America's Fiscal Dead End: A 2013 "Minsky Moment"

Tyler Durden's picture

Often times we are amazed that Deutsche Bank's Peter Hooper works in the same place as that other "economist." The reason is that yesterday, Hooper, who tends to have some of the most original sellside thoughts, came out with one of the best summaries of America's fiscal dead end:an 8 page summary far more accurate and detailed than anything to ever come out of the rating agencies, yet one which reaches the correct conclusion. What is startling is that a Wall Street institution (well technically desk.... there is of course that other "economist") is willing to come to grips with the truth. Which according to Hooper is rather ugly: America may have 2 years at the most before it all comes crashing down when the world's former superpower hits its own Minsky Moment.

Hooper's summation:

A 2013 solution? A bigger risk is that after having raised expectations that more fundamental progress can be made in dealing with the unsustainable US fiscal position, the political process breaks down and no meaningful progress is made even with the debt ceiling and default avoided. Certainly it will be difficult for any elected politician to be too specific about major cuts in entitlement benefits or increases in taxes ahead of the next election. The Obama Administration is likely to resist measures that could add significantly more fiscal drag than is already in the pipeline for 2012. Scuttling the still fragile recovery could be political suicide. In any event, it would make sense to have fundamental decisions about the size and redistributive nature of the US government made after a full airing of this debate in the next Presidential election. If the ratings agencies and the market give the US government the benefit of the doubt for a time, given that the debate has begun and recognizing that any longer-term  resolution will be difficult in an election season, a better opportunity for resolution may come in 2013. Conventional wisdom  holds that if the economic recovery progresses as expected, President Obama will be re-elected. At the same time, assuming the Ryan plan does not backfire, the political winds may favor a Republican takeover of the Senate, given that nearly twice as many Democrats in the Senate are up for reelection as Republicans, and only a three-vote swing is needed. A Democratic President dealing with a Republican Congress and a popular mandate to resolve the fiscal problem would be a repeat of the  conditions that led to the last major fiscal reform move with President Clinton in the early-mid 1990s. And Obama would have the added advantage of being a second term president. This mix would necessitate a political compromise in a case where compromise will clearly be needed to achieve a lasting resolution. However, there are no guarantees that such a scenario would materialize, and even if it did, deep-seated political differences on taxes and spending could still prevent a resolution of the problem in 2013. In this case, markets could very well balk, leading to a US Minsky moment, with potentially far greater  consequences than the one Europe has experienced.

Full report:

US Minsky Moment

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Popo's picture

It's more like a Wile E. Coyote moment.     We left the edge of the cliff a while back... now we're blinking and looking down...

capitallosses's picture

No worry, the cartoonists in DC will just redraw the edge of cliff endlessly.

zeek's picture

no worries... they've got a nice soft landing planned for us in the new "globalized financial structure"...

Pedro's picture

I hope not.  I am enjoying the current "Ministry of Fiscal Magic".

tomster0126's picture

right?  after a nice, smooth, "transitory" period where we might expect a "little" turbulence.  lol.  we're fucked!

TwoShortPlanks's picture

There is always and end, even when sound economics is replaced by pure money printing to extend financial life. It all comes down to Brand awareness. America has gone from Tiffany's of old, to Tiffany's today, where any Skank can own a charm's just cheap shit...and so is the US Dollar.

Pretty soon, the US Dollar will only be economically competitive against Heating Oil; cost to calorie when burned...even toilet paper with be worth more.

No need to make is softer Ben!!!!!

tawdzilla's picture

Wall St. has become completely unhinged from the laws of economic gravity.  It may take a dollar crash to flush these turds out of the system.

Popo's picture

$7 gasoline at the pump will take care of all the bullshit very, very quickly.

It will also cause absolute chaos.

aquagreen73s's picture

That will only accelerate the printing rate thus fulfilling the negative feedback loop that will bring us (quickly) to the crack-up boom. However at the rate things are going, I'm not sure we'll make it to 2013.

earlthepearl's picture

Dont worry, clean energy is the answer dawg

Hephasteus's picture

Charity and theft. It's the tried and true way of getting free energy. Practiced by the all the churches for ages.

