The bankruptcy of the United States is now certain

The Daily Crux ^ | 11/24/09 | Porter Stansberry

[FromLori]

It's one of those numbers that's so unbelievable you have to actually think about it for a while... Within the next 12 months, the U.S. Treasury will have to refinance $2 trillion in short-term debt. And that's not counting any additional deficit spending, which is estimated to be around $1.5 trillion. Put the two numbers together. Then ask yourself, how in the world can the Treasury borrow $3.5 trillion in only one year? That's an amount equal to nearly 30% of our entire GDP. And we're the world's biggest economy. Where will the money come from?

How did we end up with so much short-term debt? Like most entities that have far too much debt - whether subprime borrowers, GM, Fannie, or GE - the U.S. Treasury has tried to minimize its interest burden by borrowing for short durations and then "rolling over" the loans when they come due. As they say on Wall Street, "a rolling debt collects no moss." What they mean is, as long as you can extend the debt, you have no problem. Unfortunately, that leads folks to take on ever greater amounts of debt… at ever shorter durations… at ever lower interest rates. Sooner or later, the creditors wake up and ask themselves: What are the chances I will ever actually be repaid? And that's when the trouble starts. Interest rates go up dramatically. Funding costs soar. The party is over. Bankruptcy is next.

When governments go bankrupt it's called "a default." Currency speculators figured out how to accurately predict when a country would default. Two well-known economists - Alan Greenspan and Pablo Guidotti - published the secret formula in a 1999 academic paper. That's why the formula is called the Greenspan-Guidotti rule. The rule states: To avoid a default, countries should maintain hard currency reserves equal to at least 100% of their short-term foreign debt maturities. The world's largest money management firm, PIMCO, explains the rule this way: "The minimum benchmark of reserves equal to at least 100% of short-term external debt is known as the Greenspan-Guidotti rule. Greenspan-Guidotti is perhaps the single concept of reserve adequacy that has the most adherents and empirical support."

The principle behind the rule is simple. If you can't pay off all of your foreign debts in the next 12 months, you're a terrible credit risk. Speculators are going to target your bonds and your currency, making it impossible to refinance your debts. A default is assured.

So how does America rank on the Greenspan-Guidotti scale? It's a guaranteed default. The U.S. holds gold, oil, and foreign currency in reserve. The U.S. has 8,133.5 metric tonnes of gold (it is the world's largest holder). That's 16,267,000 pounds. At current dollar values, it's worth around $300 billion. The U.S. strategic petroleum reserve shows a current total position of 725 million barrels. At current dollar prices, that's roughly $58 billion worth of oil. And according to the IMF, the U.S. has $136 billion in foreign currency reserves. So altogether... that's around $500 billion of reserves. Our short-term foreign debts are far bigger.

According to the U.S. Treasury, $2 trillion worth of debt will mature in the next 12 months. So looking only at short-term debt, we know the Treasury will have to finance at least $2 trillion worth of maturing debt in the next 12 months. That might not cause a crisis if we were still funding our national debt internally. But since 1985, we've been a net debtor to the world. Today, foreigners own 44% of all our debts, which means we owe foreign creditors at least $880 billion in the next 12 months - an amount far larger than our reserves.

Keep in mind, this only covers our existing debts. The Office of Management and Budget is predicting a $1.5 trillion budget deficit over the next year. That puts our total funding requirements on the order of $3.5 trillion over the next 12 months.

So… where will the money come from? Total domestic savings in the U.S. are only around $600 billion annually. Even if we all put every penny of our savings into U.S. Treasury debt, we're still going to come up nearly $3 trillion short. That's an annual funding requirement equal to roughly 40% of GDP. Where is the money going to come from? From our foreign creditors? Not according to Greenspan-Guidotti. And not according to the Indian or the Russian central bank, which have stopped buying Treasury bills and begun to buy enormous amounts of gold. The Indians bought 200 metric tonnes this month. Sources in Russia say the central bank there will double its gold reserves.

So where will the money come from? The printing press. The Federal Reserve has already monetized nearly $2 trillion worth of Treasury debt and mortgage debt. This weakens the value of the dollar and devalues our existing Treasury bonds. Sooner or later, our creditors will face a stark choice: Hold our bonds and continue to see the value diminish slowly, or try to escape to gold and see the value of their U.S. bonds plummet.

One thing they're not going to do is buy more of our debt. Which central banks will abandon the dollar next? Brazil, Korea, and Chile. These are the three largest central banks that own the least amount of gold. None own even 1% of their total reserves in gold.

