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Dean Baker - "let's Just Default"

Bruce Krasting's picture




 

An interesting article by Dean Baker today. "Defaulting on debt is not the end of the world".
Dean has gone over the top and is now advocating a debt default by the
USA as a way of “fixing” our problems. Dean thinks that the existing
obligations of Social Security and Medicare are much more important to
maintain that our credit rating. His words:

Compared to these outcomes, (cuts in SS and Medicare) a financial crisis and the subsequent slump that follows may seem like a relatively small cost.

Baker thinks this would be an easy matter. He points to Argentina as an
example. This just proves that Dean has no clue what he is talking
about. Yes Argentina defaulted and recovered after a few years. But
Argentina is not a reserve currency that has a linchpin role in the
global financial system. Argentina is a fraction of global GDP
(Argentina = 0.5%; US = 25.0%). Their default was painful to all. Both
citizens and creditors suffered. Savers lost everything. Pensioners got
worthless script versus the payments they were promised. Dean thinks
following Argentina is the right thing to do:

The
experience of Argentina may be instructive in this respect. Argentina
defaulted on its debt at the end of 2001. By the end of 2003 it had
recovered its lost output.



it is also likely the case that the United States would rebound and possible rebound quickly from a default.

I don’t know how to handicap the possibility for a debt default by the
USA. In 2007 I would have said it was a near zero possibility. Today
it's no longer zero and the odds rise by the month. The scary thing for
me is that no one is doing a damn thing about it. The budget silliness
of last week is a case in point. The idiots in D.C. damn near shut the
government down over a few billion bucks. Lunacy. And now ‘important’ voices like Baker are suggesting default is a viable option.

It’s hard to imagine what a debt default for the world’s biggest
creditor would be like. Some of the things that I think could happen:

-Mr.
Baker must come to grip with the facts of default. As he and many other
defenders of Social Security have said repeatedly; the assets of the
Social Security Trust Fund are equal in legal status to the debt issued
to the public by Treasury. This means that it isn’t possible for the US
to default on its public debt without also defaulting on the Special
Issue bonds in the SS Trust Fund. As SS is running a cash deficit on a
monthly basis it would only take 30 days for all checks to stop. Period,
full stop. Social Security would cease to exist.

-The
Medicare Trust Fund, Military Pension Trust Fund, Federal Workers Trust
Fund would also default. They too would stop issuing checks. Medicare
would no longer function. Some level of medical care would be
maintained. But older people who needed lifesaving treatment wouldn’t
get it. Hundreds of thousands would die. The number could easily go into
the millions.

-Surely
we would see a collapse of the dollar. The cost of everything we import
would triple++ in a very short period of time. The price of gas would
be $10? 50? 100?

-Equity
markets in the US would collapse. A loss of 50% would be a good
outcome. It could be much worse than that. We know that the wealth
affect drives the economy, so this result would insure a collapse of US
GDP. How long would the depression/recession last if this were to
happen? At least a decade. It would be worse than what happened in the
US during the 30’s.

-Unemployment? A minimum of 25% would be the result.

Interest
rates? Who knows? There would be no debt market left in the event of a
default by the US. There would be no credit available.

-If
Treasury were to default, every mortgage borrower would follow suit. If
the banks were not wiped out by the federal ‘no pay’ they certainly
would be wiped out by the mortgage defaults. Almost all banks would
shut. This would cascade back to the FDIC. The withdrawals from account
holders would force the FDIC to honor its obligations. As they have no
reserves this would force Treasury to issue coinage ($100 bills) to
satisfy the run on the bank. This is the hyper inflationary environment.
The price of basics (food) would explode. Shelves would empty. People
would go hungry. In the years that followed a default many would starve,
many of those would die.

-All
municipalities would be forced to default. All muni savers would be
wiped out. The business of local government would shut down. They would
be unable to make payroll, so no one would work. Garbage collection
would stop. There would be no police. Crime would be rampant. Armed
robbery, rape and murder would be common. Vigilantism would rise. Open
conflict on a regional basis would be the result. There would be no fire
departments. Cities would burn.

-All
infrastructure repairs and investments would stop. In a very short
period of time roads, bridges, ports, airports would become
dysfunctional. It would not really matter that much. There will be no
gas or diesel to power vehicles, so the broken roads would be empty.

-Most public education would end.

-There
would be no real estate market. There would be no Fannie, Freddie or
FHA. There would be no lenders to finance a home. There would be no
liquidity. Prices would collapse. A house would sell for a few months of
food.