Pondmaster's picture

But , at 7$ there will be no lines at the pump , like the 70's . J6P will be broke . Imagine borrowing money to drive to work , and making less at work than gas costs . Theres an enigma for you . Not every worker in the US lives 2 blocks from the workplace. What is the average commute ? No data for miles , but time , i.e. 

Among the 15 counties in the Cincinnati MSA, commuting time ranges from a low of 21.9 minutes in Campbell County to a high of 34.1 minutes in Brown County . We have guys at the "shop" who drive the gas guzzling 4WD super trucks that are paying 24$ a day to and from work  . Hitting 10% of disposable income for gasoline in America is a NOW event . Better reload the ink cartridge in Ben scammers printer. 

tomster0126's picture

the laws of economy are certainly not like the laws of physics--they're being reshaped and fucked up, right before our eyes.  this is a nightmare.

I am more equal than others's picture

The ultimate house of cards, only congress has substituted cards with the Benjamins

slewie the pi-rat's picture

minsky likes to liquidate, no? 

sell out now & avoid the rush!

DavidC's picture

"Scuttling the still fragile recovery could be political suicide."

What recovery?


cossack55's picture

That would be the one they endlessly praise to nauseum on CNBS.

Re-Discovery's picture

I wish more of those knuckleheads had the decency and stones to commit ACTUAL suicide.

IQ 145's picture

 The recovery that you'll be looking back on fondly as a t ime of peace and prosperity; after they scuttle it.

lolmao500's picture

Bernanke, Geithner, Bush, Paulson and Obama heads on spikes on the White House front lawn would be quite nice....

cossack55's picture

Snow, Immelt, Krugman, Schumer, McCain, Frank, Dodd, Boehner


Go long pikes.

Re-Discovery's picture

(snicker snicker)  He said Boehner

(Forgive me. I just had my first shot of SILVER Patron.)

Absinthe Minded's picture

Working on a little Madeira wine here myself. It's amazing how little people understand what's going on. They all think market's up, everything's good. We really got our tits in a wringer now, don't we. It seems like everything is totally fucked, oil is going to be the real asskicker. It ain't going anywhere but up. I'm converting to pellets and wood myself, fuck OPEC. Of course I still need to drive, for now. Just until TSHTF. Amazing how your mind rambles when you're drinking. Carry on ZH'ers AU and AG until the cows come fuckin' home!!!

aint no fortunate son's picture

Summers, Dudley, Dimon, Blankfein, Thain, Moynihan... etfuckingcetera

Misean's picture

The mythical "reforms" of the 90's touted as a time of "success"...hmmmm....Methinks the author is quite deluded.

Nothing will stir the theives, brigands, liars and plunderers in Warshington from their feasting on the wealth of the country until it blows sky high.

plocequ1's picture

Thanks Minsky for the heads up, I better plant my Tomatoes

cossack55's picture

Hot house them to keep the cesium and plutonium off.

DavidC's picture

"...deep-seated political differences on taxes and spending could still prevent a resolution of the problem in 2013".

Taxes and spending are NOT going to resolve the problem, it's way too big for that now. Even with all(all?!) the proposals to date, none of them even bring the debt back to where it was in 2008!


RockyRacoon's picture

You're right.  Pretty much the only thing that can happen is a softening of the so-called landing.  But it's a deep ditch. 

g speed's picture

I did a little more work on a way out-- the bankers are happy-- the working middle class is not-- so this will work for them?? maybe??  any one have some more to add ?? buying gold or lead or guns and all that is fine to talk about but it won't help the country--

A sketch of

Necessary Rules of Money

for the health and longevity of the Nation.



Like all other nations that use the Federal Reserve Note (aka the Dollar) as the world reserve currency to price commodities and settle balance of payments but still retain a national money, and in order to safeguard the wealth and savings of the citizenry from theft by inflation, speculation, and foreign intervention, and to insure a stable currency against which long standing contracts can be written, and to allow wealth to pass from generation to generation, we in the United States, must be allowed our own money separate from the world currency.



