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Dean Baker - "let's Just Default"
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.
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.
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?
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.
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.
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.
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.
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.
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.
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.
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.
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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please, this post was just about a monetary system, did not speak to other acts of Germans.
You can just as easily point to similar monetary system used by early US that made colonies quite rich with full employement til Bank of England shut it down but I guess you dould criticize those colonists for being slavery apologists and ingore the economic principals.
Some anti-bank people, some people for monetary reform come at it from an anit-semetic, racist perspective, that is wrong, but this does not mean their analysis is wrong.
The original post proposed absolute collective punishment for an arbitrarily defined group based on the perceived transgressions of some members of the group, which conveniently would work to the financial benefit of the person arbitrarily defining the group.
Swap your favorite epithet for the object(ive) nouns in the original post and reread.
http://www.zerohedge.com/article/dean-baker-lets-just-default#comment-1155222
Life moves pretty fast. If you don't stop and look around once and a while, you could miss it.
Did you read the salon story, Andy Lewis?
Godwins Law Exemption Granted...For Sventhrift...additional 15 yards. 1st Down.
We're back, motherfucker.
http://www.hudson-ny.org/2020/spain-anti-semitic
I thought the Jews were suppose to be bright. Did they not consider that starting a bunch of wars and then destroying the global economy might return we Europeans to our natural state?
So yer back, so fuckin' what? You'll lose again, fuckface.
There's an easier way to get out of this mess: put those responsible for the mess on trial, and after conviction confiscate their assets, strip them of citizenship and deport them.
Then, medicare and social security could be turned into individually-owned retirement plans, funded with the assets seized from the wrong-doers. So how many people would have to be put on trial? As many as it takes to fund the individually-owned retirement accounts. If that means every politician, banker, lawyer, lobbyist and bureaucrat stands trial, then so be it. This country would be a much nicer place after they've been deported.
Deportation is too lenient, give them the firing squad and make their families pay for the bullet.
I think some guy in Germany tried that a while back. I seem to recall him starting off blaming kikes, queers and crazies for the economic mess he inherited. I am not sure if he collected as much dough as he though he would, since he couldn't afford gas for his tanks at the end.
Urban...10 yards...Godwin's Law Violation
http://en.wikipedia.org/wiki/Godwin's_law
Although I agree with everything else you said on this post.
I'll take the ten yard penalty, I'll never surrender my right to iconoclasm or irony, and in the process I'll learn who can be quickly eliminated if Tyler ever deploys an IGNORE feature.
no matter what "they" do, the outcome will be the same.
Bruce, fearmongering lately? No analysis, just fearmongering.
BTW, I do not think we need to default yet. We need to quit supporting the insolvent banks, cut spending on useless military projects, quit going to war, cut into the cost structures of medical/health, etc. None of these will occur though. Thus, default maybe in store.
You accuse Bruce of fear mongering -- and then conclude that he is probably right.
Talk about your dissonance...
I'm ready, and that includes defense against those who aren't.
There is no painless way to arrive at a MUCH lower standard of living!
on Sun, 04/10/2011 - 12:22
#1154983
When pestered about the massive issuance of US debt FDR cracked a smile and said, "We owe it to ourselves..." The current monetization of the US debt is reducing the holders of US debt to the 1) US Taxpayer and 2) the FED. When there are actually only two chairs left, why wouldn't Chairsatan demand that his serfs beg him for another. Iceland's debt is to outsiders, we started importing our debt the day we began monetizing it.
by Urban Redneckon Sun, 04/10/2011 - 10:28
#1154791
The last time I did an analysis of Treasury holders was February 2009:
Total Public Debt $10.8T 100% (Numbers Rounded)
Total Government Held Public Debt $4.37T 40.5%
Of which -
SSI $2.2T 20.7%
CS, FS, DOD Pension Funds $1.0T 9.1%
All Other Intergovernment $1.15T 10.7%
In the intervening 2 years the percentage of the Public Debt owned by Government subsidiaries has dropped from 40.5% to 33%, while the amount has remained relatively constant.
Total Public Debt Debt has meanwhile increased from $10.8 to $14.3T.
So the extent of the previous pilfering of the public's pockets is being masked the massive issuance of new debt over the last two years. And now the FED, which is excluded from intergovernmental holdings, is an even bigger owner of debt than SSI (the previous #1 and way ahead of China, even then).
nice posts...I like how you distinguish between FED debt and our debt to SSI etc, I knew we owed to ourselves via trust funds but not how much....its funny that much of the "debt scare" is created by talking about us owing to foreigners etc. In the same way Japan can afford their massive debt compared to GDP so we can except, their national bank is actually their national bank, not like the FED.
The FED printed our money to monetize the debt, so why should we owe the FED anything? In fact, we are all incurring whatever monetary/currency pain that has beeen caused by that printing already as a people working for dollars. So if our money devalues, that is the tax to pay the debt so to speak. What infuriates me is the FED money was used to by worthless crap from banks, not to simply cover deposits, but to bail our bank's investors etc...if we had rather spent that money on infrastructure, block grants to states to whatever they wanted, etc....that money rippling thru US economy, there would be far less food stamp and UI costs because unemployment would be much lower, and the money spent would be leaving behind actually helpful assets like trainlines, bridges, internet connections...but instead, we have Maiden Lane.