-It’s
difficult to image the consequences outside of our borders. Neighboring
countries like Mexico and Canada would implode. The decline of the US
economy would ripple around the world. Other countries would be forced
to repudiate their debt. It’s possible that a default in the US would
force all big debtor countries to follow suit. At that point all seven
billion people would suffer.

-Functionally
there would be no US military. Regional warriors and pirates would
rule. Major nations could start wars over natural resources.

I suspect that a number of readers will agree with Dean. Pull the plug on the whole system. Let the chips fall, let the shit fly. That may happen.
We are most certainly headed in that direction. The probability of this
happening just increased a notch or two. Dean Baker has a big audience
and a fair bit of support. Big shots like Paul Krugman quote him all the
time. Now that Dean has put his reputation (and CEPR) on the line by calling for a debt repudiation he will be forced to push his agenda. Like I said, this is a “popular” option.


Dean Baker is the champion of Social Security and Medicare. His
many supporters should understand that he is advocating policies that
insure that their savings, benefits and medical protection would be
wiped out. He would destroy exactly the group that he thinks he is
trying to protect. They should at least seem him for what he is. A fool that will ruin them.

 

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Tue, 04/19/2011 - 16:10 | 1185488 Dean Baker
Dean Baker's picture

Problems of Reading Comprehension at Zero Hedge: No One Advocated Default

(reprinted from Beat the Press)

I don't like to use this blog to settle personal scores, but I think it is important to clear up a serious misrepresentation that stemmed from an earlier post. Zero Hedge has me advocating default on the national debt because I had the audacity to point out that the world will not end if the U.S. defaults on its debt.

It did not occur to me that anyone could think that saying "the world will not end if we do X," is the same as saying "we should do X," but apparently the folks at Zero Hedge cannot see the distinction. Let me try to clarify. Defaulting on the national debt is very bad policy. It would lead to a financial crisis, as I said in my prior post. This would lead to a severe downturn in the economy and a big jump in the unemployment rate.

However the economy would eventually recover. The underlying factors that determine the country's wealth -- the physical stock of capital, the skills of the workforce, the state of technical knowledge -- will still be there following a default.

For this reason I would consider some policies worse than default. Representative Ryan's plan for ending Medicare as we know it would fit this bill. It would mean that people who spent their entire life working could not count on decent health care in their old age.

In my view, if the Republicans say "end Medicare or default," then the correct response for President Obama is "I'll see you after the crash." My guess is that in this scenario we don't get a default. Rather we get Jamie Dimon screaming his lungs out at the Republican leadership, and we get the Republicans running to compromise with their tails between their legs.

But, this assessment could be wrong. Still, in my view there has to be a bottom line. I draw the line before the elimination of Medicare.

I'm afraid that I don't really understand the opposite position. Is it the view of Zero Hedge that nothing is worse than defaulting on the national debt? If Speaker Boehner wants to bring back slavery as a condition of raising the debt ceiling should President Obama sign the bill? (We'll worry about the 13th amendment later.) If they agree that bringing back slavery is worse than defaulting on the national debt then is Zero Hedge also an advocate of default?

If we want to have a serious argument on this issue it is going to have to be based on what I actually said, not positions that Zero Hedge has invented for me.

Mon, 04/11/2011 - 08:46 | 1157251 Diogenes
Diogenes's picture

The way you talk you would think you have a choice. There is going to be default, the only choice is repudiation or inflation.

The federal government alone owes $14 trillion +. Has an income of $150 billion a month and spends $300 billion. You can't pay the debt, you can't pay the interest, you can't pay this month's bills as they come in. Every month you go deeper in debt and you can't pay any of it.

So how high can you pile shit before it topples over?

Mon, 04/11/2011 - 08:13 | 1157162 Sathington Willougby
Sathington Willougby's picture

Trader Joe: A+++

Promotion.

 

The rest of you:  Debtor Slaves

Epic Failure.

 

Welcome to the Tax Farm.  We'll be happy to show you around, but first shove this ginger root up your arse, you won't mind, you're too stupid to know the figging difference.

Sun, 04/10/2011 - 23:52 | 1156701 mkkby
mkkby's picture

Folks, the future is pre ordained.  Look at Europe.  No banker will take a haircut.  Cuts are being made to social programs and taxes raised.  In Ireland the people voted for a gov that specifically promised they'd tell the bankers to pound sand.  As soon as they were elected they turned it around and screwed the voters.

If you think something else will happen here you are seriously in denial.  Default will not change the system, will not eliminate the fed, and will not cause one bankster to lose a cent.  Social security, medicare, medicaid and welfare will go bye bye.  Your savings and labor will be taxed as needed.  Again, this is pre planned.  No matter which party you vote for.