The congress must authorize the issue, secure printing and coin minting in various denominations of a domestic money or a United States Treasury Dollar.

--------This new dollar must be separate and insulated from the Federal Reserve Banking system.

This new currency will be backed by the full faith and trust of the United States Treasury.

This new currency may be used to settle all debts and taxes in the Territorial United States of America.

This currency may be used in parallel with the Federal Reserve Note for all commerce within the Territory of the United States.

The new USTD will be issued debt free and unencumbered by any other currency or monetary standard in the world. ---------



The laws governing the issuance of this currency must be tied to the number of citizens in the United States.

To Print and issue this money the Treasury must receive a request by a citizen to exchange a Federal Reserve Note on a one for one trade for a new United States Treasury Dollar or issue and print money to pay interest on US Treasury Dollar bonds. The treasury may issue USTD to the various states and local governments in return for prorated FRN in the amount of USTD that are paid in interest to the bond holders of the USTD bonds allowed under this law.

All exchanges of USTD with other currencies must take place at a US Treasury Bureau office or its many licensed branch offices that are set up solely for this purpose and no other.

To prevent uncontrolled dilution of the currency through inflation or injection the limit on an issue trade must be no more than 30,000 Federal Reserve Notes traded for 30,000 United States Treasury Dollars per citizen per year. The trade must take place in a timely manner after the request is made and the FRN escrowed and citizen ship and an age of 18 yrs has been proved. (1)


FRN in Tax Free Accounts such as IRAs must be allowed to be withdrawn penalty free and tax free for the use of exchange.

The exchange rate of United States Treasury Dollars back into Federal Reserve Notes must be allowed to float

All citizens, non citizens, businesses, organizations and US corporations may be allowed to hold and use the USTD in the territory of the US, with the exception of International Banks, Foreign Banks and The Federal Reserve Bank with its member banks, and no law shall be passed and no ruling enforced that will prohibit or inhibit the right to this property or the removal of its prohibitions.

Any United States Treasury Dollars that leave the territory of the United States will automatically become contraband and subject to confiscation. No United States Treasury Dollars will be allowed to be invested in any multinational corporations . If the investor wants to invest in foreign or multinational entities they will be required to exchange USTD back into FRN or equivalent currencies.

Any returns on invested USTD in domestic activities may be paid in either USTD or FRN dependant on the contract but must be prorated at market on the date of payment.


The United States Treasury must insure a stable currency for its citizen, free from manipulation by banking interests, foreign countries or conspiracies of speculators. To this end the Treasury shall issue bonds that may be purchased with USTD that will pay a 3% -5% annual return in USTD and not subject to any tax on returns or use by budget manipulators. (2)

Any taxes paid with the USTD must be prorated to reflect the market exchange rate of the FRN and the USTD on the date of payment.

The USTD may not be used by the US govt or any of its departments or agencies to pay wages or settle debts or resolve balance of payments to the Federal Reserve Bank, World Bank or the IMF,


The USTD may not be used by any State govt or any of its departments or agencies to pay wages or settle debts or resolve balance of payments to the Federal Reserve Bank or the World Bank or the IMF.

The USTD may not be used by any local govt or any of its departments or agencies to pay wages or settle debts or resolve balance of payments to the Federal Reserve Bank or the World Bank or the IMF.

The States may issue USTD Bonds in the same way and governed by the same rules that the US Treasury issues bonds and in competition with the US Treasury.

Local governments may issue USTD Bonds in the same way and by the same rules that the US Treasury issues bonds and in competition with the US Treasury and the states.

No holdings in USTD bonds or cash accounts or investment equivalents denominated in USTD will be subject to any inheritance tax by any govt, be it Territorial, Federal, State, or local.

When USTD are exchanged for other currencies or for FRN, all transactions, either in the public or private sector, will occur in an electronic national exchange at the Treasury and the gross number of USTD exchanged tabulated. (3)


Any solvent private bank my be issued a license for establishing an exchange location. All USTD held in bank accounts must be at an exchange location. Only total USTD deposits will be tabulated, not individual accounts. (4)

No govt, corporation or private person in the US may use the exchange rate or the substitution of the FRN or any other currency or banking rules or accounting practice to bypass any of the above rules or laws. (5)

Any change in the issuance or governance of the USTD must pass both houses of congress by ¾ majority and be ratified by all the States.



