Hat Tip: http://curmudgeonlyskeptical.blogspot.com/
Posted on 01/11/2011 9:41:29 PM PST by Angelus
It is one thing for Sarah Palin, media pundits, or economic analysts to speak on the potential insolvency of the US government, but when the US Treasury Secretary says this in a formal letter to Congress, Americans had better take note.
Secretary Timothy Geithner on January 6th sent a formal letter to Congress specifying that if they do not agree to raise the debt ceiling when it is reached sometime in March, the US will (and the word used is WILL) default on its debt.
Lew Rockwell.com posted an article yesterday on this action taken by the Treasury Secretary, and pointed out that in fact, the government at this point in time is bankrupt, and simply trying to postpone the inevitable.
A few months back, Laurence Kotlikoff wrote that "The U.S. is bankrupt." Using the government’s numbers properly labeled, he found that the U.S. fiscal gap, which is the difference between the present value of projected spending and revenues, is $202 trillion. An IMF study of the U.S. finances found that it would have to double taxes to close its fiscal gap. This is an impossibility. It would destroy the struggling economy. Geithner’s statement confirms those of other analysts outside of the U.S. government.
(Excerpt) Read more at examiner.com ...
Depends on your creditors.
Creditors can call you when you have a ‘shift’ in your behavior, even if the shift would pull you out of debt. Why? Because paying off your bills cuts into their revenue stream.
Bernanke’s not a friend of America. The worst thing for him is if America puts on the breaks on spending.
He needs to borrow money today to pay interest for the money he borrowed yesterday.
One would think we’d be further from default by not taking on as much debt and cutting spending.
Looks like everyone in the government is just trying to postpone the inevitable, rather than to avoid it. The reason is that those social programs are all that prevents, so far, the massive urban revolts. A huge percentage of the US population has no other income and is not capable of getting any. What do you think those people will do when the checks stop and they have nothing to eat and nowhere to live? So the government resigned to paying them the "blackmail money" in exchange for them doing nothing, drinking beer whole day, and doing small crimes just for fun.
The real root of such indecisiveness of the government is that in this democracy there is not a single official in charge who is not a temporary worker. We praise that as one of advantages - and it may well be - but it is also an Achilles' heel because every office holder is most interested in not solving problems now, with pain and blood maybe, but just pushing it forward, onto the next generation of politicians. So far it worked.
Can this be fixed? Yes, but only with one of the following two methods. One method is that we get a bloody dictator who will exterminate tens of millions of citizens. I don't think this is likely; though - thinking in abstract terms - such a "surgeon" could be better and more fair than the second option. Which is a complete destruction of the society, total anarchy, in process of which tens of millions of citizens will be indiscriminately killed by forces of nature and by other citizens. However the dice falls, there will be rivers of blood. This is simply because no country on Earth can afford to infinitely feed tens of millions of people who do nothing (at best.)
“What would actually happen if we defaulted?”
You had better learn to speak chinese!!!
Throughout history, governments default and then reschedule debt. Means other governments/countries avoid doing business with the defaulter until it is shown they have debt under control (makes the locals have to pay very high prices and taxes). That’s the best case scenario. The worst case scenario is war breaks out against the defaulter and the victor(s) carve the country up into little pieces then distribute them amongst themselves to satisfy the debt outstanding.
Oh, thanks....I kinda thought it would be something like that....sweet nightmares.
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The USA is not your average Argentina or Russia. The latter could default on their debts and all that happens is that they don't get new ones. Nobody wanted their currency to begin with, so the fallout is limited to their national borders. Your scenario works fine with them.
However the US dollar is the world's currency. The default will drop its value like a stone. Why countries and people buy US debt? Because it pays interest and preserves wealth (well, that's how it is supposed to be anyhow.) If the country defaults there is no interest any more; and what do you do with your worthless paper now? You try to sell it. But nobody is buying. It's like buying and selling sand in the middle of Sahara desert. Now someone (namely, me) shows up on the market and wants to pay this "sand" for some real goods - food, oil, or whatever. Will you sell me your stuff for these worthless exchange tokens?
The world will of course immediately stop trading in USD, and will switch to alternatives overnight. What that means to the USA is that we can't buy anything for our USD - oil, fruits, services, and of course our Chinese toys. China will still sell them, but for RMB - and the exchange rate will be set by Bejing; likely to be on par with Weimar or Zimbabwe currencies.
That makes sense because what you want in a fair trade is a fair exchange of value. Someone in China worked for a month and dug up this much ore. You (simplifying here) need to work also for about a month to make a fair offer. Since the USD will be representing pure paper and no labor, the owner of real goods will want something of a known exchange (or direct) value in return.
This all means that the USA will stop in its tracks where foreign trade is concerned. And primarily this is about fuels because America can't exist without them. The reserves will not last, and they will probably not be offered to the public. Once the transportation industry stops, hunger sets in. Once hunger is in, the government loses control. What happens after that we saw in the movies.
No problem Timmy. Just repeal Obamacare and you will get your precious little debt limit increase.
Your move.
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Not good. So what should the US do I really do not have much faith in our congress or our Treasury Secretary
If the US only had enough collective brains, I'd recommend to go with the strongman scenario. At least people will make a personal choice to live or to die.
But this won't happen. The country, like a sick man who is afraid of doctors, is lying on its cot, suffering increasing pains and steadfastly refusing to go to the hospital. Eventually the man won't be able to go even if he wants to. He dies.
The US is a pampered society. It wil not accept life-saving measures because they will cause "inconvenience" today. Any politician sane enough to suggest that would be laughed out of even primaries by any number of sweet-lying candidates. So the can-kicking contest will continue until the road ends with a chasm.
Here is the US is bankrupt article mentioned
Thank you for your explanation of “buying debt.” So clear, even I get it! That’s a gift!
Hat Tip: http://curmudgeonlyskeptical.blogspot.com/
Wait! we have two months to slash spending below GDP. Then their would be no default.
I’m going to copy that letter and give to my brother-in-law. He can reword it and send it to VISA to up his credit limit. That way everything will be okay. Right?
I’d say that deregulation automatically reduces spending as there would be less regulations for government personnel to oversee.
Thus eliminating the need to either:
1. (under a conservative) Have the oversight organization in the first place
2. (under a libtard) raise the rate of spending for the organization
Well, for one thing... China would be massively screwed, since they own the largest share of our debt.
That said, it would also destroy any remaining value to our dollar and make all imports (like oil, for one) not just expensive, but prohibitively expensive. It’d also end the dollar being thought of as the world’s ‘reserve’ currency, as no country would buy it.
The ever expanding economic pie where masses reproduce and grown the industrial er green service sector.
Strangly the only ever expending economic activity matching population expention was/is everlasting credit explosion.
Reserve currency? It is a fiction that the US Dollar is worth a dollar. There will not be a replacement for it, the sun will rise and the government will have to pay it’s debts. Your only kicking the can down the road by raising the debt.
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