Sun, 04/10/2011 - 23:28 | 1156649 Itsalie
Itsalie's picture

Would anyone, including Saudi Arabia, still sell oil to the US in the event of a default? Yes, not in the current or new toilet papers you print, but in in gold or silver only. Argentina could fall back on the hard currencies it confiscated before default, what does the US have to pay for oil? Anyway, the annual bill  for your oil would be: approx 10m barrels per day x 365 days x approx 0.1 ounces of gold per barrel, approx 365m ounces of gold a year. That's today's price of oil in gold; when the world knows that oil is more vital to the US than gold after a default, the ratio might be closer to 1 ounce per barrel. Nuclear anyone?

 

Sun, 04/10/2011 - 21:55 | 1156409 moneymutt
moneymutt's picture

btw Bruce - I'd say Dean was a fool if he was more influential, if he was the kind of guy that was on presidential economic panels and CNBC btu given he is pretty ignored in MSM and politics, I'll give him a pass on the irresponsible angle. Given that, I love someon of some prominence is opening up the debate. No one who wants a career says something like that...but that is trick bag we are always in. A full range of ideas, their consequences to regular folks and elites and grown up choices up the various results are not fully discussed openly in this country nor world. The state of understanding of ourmonetary options, private central bank massive messing on behalf of the few rather than us, the complete failure of mainstream economists to explain our economic patterns etc...we need some people to say something different and challenging., 

Sun, 04/10/2011 - 21:49 | 1156381 moneymutt
moneymutt's picture

am I missing something, is some of the debt the govt owes, owed to US domestic trust funds, like Soc Sec. Soc Sec is currently drawing down its trust fund which means US govt is paying back its debt principal to Soc Sec.

I think Dean is a fool because there are so many options to chose American people over banksters/connected elite. But the way I see it, banskters have made human shields out of all us, they have rigged rules of engagement so we can not get to them without sacraficing innocents. Ala TARP they say you must pay us or you will all go down. I do think there is point at which you can't keep letting someone hold you hostage, but rather than saying go ahead, pull the bomb tigger, possibly we try to chop of their hand first.

 

I still think we need to bust them up, and that a debt that can't be paid won't be paid, but straight up default is likely a uneccesary carpet bombing way to go. Not that I'm advocating one over another, there is inflation, devaluing dollar, haircuts to non-domestics, monetizing, greenbacks etc.

 

Sun, 04/10/2011 - 19:43 | 1155967 honestann
honestann's picture

The experiment in "central banking" has been an absolute, complete, utter failure.

The experiment in "central government" has been an absolute, complete, utter failure.

Terminate and permanently close the Federal Reserve.

Terminate and permanently close the Federal Government.

FACT:  In the medium and long run, everyone will be better off, even including old folks ready to receive their SS payments.  The vast, vast, vast majority have no freaking idea how generous people could and would be if the entire burden of the federal reserve and federal government were completely removed from them.  Everyone who is not an outright fulltime predator would be better off... after we finished our brief celebration and rebalancing.

Sun, 04/10/2011 - 22:03 | 1156441 moneymutt
moneymutt's picture

its hard to know how this would go down, so I would hesitate to say we would be instantly better off...however, must good ends means some heightened, increased suffering in short term, like a revolutionay war, usually more deadly and costly than just going along with tyranny...but if you win, it is a PASSING STORM. You can enslave yourself to a lifetime of misery by simply trying to avoid misery everyday rather than recognizing something will hurt and hurt bad, but then after that, much better and more free. 

I do agree economic things could be so much better without elite parasites sucking so much off regular productive people. Not that we would all be millioniares, but it seems we could all afford food, shelter, health care and all who could work could have gainful employment, no need for massive UI, food stamps etc. 

 

Sun, 04/10/2011 - 19:40 | 1155956 Waterfallsparkles
Waterfallsparkles's picture

What if the Congress took over the Creation of money like in the Constitution.  They could print enough money to pay off the Debt and the debt created by Congress would be without interest.

And just maybe we should claw back some of the interest on the debt that we already paid from the Federal Reserve and its Banks. P.S. And all of the Executive Compensation plus Bonuses paid for the last 5 years.  That would balance the Budget.

Too simple I guess.

