2015 | Kevin D. Williamson

Posted on 10/16/2015 6:43:29 AM PDT by SeekAndFind

It’s an ill financial wind that blows no one some good. A very nice and very rich old lady once explained to me that, in her view, the golden age of the American economy happened in the first years of the Reagan administration. This puzzled me: The United States had dipped into recession in 1980, and Paul Volcker was standing on the economic brakes to wring the Carter-era inflation out of the economy, jacking the federal-funds target rate up to damned near 20 percent. People were paying 18.5 percent on their mortgages. But, of course, usurious interest rates are pretty awesome if you’re an old lady with a bank vault full of T-bills. You get 12 or 14 percent returns with effectively no risk.

Right now, we’re in the opposite situation, one where savers are suckers. If you bought ten-year Treasuries in October, you got a rate of 1.99 percent — which is about 400 basis points less than inflation is expected to average over the next ten years. You aren’t giving Uncle Stupid an interest-free loan — you’re paying for the privilege of lending Washington your money. Of course, that’s big money compared with the 0.03 percent APY you’re getting on your savings account, or, if you’re a big-money private-banking client, the 0.08 percent. Put $1,000 into a savings account today and you’ll have $1,349.80 — in a thousand years.

With real interest rates hovering around the point known among theoretical mathematicians as jack squat, it’s a great time to be a debtor. And Uncle Stupid is the biggest debtor of all, with $18 trillion or so in official debt, and a hell of a lot more if you play by something resembling normal accounting rules. Janet Yellen keeps making squeaky little noises about the Fed moving to raise rates in the direction of non-zero, but with economic growth stagnant and no general inflation to be seen at Walmart, there’s not much incentive to raise rates. And if and when the Fed should decide it really needs to raise rates, there’s that $18 trillion-and-growing pile of debt waiting to prison-rape American public finances.

Don’t say nobody saw this coming. Everybody sees this coming.

#share#Reversion to the mean is a bitch. If we assume that nothing has magically transformed the nature of debt and finance in the past decade or so and that interest rates will, eventually, move back toward normalcy, we might want to run some numbers. For the sake of simplicity and terror-avoidance, let’s say that the debt doesn’t grow, that it just sits there at $18 trillion. If interest rates on the federal debt should return to their level in 1995 — not some weird exotic point in the past but back in the Clinton years — then we’re going to be paying $1.4 trillion a year just in interest on the existing debt; which is to say, interest payments alone will account for 45 percent of all federal taxes that will be collected in 2015.

Does it get worse? Of course it gets worse. If interest rates should return to their 1982 levels — there’s no reason to think they’re on the verge of doing so, but there’s also no reason to think that it is impossible — then we’ll be paying $2.6 trillion a year in interest payments alone. That’s 84 percent of the taxes the federal government will collect this year.

At Clinton-era rates, we’d be spending on interest alone about 2.5 times what we spend on the military right now. At early Reagan-era rates, we’d be spending on interest alone about what we spend now on national defense, Social Security, Medicare, and Medicaid put together — the whole welfare-warfare enchilada, basically.

And, strictly speaking, there is no economic reason to believe that historical extremes are the limit on where interest rates can go. Interest rates on government debt are driven by two things: how credible investors think your fiscal story is and what other options they have. As the world grows richer, there will be a lot of low-risk government instruments available to soak up all that money sitting in U.S. government bonds.

My hope is that when this crisis comes — and it almost certainly is coming — it will prove an instrument of free-market reform. (You can read a lot more about that here.) Washington may and should and really must do some proactive reform, particularly to entitlements, in the here-and-now, but it’s a safe bet that the big hairy stuff like privatizing retirement and health care entirely isn’t going to happen until Washington is left with no other options. The sort of reforms that are likely to happen in the next ten years or so will not prevent a crisis, but, if done right, they will give us some say over what sort of crisis we have: a slow, low, manageable one or a short, sharp, ruinous one.

Some of my conservative friends believe that we’re going to be rescued by the Growth Fairy. I believe in the Bankruptcy Fairy.

— Kevin D. Williamson is National Review’s roving correspondent.


TOPICS: Business/Economy; Culture/Society; Government; News/Current Events
KEYWORDS: bankruptcy; debt; uscrisis; usdebt
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To: SeekAndFind

BS...there are other ways...the following was sent to me today by my brother...but the message is clear on what we need to do:

These three, short sentences tell you a lot about the direction of our current government and cultural environment:

1.) We are advised NOT to judge ALL Muslims by the actions of a few lunatics, but we are encouraged to judge ALL gun owners by the actions of a few lunatics.
Funny how that works. And here’s another one worth considering.

2.) Seems we constantly hear about how Social Security is going to run out of money.
How come we never hear about welfare or food stamps running out of money? What’s interesting is the first group “worked for” their money, but the second didn’t.
Think about it..... Last but not least:

3.) Why are we cutting benefits for our veterans, no pay raises for our military and cutting our army to a level lower than before WWII, but we are not stopping payments to illegal aliens such as monthly payments for each child, money for housing, food stamps, free education including college and also the right to vote?
Are we missing something?

If not, pass this along.


21 posted on 10/16/2015 3:17:27 PM PDT by ldish (Have had enough...you??????)
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To: PeterPrinciple
Remember the GM “bankruptcy”, Obama rearranged the line.

You are still mixing apples and oranges here.