It's tempting to desire a wide sweep of the chess board, clearing the table for the mother of all 'do overs'.
Bruce, the sociopaths running this ponzi scheme are the ones pushing the U.S. in the default direction. Our puppet leaders will not make significant reductions in military spending, continue to allow U.S. corporations to offshore jobs and follow Wall Streets version of crony capitalism. The system is deeply corrupted, captured and checkmated. Default would have a much greater impact on the billionaire elite and people in power than the public as they have so much more to lose!
So right you are. Did you see Rep. Ryan's budget proposal? More for defense, more for the rich, less for entitlements (poor). I'm voting Republican in the next election just to get the chaos rolling! I'm prepared (stock-piled supplies, motorcycle, grow light, some land, a shit-load of alcohol and just a modest mortgage).
Yes, the poor who do nothing and produce nothing need more dead dollars so they can Hip Hop their way to success. That's so much better than not stealing from the people who earned so we can have an honest economy. Bienvenido a Detroit!
Plenty of people who at one time earned a living find themselves impoverished...it's just a job loss and/or health insurance loss and/or disabled child and/or auto accident and/or prostate cancer, etc...away.
It could happen to you. Be careful what you wish for.
Should it happen you might learn something. I doubt it.
Good luck with that.
For the people who want to judge "production"!
What has Hillary Clinton produced to "earn" her $125 million fortune?
Anthony Mozillo? I know, Jamie Dimon? George Bush? Cheney? How about Bernanke?
Some of these ass-hats who you would consider productive have in fact been counter-productive to society. But, you would rather go after the person who was ELIMINATED from the job market because of some corporate lobbyist who is milking the system for an extra $500 a month.
http://en.wikipedia.org/wiki/Hillary_Rodham_cattle_futures_controversy
johnnynaps,
I hear ya.
Got a dual, logging road maps, outta the way place, cached supplies on routes A and B.
Need still components for liquor. Half-way there with wine making and home brew equipment.
Vote Republican...I dunno...I'd rather not vote at all...
Yep, if Ryan gets his way, the big oils will get to keep all tax breaks and subsidies while the rest of us can't afford gas.
Methanol motorcycle? Haven't done any homework on that one.
http://www.youtube.com/watch?v=Py8QYt54EpE
"the billionaire elite and people in power than the public as they have so much more to lose!"
They control the physical assets... in a relative sense, they will gain everything.
Did you see the tax data from the main pages articles.
Something like 1.5 trillion in revenue comes half from income taxes and half from social program taxes. Social program taxes are just another 1/2 of the money they mismanage and direct towards creating "safe" microwaves that only burn the top layer of your skin. Tanks that get 1 mile to the gallon to carry a car stereo that has directed speakers to make you sick.
It's not a matter of pulling the plug on the sytem and letting the chips fly where they may. The plug is being ripped out due to pressure and the chips are going to fly where they may anyway.
And IBM spent 100 years improving counting and tabulating devices so that things could get counted and tabulated wrong. As it is now we are supporting "bribes" to hire people to force the system on us.
All they are building is roads to move poison food and water treatement plants to move poison water and collecting 50grand for treatement where docters go herp derp I don't know what is wrong. Herp fucking derp. Fighting over subsidies to railways as walmart passes 150,000 thousand 60 to 80 ton trucks over every road smashing it's bed into dust.
Building houses that fall apart in 15 years even though they have granite counter tops and appear to be mcmansions.
Destroying afghanistan and building schools that fall down in a YEAR and trying to make them pay for it for 60 years.
As for public education. All they do is teach people that corporations have intellectual property that they can't teach and if you try to learn it you'll be imprisoned.
Oh and spout rediculous shit. Like how some arthritic grandma fought off a band of smash and grabbers in london and show face blurrred pictures of arthritic grandma running like a linebacker from perdue. And grandma taking the clip away from cold blooded safeway shooters.
Now they got grandma digging up the internet cable for russia. This place is fucking rediculous story time.
http://www.tomsguide.com/us/Armenia-Fiber-No-Internet-Georgia-Old-Woman,...
Like she is digging around looking for scap cable finds the STEEL PIPE IT'S IN. Cuts through it with a cutting torch and starts hacking at fiber optics with her shovel. You lying motherfuckers.
Our news services are simply rumor mill crap with sources like "old lady" and "gunman". Print some FUCKING NAMES YOU FULL OF SHIT WHORES.
I was somewhat following you until the old lady dealie
How so. The fact that an "old lady" is reported to have knocked out internet in an entire country or the fact that I brought up how rediculous it is?