Sun, 04/10/2011 - 22:19 | 1156485 slewie the pi-rat
slewie the pi-rat's picture

too styooopid, really, innocent ms troll! 

where in the Constitution, is Congress given the right to "print money"???

oh, here!  we'll just print a gazillion new "blue stamps" which are not debt and just give them to you for yer US T securities. 

if you are not just trolling here to get paid, which i can't imagine at this point, you are so brain-dead and just so breathlessly fuking ignorant as to defy all understanding. 

the Consitution actually says money is nothing except gold and silver, at least as far as the states are concerned.  you go ahead and dig up the referernce giving Congress the right to print that stuff, ok? 

yes, dumbass, the FED is baaad news, and the Constitution does not allow for it, either. duh.

clearly there is commerce regulation and credit and banking regulation, too, i wld say, ok? who cares?  but, duh.

the idea that this gives Congress the right to create unlimited fiat and that this is a "good" idea, well, please just leave and don't come back until you can think straight, ok?

you're either paid, or quite ill.  either way, give us a break, ok? 

Sun, 04/10/2011 - 19:29 | 1155923 Zero Govt
Zero Govt's picture

let the US bond holders get wiped out ...then let everyone in social security and Medicare get wiped out ..then let the sham that is the US Govt go down the toilet

what is irresponsible about this Brucie Baby?

let the shit go to the wall and the real productive people of the country be free of this anarchy and robbery that Washington boils down to. Freedom at last, since Abraham Lincolns murderous civil war and forcing a State on a free people ...the American Dream reborn from centuries of the parasitical tyranny of State

Washington in a tizzy, quite frankly nobody gives a damn. Bring on the chaos amongst the jackals and an outbreak of peace, wealth and tranquility amongst the people

Sun, 04/10/2011 - 20:51 | 1156215 Bruce Krasting
Bruce Krasting's picture

I'll forward your thoughts to Dean. I'm sure that he'll be pleased that you support his position.

Mon, 04/11/2011 - 17:12 | 1159105 Zero Govt
Zero Govt's picture

i think Dean only cares so long as Social Security is fed with other peoples money... don't mistake me for supporting your or his position ...both of you can go fall off a cliff along with the entire sham that is the US Govt (inc. your beloved regulators)

nothing would improve the health of America (overnight) faster than the quick unseemly death of the parasitical criminal institution that is democratic Govt

Sun, 04/10/2011 - 19:25 | 1155922 Waterfallsparkles
Waterfallsparkles's picture

Sounds like you are describing what would happen in 2012.  December 21st to be exact.

Sun, 04/10/2011 - 21:58 | 1156429 slewie the pi-rat
slewie the pi-rat's picture

keep deflecting everything, "innocently", no matter what, with yer moronic 2 sentences, you viscious, worthless troll.

Sun, 04/10/2011 - 22:02 | 1156421 slewie the pi-rat
slewie the pi-rat's picture

same troll, different day!

Sun, 04/10/2011 - 19:07 | 1155893 mogul rider
mogul rider's picture

It is OK for every country to default but yours

Interesting myopic perspective on how little the US matter any more.

Sun, 04/10/2011 - 18:48 | 1155870 Old Poor Richard
Old Poor Richard's picture

Whatever we do, let's not simply raise taxes back to reasonable levels, such as those under Kennedy or Nixon.  Instead, throw the elderly, sick and America's prudent savers under the bus in order to reward the financially feckless.

This false dichotomy between Social Security and paying off the debt is just dopey.

Quit spending, raise taxes.  That was easy.

 

Mon, 04/11/2011 - 09:08 | 1157302 Fiat Money
Fiat Money's picture

I'm with you, Ben. 

 Here's the video of Maria Bartiromo's CNBC interview with Evelyn de Rothschild on the NYSE floor after the Sept 2008 market meltdown.  http://www.youtube.com/watch?v=7Fw1RMKWypo

 Maria dishes up nothing but fluff-ball questions,  and EdR doesn't have to explain a damn thing.   

  Maria: "Some people say that capitalism right now is being THREATENED, you've got the government owning 80% of AIG, & Fannie & Freddie"...  

 Maria, you twit,  if THEY WEREN'T driven into  BANKRUPTCY by the "private ownership capitalism" boys, the government wouldn'd have had to bail them out!

EdR says that SUPERVISION has FAILED... but neglects to explain that as the owner of The Economist mag, he and his minions spent the entire 1990s & early 2000's pushing for DEREGULATION, whether Rubin, Summers, Emanuel "Democrats" or Phil Gramm, Jim Leach, Thomas Bliley (Gramm-Leach-Bliley Act)  Enron Ken Lay, Bush, Cheney Republicans. 