A sovereign state default and a BK are quite different in how they are adjudicated.

I suppose the biggest issue with a US default is that it's the US..If we go, we take most of western Europe and Japan with us, in addition to 90% of our banks and major financial houses. They all own our debt. This will spread like a wild fire only faster.

Overnight, the dollar would become worthless internationally as well as anything based on it or related to it, like credit cards, ATM's, and letters and lines of credit.

No company could make payroll, no bank will have any cash and credit will be useless.

It's nothing like a bankruptcy where the debtor is protected so that assets can be accounted for, and sold.

At some point, when the fires go out in every city and the bodies are long gone, someone will step in and claim the territory as a matter of possession, but it won't be organized and it won't be adjudicated.

The GM BK was a prepack, In any prepack, it's all worked out in advance and there are no particular rules or pecking order except what is agreed to prior to the BK. Since it was the government who stepped in with the interim financing and cash, they got to call the shots. Not the bondholders who apparently sat on their hands and did not see what happened coming.

They could have gotten together and saved GM but they did not move quick enough or dilly dallied, giving the government time to effect what was essentially a asset seizure. (done to protect down line support businesses and competitors, and the union) very different then what is going to happen when the US meets the end of it's road to ruin.

22 posted on 10/16/2015 5:39:39 PM PDT by Cold Heat
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To: ldish
1.) We are advised NOT to judge ALL Muslims by the actions of a few lunatics, but we are encouraged to judge ALL gun owners by the actions of a few lunatics.

Great tagline material. :)

23 posted on 10/16/2015 5:54:52 PM PDT by Mr. Jeeves ("Don't judge all Muslims by a few lunatics - judge all gun owners by a few lunatics." - The DNC)
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To: SeekAndFind

Bankruptcy is what I figure is going to be the way out. Maybe some kind of settlement but tha tis bankruptcy after a manner.

Don’t see any other way.


24 posted on 10/16/2015 10:12:52 PM PDT by Sequoyah101 (It feels like we have exchanged our dreams for survival. We just have a few days that don't suck.)
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To: Sequoyah101

Which would mean the social security and medicare beneficiaries don’t get paid?


25 posted on 10/16/2015 10:13:40 PM PDT by JediJones (The #1 Must-see Filibuster of the Year: TEXAS TED AND THE CONSERVATIVE CRUZ-ADE)
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To: JediJones

Either not paid or not paid as much.

We all become creditors to our own money. It has been squandered by politicians for their own benefit right under our noses and without penalty or recourse. The money is gone. They don’t have it.

I tell people all the time that if they intend to have a contract with teeth in it they had better be sure the contractor has enough money or ability to take a bite out of to satisfy the penalty. If that is impossible you need to find another contractor or recognize that the liability for failure is your own and manage accordingly.


26 posted on 10/17/2015 1:17:59 PM PDT by Sequoyah101 (It feels like we have exchanged our dreams for survival. We just have a few days that don't suck.)
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To: Cold Heat

Remember the GM “bankruptcy”, Obama rearranged the line.
You are still mixing apples and oranges here.


No, there is always a line for who gets the marbles. If the rules for the order of the line are not followed, then there will be another line that is formed but the marbles will be grabbed.

The point being that gm is an example where the rules were NOT followed and another line formed which should not have happened. Yet another example of no longer being a republic, a nation of laws.

Remember, bankruptcy laws are nothing more than an establishment of the order of the line for the marbles.
Again, I encourage you to research the USSR as a very recent example of what happens.

In some ways, I can only hope that our’s will happen the same as the USSR but ours will be the same and different. The “Invisible Hand” always speaks.

The first bankruptcies like USSR get away with a lot as protocol is established. The ones later get taken to the cleaners as creditors figure out what they missed. Saw that in the farm crises.

I Never said the it said it would be organized and abdicated and the debtor protected. I said the line will be formed and the marbles grabbed.

Remember we woke up in the morning, read in the newspaper that USSR was bankrupt, it happened that fast.................. (yes I know, it did but it didn’t)


27 posted on 10/17/2015 4:49:01 PM PDT by PeterPrinciple (Thinking Caps are no longer being issued but there must be a warehouse full of them somewhere.)
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To: Cold Heat

You are still mixing apples and oranges here.


No, there is always a line for who gets the marbles. If the rules for the order of the line are not followed, then there will be another line that is formed but the marbles will be grabbed.

The point being that gm is an example where the rules were NOT followed and another line formed which should not have happened. Yet another example of no longer being a republic, a nation of laws.

Remember, bankruptcy laws are nothing more than an establishment of the order of the line for the marbles.
Again, I encourage you to research the USSR as a very recent example of what happens.

In some ways, I can only hope that our’s will happen the same as the USSR but ours will be the same and different. The “Invisible Hand” always speaks.

The first bankruptcies like USSR get away with a lot as protocol is established. The ones later get taken to the cleaners as creditors figure out what they missed. Saw that in the farm crises.

I Never said the it said it would be organized and abdicated and the debtor protected. I said the line will be formed and the marbles grabbed.

Remember we woke up in the morning, read in the newspaper that USSR was bankrupt, it happened that fast.................. (yes I know, it did but it didn’t)


28 posted on 10/17/2015 4:50:35 PM PDT by PeterPrinciple (Thinking Caps are no longer being issued but there must be a warehouse full of them somewhere.)
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