1. Logically, if 100,000,000 citizens exchange 20,000 FRN each year the USTD amount will be 20 billion the first year with a dilution of 100% the first year there after. The next year the dilution rate will be less and each year following the dilution rate will decrease. In time the amount of USTD in the economy will not service the demand and the value of savings denominated in USTD will increase vs. other world currencies.

2. The proceeds of the Bonds may be used by governments to generate income by investment outside of the Territorial US but not within US States or local governments, their departments or their agencies so that the citizens will not be responsible for that debt. Any such investments must use FRN or another currency exchanged at a rate set by the market. The proceeds of the Bonds shall not be used to pay any debts that may be owed by the Treasury that are denominated in FRN.

3. No USTD in excess of the current amount allowed in circulation as determined by the citizen issue at that date plus the accrued percentages of interest of all national, state and local bonds will be exchanged for other currencies or FRN.


4. USTD deposits held in banking establishments must be held in separate accounts isolated from all forms of money other than USTD. Balances, interest, payments and all other business of the account must be nominated in USTD and no other money.


5. A solvent deposit insurance plan funded by individual account subscription, regulated by the Treasury but separate from the FDIC, should be created.

. The free market should decide the rate of exchange.

cossack55's picture

Eradicate the FED and FDIC. Also the SS, medicare and medicaid, that cheap-drugs-for-the-darn-near-dead thing that Bush passed and I can't remember the name of. Oh hell, just dissolve the gubmint and return to the Articles of Confederation.

StychoKiller's picture

Ignore the Idjut what junked ya!  At this point, we need all the ideas we can find in order to come up with a new, WORKABLE financial system.

trav7777's picture

this idiot thinks we can just sustain this by coming to some kind of "compromise" as if the world and physical reality revolve around the idiotic whims of "Democrats and Republicans"???!?

mendigo's picture

yes, at the rate they are ramping the debt they don't need a compromise, they would have to combine the two plans to correct the problem - meaning operate within budget

the problem may be out of reach already and only gets worse with time. this must be the same people how advised Tepco on how to manage a nuclear mishap.

DoChenRollingBearing's picture

It's too late right now in 2011.

This is going to end very badly, and we may not have to wait around until 2013.

I am glad I am not President!  I would not know the best way out of the box.

But, as a plain ol' individual, I think we can all prepare.  Gold & silver.  Guns & ammo.  Food and water.  Lose your debts.  Etc.

jemlyn's picture

I've been reading you guys for a year.  Okay: guns, granola, green beans and gold.  Let's say you can hole up for three months.  Then what?

RockyRacoon's picture

After 3 months the burning and looting will have stopped for the most part.  Then you can reassess your position.  Staying out of the way of the bad guys for a while will be beneficial in itself.  You can concentrate on your aim rather than where your next bottle of water or ration is coming from.

Sock Puppet's picture

Life in Argentina after the 2001 Crisis.

Surviving in Argentina.

Read and Learn.

RockyRacoon's picture

Been der, read dat.   Thanks for the great link.  It's worth the time.

Pheesh's picture

Why do you assume people will board themselves into their houses just because they secure the above resources?   

Doña K's picture

Just ask people that have lived in Eastern Europe and elsewhere were these scenarios have played out. Do some research and you will see that what is being touted at ZH is true. It may not play exactly the same, but the defense is the same.

You need all of those: Food, water, PM's, guns/ammo and bycicles. Yes, we hope we will not need any of these, but what if? How can you face your children? How can you explain to your children that you did not think something like that can happen to America? It has happened elsewhere many times.


Henry Hub's picture

*Let's say you can hole up for three months. Then what?*

Live on love for nine months,and then eat the the baby!

Pedro's picture

The best way is let the free markets be FREE.  No bailouts and no stimulus.  We take our medicine as bad as it may be.  Don't get me wrong, I'll probably be the first one complaining, but, it is for our own long term good.