  In short, Rothschild pays LIP SERVICE to the PENSIONERS, and those who have "lost all of their savings, and will have a terrible problem feeding their families"   but Maria FAILS to NAIL him to THE question, "WHAT PERCENTAGE OF "bailouts" WENT TO PROP UP YOUR  and other billionaires' fortune(s),  and what percentage went to prop up PENSIONS, jobs, and working families' savings & net wealth?"

   EdR and the other hyper-wealthy pimp the notion that THEY are important for the REAL consumer/producer economy,  but they have a track record of PUMP & DUMP CONTRACTION of economic health & activity,  which Maria, and entire "major media" give a free pass on. 

 ps: Rothschild says "in dangerous times you hang on to your gold bars"  and "Maggie Thatcher put unions in the place... they kept wanting to spend, without paying attention to fundamentals"  but now the larcenous old codger is the beneficiary of TRILLONS of taxpayer dollars bailouts, which ARTIFICIALLY  PROPPED UP HIS damn family's mega-billions fortune - SOCIALISM for the hyper-rich.

Sun, 04/10/2011 - 21:53 | 1156390 slewie the pi-rat
slewie the pi-rat's picture

not as ez as just recogizing the dead wood in OUR government(s), its costs, and the need to just get rid of it, braniac!

Sun, 04/10/2011 - 18:45 | 1155857 max2205
max2205's picture

Whoa, what part of left field did this balloon come from?!?

More BK bs to waste your money buying puts. It never ends

Sun, 04/10/2011 - 18:40 | 1155842 Hannibal
Hannibal's picture
"let's Just Default".....

and then,..Oh my gosh, nothing happened.

 

 

Sun, 04/10/2011 - 18:21 | 1155813 thewhitelion
thewhitelion's picture

It seems pretty clear to me that we will default.  If the argument is that we will be better served by a nice inflationary default, that's probably got some truth in it.  Some of us will be better served that way.  Of course others will not.

Sun, 04/10/2011 - 18:22 | 1155812 ParisianThinker
ParisianThinker's picture

Why not default? We've done it before and so has everyone else.

Sun, 04/10/2011 - 18:03 | 1155770 Gordon Freeman
Gordon Freeman's picture

Dean Baker is a tool--how can anyone take him seriously?

Sun, 04/10/2011 - 17:37 | 1155742 Charles Wilson
Charles Wilson's picture

Once again, the Stalinists have hi-jacked a ZH thread.

1.: There is no "Special" Social Security Bond or any other instrument that serves this purpose.  The Supremes have already decided that all of these programs are "General Fund" programs.  Our current government cannot obligate future federal governments to spend this "Promised Money" in any particular way.  If the Congress voted tomorrow to end Social Security programs, that would be it! Over! Nothing to say!  Period!

2.: These "Treasury IOUs" are a fiction.  You cannot TRADE these "Bonds that have the full faith and credit of the United States Government" printed on them and therefore they are not "BONDS" except when a politician decides to call them that and then they are "Bonds" in name only.

3.: Read each of the posts in this thread (if you don't gouge your eyeballs out first...) that demand that THEIR student loans, garage sale subsidies, etc. are carved in stone for future generations to pay.  They don't get what they want and it's...capitalism's fault?  HUH!?!!

4.: I've stated this before but it's worth repeating: When Vespasian decided to end the rule of Vetellius and become Caesar, he first went to Alexandria to secure the grain destined for Rome.  See, it was Caesar's job to secure food for Rome (The Legions were to ummm..."minister the word") and Vespasian was ready to starve Rome in order to obtain the Throne.

5.: The suggestion is readily apparent that we are playing some very dangerous politics here. Representative "Krank"jorski goes on CSPAN and tells us that there was an "Electronic run on the bank".  Has anyone stepped forward and given a solution to the questions about this statement (I mean, other than comments about changing his Depends..)?  Hank Kimball Paulson then steps up and demands around 1 trillion dollars +/- for his very special friends and the race is on.

6.: Bernanke is ready to starve the world in order to settle a score that only he seems to perceive.  The USA is going to take a 30% paycut minimum when the inflation runs its course and this goal is on the table regardless of who wins the next election cycle.  Why?

7.: We therefore aren't even asking the right questions.  Marx argued that the rights of man proclaimed in the French Revolution actually enriched the owners of private property over the workers who only had their labor to sell.  "Who wound up with the better deal?"

We aren't even asking the right questions.

 

CW

Sun, 04/10/2011 - 19:31 | 1155937 malek
malek's picture

2. Yes, and the idea (in theory) was/is that they will sell real treasuries when they need the money from the SS Trust Fund. Question is who will be the buyer.