I examined these issues in much greater detail in the most recent issue of my newsletter, Porter Stansberry's Investment Advisory, which we published last Friday. Coincidentally, the New York Times repeated our warnings - nearly word for word - in its paper today. (They didn't mention Greenspan-Guidotti, however... It's a real secret of international speculators.)

[exit82]

I’m thinking that the government will announce either a new currency or a currency revaluation: i.e. 10 old dollars equal 1 new dollar.

Everything will reset in new dollars, and 90% of the debt will disappear with the printing of newly denominated dollars.

Something has to give. We’ve only gotten this far along the timeline thanks to the Chinese.

They pull the plug, then it is game over.

[FromLori]

Remember all the talk about a new global currency, SDRS it would not surprise me a bit.

Dollar down Large, time to call the White House Comment Line

http://www.youtube.com/watch?v=9PhcyoD8Jj8&feature=player_embedded

[FromLori]

You might want to watch these

http://www.youtube.com/watch?v=9PhcyoD8Jj8&feature=player_embedded

http://www.youtube.com/watch?v=CTh-yYgL00I&feature=player_embedded#

http://www.youtube.com/watch?v=D5dOtdwT7gE&feature=player_embedded

[The Duke]

Everything will reset in new dollars, and 90% of the debt will disappear with the printing of newly denominated dollars.

Well, for everybody but the "wealthy". We'll call it the "millionaires' reset" and have it apply to anyone making over $250,000 (with no regard to anyone's *current* holdings!).

[ViLaLuz]

“After our gold, oil and foreign currency reserves, the only thing left is your property.”

That is already being taken away via “eminent domain.”

[jonno]

Any thots on CEF?

[Scotswife]

Ha!

Thanks for the post.
Yes - that is what I was going to do - what else am I going to do right?

[geologist]

that is true.
Remember God did part the Red Sea and deliver the Jewish people out of Egypt. They did not follow His commands, He punished them several times along the way ... then the 40 years of wandering.

God does miracles. Refusal to obey and live God's way has consequences.

God did a miracle a Jericho ... with Gideon,, protected and favored David, David repented ... still he was punished. God says ... ‘IF MY PEOPLE WHO ARE CALLED BY MY NAME WILL HUMBLE THEMSELVES AND BOW DOWN AND CONFESS THEIR SINS, AND REPENT OF THEIR WAY(SINS). I WILL FORGIVE THEIR SINS AND HEAL THEIR LAND’ PARAPHRASED.

SORRY I AM LATE TO LEAVE. ... later

[EyeGuy]

“BUT THE NUMBER ONE THING WE NEED TO DO IS STOP SPENDING MONEY THAT WE DO NOT HAVE!”

###

Bump.

Bump.

And Bumparoni.

Although the current, talentless lackey who has SOMEHOW made his way to the White House is BY FAR the worst exemplar of this odious behavior, this is a problem that spans decades, and sorry to say, includes “Republican” Administrations and Congresses.

Reading Sarah Palin’s current book it is becoming clearer that she is a small government, fiscally responsible conservative, par excellance.

[Cvengr]

ok - so what does that look like exactly? A bankrupt USA?

That really depends upon to whom holds the liens and what collateral was given.

We are from a Judeo-Christian culture, in which forgiveness of debt is acceptable. If our debts are with those who also accept the forgiveness of a debt from their hearts as a righteous and just resolution of past decisions, then we probably have the ability to pick ourselves up from the bootstraps by managing the resources we still possess.

Then again, if stupid people decided to leverage the value of America with pagans, Muslims, and communists, the policy of forgiveness might be not only foreign to their way of thinking, but considered an unrighteous, criminal fraud being substituted for the just resolution of a past debt. Some religious and ethical systems would demand not only repayment, but penal suffering on the part of this nation, if we were unable to repay our debt. Many such systems would use such a dilemma as justification to invade and subject a foreign debting nation into slavery for up to seven generations or minimally forty years, even to the point of their own demise to remain righteous in their own eyes.

It's not smart to confuse Muslim thinking with an alternate form of Christianity, as one might compare Catholicism to Protestantism. The differences are very real and form the basis for many a past battle.

[karnage]

Sackcloth and ashes for the good ol’ USA.

[geologist]

“Sackcloth and ashes for the good ol’ USA.”
__________________________________________________________

Indeed! Where is our shame for the sorry state of affairs in America?

Father help us in our day, in Jesus name, amen.

[altair]

You know who understands this - Sarah Palin.

What's that supposed to mean? I think if she runs in 2012, I'll vote for her and I think she can win. That's like, a little more than 12 months away though. A bit late.