Or the fact that this is as rediculous as watching a cop movie version of the blair witch project.
http://www.youtube.com/watch?v=s2PlcyteQi0
lol! i think he just meant what he said, Heph_! you ok, today? i mean, the fact that you provided the Utoob link to granny while inviting us to something as ridiculous as watching a cop movie version of the blair witch project is pretty far out, bro, but i already know how you think, ok?
as long as you're ok, fuk me! go for it!!! peace.
He's right about SS and Medicare though. A default would force the country to funnel the existing capital base into productive assets, any and all wealth transfer programs would go straight into the wood chipper.
And this is bad because?
It is quite possible to survive default and rebuild a vibrant economy. History also teaches that if the global banking syndicate is not receiving enough vig from a given nation they will foment internal dissension and failing that they will recruit outsiders to invade. We need only look in the mirror to confirm this. We are usually the lead sled dog. from nazi germany to south africa to north korea, countries that don't play ball are made pariahs and marked for destruction. The last time foreign war was on our soil was 1812 are we ready for that again?
You conveniently forget that the NWO that you despise is 99% the top leaders of US political/banking/corporate sectors, prime creators of current problem. The main beneficiaries of globalization and the biggest proponents of junking Main Street USA. Until it eats humble pie! That's the international labour arbitrage that this model has now made as global paradigm to generate mega profits for themselves. So to start of you'll have to kill your whole elite class of USA! Good luck!
Fear not, Robespierre is in the wings somewhere...
and notice how we are getting used to it, without complaints. Morphic resonance. Social experimentation
We are not "getting used to it". The MSM simply refuses to report about it.
We are starting to see the real intentions behind the provoqued catastrophe of 2008
Planned by Reagan et al. : Defeat the Evil Empire of USSR. Then ensure US dominance through supply side economics and low value added outsourcing, without losing the strategic grip on FIRE economy blast-off. (Obvious pipe-dream like for ALL Empire builders ...Alexander, Charles V, Napoleon, Hitler etc.). But nobody expected the plan to go SO WRONG, SO FAST in DC. That is for sure. And the funny thing is the Reagan conservatives are the MOST bitter about it's MISMANAGEMENT by the ideological hawks of the GWB NEO-Cons! The irony of it!!
Obama being a total, impotent surrogate, he is in the hands of the century old TOP guns of American capitalism who built the FED and this system that Reagan represented like Nixon, and Bush father n son.
$10/gallon-50$ would bring us into a 'biking' society...bicycle for in-town and scooter for commuting to work. Our interstates and highways would be a car/truck-only in the passing lane and the right would be only for scooters/motorcycles. Bicycles on the Interstate should still be outlawed, IMO.
We'd certainly be healtheir...If I biked the five miles to work, I'd drop 50lbs, look great, be healtheir, etc.etc.etc. Cars would be almost worthless as no one could afford to put gas in them...Food would go up, what, 25-50% (yes, I'm pulling that out of my corncrib)?
$50-100/gallon gas = BSoD* and reboot. Agrarian economy anyone? Lots would starve and die through other means. But when food is unaffordable, you must plant or die.
Long bicycles, chickens and oxen.
* Blue Screen of Death
Bikes require a mechanism of distribution. Unless you are thinking we'll have bikes deliver bikes with people on them. Even when bikes were introduced they were very expensive.
Unless you've been hording acetylene gas and torches and oil and rubber, the bike idea isn't going anywhere.
We are going straight into steam punk. Wood, coal, big boats and horses.
A bike boom in the 1970's was a direct result of high prices. Gasoline was rationed by limiting purchases determined by an odd or even number on a license plate.
My opinion is you are overestimating the food price increase based upon fuel. I do not have the numbers at hand, but I think any farmer will confirm that the amount fuel based fertizilers and fuel costs for harvest are a very low percentage of the price of food. Distribution costs are also very low.
I agree though, "long bicycles".
At $50 a gallon it would be the cost of transporting it that would be the issue. I forgot what the average miles that a grocery product travels but it is several thousand.
Food Miles Traveled is complicated at best.
http://www.slate.com/id/2200202/
What I find interesting (alarming) is that I'm all the time meeting more and more everyday folks who are preparing for some of the post default ramifications in one way or another, whether it's stockpiling food, guns and ammo, precious metals, physical cash, ham radios, etc. As these behaviors and expectations become more commonplace, which in my experience they are at a rapid pace, the likelihood that our collective will "self-fulfill" these chaotic expectations increases as well.
But goobermint debt is the entitlements. Those are ones they want to default on. It is a financial debt obligation. The debts to others of global importance will be worked out and then the economy will dry up and die.
The masters of bernanke will the bankruptcy judges. Shit they already are calling their employees of congress to make trillions of cuts. Not billions, but trillions.
Guess who is coming to live with you. Grandma and uncle joe and aunt lulu, cousins bert and earnie. Make room.
++
bruce usually u make sense, but not this time. its the plan after the default that should be critiqued. it may well be foolish in the end if it ends up hurting those people but there is also a good probability it wil be in their best interest. we r going to default! its not if its when, we as a country should try a controlled default.
Strategic default was praised as a shrewed business maneuver when United Airlines used it to shed itself of those burdensome employee shareholders and defined pension debtand obligations.