3. Exactly.

7. I don't get it - are you putting private property rights into question?

Sun, 04/10/2011 - 21:59 | 1156426 Charles Wilson
Charles Wilson's picture

malek -

This story rotated off the front page and it took a while to find it again.

7. NO!!! I'm not putting private property rights into question! In fact, just the opposite.  Marx et. al. redefined the meaning in order to justify their Statist actions - just as we are today.

Friedman (again) stated that the growth of "Big Business" came about from allowing tax deductions for corporations that diverted money from shareholders into plant.  Add bribe money to parties and you have GE.

We are now into the "New Economic Development policy" phase where benefits are given to favored companies for highlighted "developments".

Add it up: Taxes grow on indivduals, inflation makes a paycut on the producer/laborer - next step, more patent right reductions! - favored businesses and you have the Corporate State as main feature in the USA. Can the language of the Constitution be tortured any more?

 

CW

Sun, 04/10/2011 - 18:43 | 1155849 falak pema
falak pema's picture

do you see the USA run by Vespasian's ghost or Robespierre's avatar in the future? 

I don't know what to make of your argument except the "damn all entitlements" bit and then...blank, blank, blank...needs to be decoded. In the meantime the private banks tank when WS melts from lack of growth, even if the states don't as they renege entitlements. USA owes money abroad, and runs up a deficit current account every month. So no help there...more of the same and you end up in the wall anyway. The whole country is living beyond its means and sucking at the teat of international labour arbitrage ("outsourcing is God 'cos it makes me money" clique paradigm), that starves the labour population. Not forgetting the addiction to imported oil now priced to the sky partly to feed EM demand, partly to feed the greedy pockets of kleptocratic speculators. So closing down big government programs doesn't change the basic structural fault in the US economy due to wrong economic paradigm. If you don't outsource less and import less oil you are in economic decline ANYWAYS. That's the math!

Sun, 04/10/2011 - 20:46 | 1156204 Charles Wilson
Charles Wilson's picture

I cannot "economically" answer all of your comments here but I'll try to tell you what I see from your answer.

My view is not "damn all entitlements". It is more like "We have no Constitution now."

Milton Friedman stated that if we got all these goods and services from foreigners for the price of paper and ink, then we got a good deal. This is where you are wrong: "If you don't outsource less and import less oil you are in economic decline ANYWAYS. That's the math!"  The math is that when you cannot pay the interest on your debt, you are bankrupt. THAT'S the math!

As Joseph Heller once wrote, "Something Happened".  The debt is freely created but the obligation on future labor that the debt requires devolves to the people of the nation.  How does that 35% paycut look to you? 50%?

Say's Law states that an item created becomes valued at that moment to the value of the exchange of goods and services at that limit. The representative for common value - in a way like the Standard Bell Curve - is money. Say's Law is in terrible condition these days. It isn't invalid. It's been bludgeoned by the state. Proligate Ireland has a business tax rate of 15%. Pax Germanica wants it higher before a bailout will be considered. No one suggests that since the low business tax manifestly WORKS, maybe the EU should all lower their business taxes. It is the STATE that matters.

We are discovering that you now can never own your home since refusal to pay taxes on property places your ownership in peril.  We are witnessing the triumph of the State over the Individual, the exact economic problem that gave rise to our form of government. And we were WARNED!

As to Vespasian: Most people study Vespasian every week.  The question was, "How do we get people to worship Caesar without them knowing it?" This secret gets decoded another day.

 

CW

Mon, 04/11/2011 - 06:45 | 1157052 falak pema
falak pema's picture

The triumph of state over the individual in  a country where the INDIVIDUAL plutocrats have used a proxy FED bank to execute their agenda!!...since when has STATE led the show in post Reagan USA? State ran it under FDR. OK. But not since Reagan. The state BELONGED to the rich private individual. Now the rest of America pays. The biggest debt accumulated in America is PLUTOCRACY imposed, not STATE imposed. That's the math. Its the banks and the private corporates running the MIC, the war money machine, big Pharma's selling of 'miracle pills', Wal Mart selling all and sundry "made in China". Where do you see Stalinist state take over of USA? Unless you consider the Bush plutocrats as Stalinists. They made China rich and main street USA poor. They and their buddies will NEVER bring industry back to USA. THey prefer to live off debt and then reneging on people's entitlements in name of "good" balanced government. That they OWN. That they ROBBED. Wake up. Maybe you will when China runs the world... Debt is a consequence of collectively imposed life style by the rich few on the ignorant many, based on the paradigm..."we can never fall, we are the world economy"... Ha, ha ...lets see how Humpty Dumpty repairs its cracked shell from falling off the wall of affluence. Sorry, but reality holds us all by the short hairs.

Sun, 04/10/2011 - 21:48 | 1156380 slewie the pi-rat
slewie the pi-rat's picture

how veddy "smartsie" & post-modern, too, CW!

doya have a mousie in yer pocket?  please do not put my Constitution in the same toilet where you have shat upon yours, k?  asswipe? 

Sun, 04/10/2011 - 17:36 | 1155739 plata pura
plata pura's picture

It be all figured in! The empire of the States United must contain the krauts from starting their third world war and bumping uglies further with the ivans. The polish buffer be the key.

Sun, 04/10/2011 - 16:59 | 1155681 Long-John-Silver
Long-John-Silver's picture

How I learned to stop worrying and love the debt bomb.

http://youtu.be/wcW_Ygs6hm0

Sun, 04/10/2011 - 16:49 | 1155664 Catullus
Catullus's picture

We can't default! We have to continue to pay into a fund that pays ourselves! Or else!

Governments default all the time. They plan on defaulting on this debt. It's why government bonds are loser investments. The history of government debt is strewn with broken promises and stolen wealth. The US are (federal and state governments) no exception.

Sun, 04/10/2011 - 16:59 | 1155663 mdwagner
mdwagner's picture

An alternative is for the US government to say "f*ck you" to the Fed and big banks by authorizing the coining of our own country's money based on gold and allow the Fed to continue to control their FRN's.

You think the central banks have the full control?  A US government issued gold-based currency would absolutely destroy all other currencies pretty quickly and the central banks would be playing with monopoly money debt.

But of course we know this won't happen.

 

Can anyone really explain to me why the Federal Reserve and banks are able to create money out of nothing to lend to the United States and our government is not able to do the same thing?  Why does the banking system have a monopoly on creating monopoly money?

Sun, 04/10/2011 - 17:10 | 1155698 DUNTHAT
DUNTHAT's picture

What if ----

The Government puts out an offer for gold at 55,000 (m2 100% coverage)'

Then declares money now backed 100% by gold ???

Sun, 04/10/2011 - 16:38 | 1155644 ebworthen
ebworthen's picture

 

Choices:

1.  Default on debt, put bankers in jail, restore bond, share, and property holder rights.

2. War with China.

I choose #1 and would add a debt jubilee for individual citizens.

We've already allowed the banks to default on their debt, let's just complete the process and have the same rules for everyone.

 

Sun, 04/10/2011 - 16:33 | 1155632 Sappho
Sappho's picture

Bruce Krasing says, "That may happen. We are most certainly headed in that direction. The probability of this happening just increased a notch or two."

So it will happen anyway?  Looks that way.  What one must remember is what is being talked about is debt servicing. Meaning, wouldn't there be more money left over for services?????? Therefore things would continue with more money available towards those services.

Sun, 04/10/2011 - 19:05 | 1155892 Bruce Krasting
Bruce Krasting's picture

I think wrong. There would be no extra money. Just the opposite.

Where do you live? I described some things that might happen. I excluded a few. Tell us what would happen to you and where you live if there was a 5-7 year depression. Give me a zip and I'll hazard a guess.

Sun, 04/10/2011 - 16:04 | 1155560 Groty
Groty's picture

When it happens, it's going to be like a pre-packaged bankruptcy.  All holders of U.S. government debt will take a big haircut, maybe as much as 30%-40%, and in return they're going to demand meaningful entitlement reform.  But because so many private pension funds, insurance companies and banks hold so many U.S. treasuries, it will effectively bankrupt them, too. 

While he may be right that the economy will bounce back, those approaching retirement age as well as current retirees will never see their standard of living recover.  They will experience a reduced standard of living until they die.  Many may be prepared to do so, too, if they are certain their kids and grandkids will live better lives.

Sun, 04/10/2011 - 15:25 | 1155484 Rastadamus
Rastadamus's picture

That's why I'm gonna keep getting disability, bitchez! I'ma goin get my money back!

Sun, 04/10/2011 - 15:32 | 1155476 pvzh
pvzh's picture

Probably my comment related more to Dean than to you, Bruce.

debt default by the USA as a way of “fixing” our problems. Dean thinks that the existing obligations of Social Security and Medicare are much more important to maintain that our credit rating

That is all nice, but I fail to see how default on current $14 trillions helps to solve "Social Security + Medicare + Medicaid" problem (social liabilities) that are at least 3 times as large unless you / Dean are advocating to borrow $50+ trillions first to cover social liabilities and then default. However, I doubt that even that will do any good since the only entity which is capable of making such advance is Federal Reserve, and that course of action will be basically printing money to the tune of $50+ trillions in one year or even faster. Besides, how does it differ from the current (silent) plan of US administration: monetize all shortfall, but at slow pace (~$2 trillion / year instead of ~$50+ trillion / year).

Edit: typos, sorry

Sun, 04/10/2011 - 15:41 | 1155516 Sudden Debt
Sudden Debt's picture

People also don't seem to realise that those 14 trillion belongs to people who live from it.

Pension funds, Muncipals, Entire countries....

How do you think they'll respond to this?

Everybody loses because some Americans who never paid their bills won't ever pay their bills?

Everybody loses, and the loses get to blow it a second time.

 

In 2 months from now, rates will go up and then we'll all get to see a little preview how bad stuff can get.

Whatever happens, do that X 100 and you're there.

 

Argentinia had nothing to lose when it defaulted!

The rich got their money out in time, and they had the dollar to back up onto.

THE US CAN'T FALL BACK ON ANY OTHER CURRENCY!

Sun, 04/10/2011 - 15:53 | 1155543 pvzh
pvzh's picture

I agree with you on all your points, but I left out those points intentionally to show that even in this case default does not make any sense. Moreover, default on all current US debts (on balance sheet $14 trillions plus $50+ trillions off balance sheet) by itself will not solve much either because these debts require little or no repayment of principal or interest yet (current interest expenses are ~$100-200 billions and Social Security Trust is at near zero cash flow). Default on all obligations requires also balancing budgets on all levels of government, and all that just politically impossible task (at least, yet).

That means printing, printing, and more printing... And some people have an audacity to say that hyperinflation is impossible in US.

Sun, 04/10/2011 - 18:00 | 1155623 Sudden Debt
Sudden Debt's picture

True.

And about the hyperinflation, I still need to be really convinced with logic facts why it shouldn't happen.

For me it's like they intentionally want this to happen.

Talking about trillions is the most common things these days.

The only way how they can prevent it, is when they would adopt a gold or silver standard. And if we look to Canada for example, the coin 20$ coins which are 7 gramms making 1oz already 88 dollars. And that was in 2009. So my guess is that we'll see a 100% to 250% inflation in the next 2 years.

And that kind of inflation is reason enough for the government to say that national debt is justifiable because it only grows a inflation rates.

And to justify the current deficit of 1.4 trillion, we'll need a 10% This year alone to justify it.

A official 10% that is. That would be about 30% in the real world.

And THAT is stealing from the taxpayers.

Not the banks. Nop, they get to raise their rates to.

Everybody loses, besides the once who caused it. They get even richer from it.

 

Today with the 38.5 billion budget cuts:

"We've had to bring this president kicking and screaming to the table to cut spending," said House Majority Leader Eric Cantor,

They need to cut 1.4 trillion and for the first 38.5 billion they take from the weak: Senior and the Poor.

Nothing from the military or government services.

Why? Well: Because the government workers are loyal voters and the poor and seniors aren't.

 That is 1% of spending and 2.9% of the deficit. That sum is not exactly worth the media attention.

 The real question should be: Where will the rest of the cuts happen?

Eliminate the military?

Cut 50% on every spending?

It's a joke. They are putting their heads in the sand and they are getting braindamage because of the lack of oxigen.

 

 

 

 

 

Sun, 04/10/2011 - 20:02 | 1156062 blunderdog
blunderdog's picture

I don't think the President CAN cut spending.  I mean, sure Obama sucks and all, but when did we EVER have anyone pull that shit off?

I'm wondering if anyone ever has.  If so, it's been kinda a lil bit of awhile.

http://www.cbo.gov/budget/data/historical.pdf

Sun, 04/10/2011 - 15:18 | 1155471 deadparrot
deadparrot's picture

The short answer is "We're out of good options!" Only the most naive still believe there is a pain-free solution to US debt. The US is like an obese man who just had a heart attack. He knows he should go on a diet, but his quack doctor (Dr. Bernanke) keeps telling him that instead of the painful diet and exercise process, he should just keep on over-eating until his body recovers and it is "safer" to start exercising. I suppose it is our culture, really. We have been so well off for so long that we think everything will just magically get better if we ignore the problem long enough. I sometimes envy dictators. At least they can do what they need to in order to improve the country, if they are so inclined. They don't have to lie for a living in order to keep their jobs.

Sun, 04/10/2011 - 15:36 | 1155507 Sudden Debt
Sudden Debt's picture

DISNEY ENDINGS ONLY HAPPEND TO DONALD DUCK AND SNOW WHITE!

 

 

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