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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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Manthong,
Exactly.
I remember when United did that, and it was a clear signal to anyone willing to listen that ANY pension obligation could be thrown out the window (and workers under the bus).
In the late 80's I worked with an old guy who had put in 30+ years with Cadillac. WWII Navy Seal vet, some of the first seals. He was having health problems and was going back to work because GM management had screwed over the Cadillac workers on their pensions and healthcare (raided the pension funds).
Looks like they are at it again: http://www.thetruthaboutcars.com/2009/03/gm-raids-pension-fund-for-buyouts-veba/
i have a memory of a GE engineer losing big-time on a pension raid, also, eb. engineer. french name, quite cultured, even all 3 kids. i used to smoke camels at his sunday dinner table! and use whatever for ash trays! one day, he just went ape-shit: "slewie!!! put that damned thing out! would i fart in your face?"
his wife almost died laughing, and all 3 kids tried to kill him! i thanked him for his candor and told him i wouldn't smoke too much in his presence, maybe.
the next summer, i sunk his handbuilt boat up near Lake Ontario. his son decided i was too fuked up to sing and insisted i drive. no shit. he was really out of it, ok? i recall seeing about 7 docks, and impaled the fuker on one of them! i recall us trying to stand on the dock, amazed at how fast it went down! &tc... he really loved fixing things, so he didn't mind nearly as much as the smoking...
The Mortgage Bankers Association strategically defaults on its loan after shaming homeowners who do the same.
+1. Corporate America should be afraid of what it teaches Americans
+1,000,000, thus going to prove that even on a useless and nebulous Krasting blog post, one can still find several good comments.
Hang in there...this game is gonna change .
Fantastic...tell grunk how to forward to a new screen without having to reload a long ZH page...Thanks
(Zooming past the pc to grab another can of beer -- cans are better 'cuz they don't break) In defense of grunk I'm guilty of linking to baseball bat man.
<a href="http://www.dumbwebsite.com/" target="_blank">Be Dumb Here</a>
Just highlight the text, CTRL + K, then paste in the website.
Dogs and cats, living together! Mass hysteria!
http://www.youtube.com/watch?v=O3ZOKDmorj0
Can you tell us what the link shows?
Cannot jump off the ZH to some idiotic youtube.
ok...It's Bill Murray, Ghostbusters, dogs and cats...ok
Thanks Grunk! Got Anything else of Substance??
Dont waste our time....
It's a Sunday, douchebag. We can have the temperature set to "High" 24/7, but some of us like to occasionally wind it down a bit.
Baker's proposal was deliberately extreme as was Krasting's apocalyptic response. Would you rather burn to death or be poisoned?
I don't think there is a lot I or anyone else can offer macroeconomically in the way of a solution.
If you need to be continuously amped about this stuff, I apologize.
Now go savage a williambanzai7 post.
+1
The only true globally acceptable result is a planned debt retraction and global trade deficit/surplus restructuring over time. Whereby power moves gradually from SOLE reserve currency to a basket with a concomitant transfer of political/military power to prime players as CO-ACTORS of world responsibility. Is it geopolitically possible? On paper, yes! Between, USA/EU/JAP/CHINA/INDIA/BRAZIL as continental leaders. But in reality...more difficult as the fight for RM and food/water will be terrible. Not to mention the terrible mess that the US hegemony has left the world in that oil dominated zone called MENA. Where on top of major economic concerns about King OIL there is the powder keg of ideological war and terror, for years to come. Thank you Uncle Sam for your brilliant TOP GUN play since 60 years in this region. For having hatched the egg of ideological hatred by surrogating both Saudi Islamism and Israeli intransigence of Apartheid. Now we are in double penetrable bunga-bunga mode...True statesmanship to make Berlusconi blush with envy!
How the world gets out of this double-whammy like distending a Gordian knot nobody knows how to unravel...is the OTHER enigma of the decade. Along with USD demise and US economy meltdown. Pray and hope...that Sauron's ring does not re-emerge.
sounds NWO to me.
No thanks.
Hey! There is a bright side: All of the "institutions" which brought us here (both Federal and Banking) would no longer exist. That might be the only way to rid ourselves of these leeches.
I don't think the institutions caused us any problems, it's the black-hearted individuals controlling the institutions. I would faint from utter surprise if those same individuals aren't in charge of any subsequent new order. It would be some consolation to know Bank of America was dead but Bank of Gaia sounds just as scary. Currently much of the money flow in the world runs though the skimming hands of a handful of institutions. My bet is after any reorganization a higher percentage runs through their hands.
Could be, but otherwise there is no way to find out. I'm willing to give it a try. There is no escape in my opinion but collapse of the existing structures. You're saying that the foundations would still be intact. There would still be some pain to share in the corporate boardrooms and panhandling to be done by well-manicured hands. I could dig it.
If you read the posts I've made here my point is : IT IS THEIR AGENDA. (not mine, I'm not king of the world, just suffering witness like the others!). But as a US citizen (or even as citizen of another country/zone) do you have another solution other than inevitable Armageddon? As BK's comments make very clear...
unhh, yes. see above replies about BK and to k-hoff, pls.
the "solution" for a US citizen is hidden in plain sight in the Constitution, falak. the fact that you and brucie [both really "smart" (!)] have been conditioned to never think this thought through, is really, just personal baggage at this point. thx for showing yer worthless ass, tho!
what one coward (or 2) sees as "inevitable Armegeddon" is just a real good fukin worthwhile FIGHT for many here, btw.
please be advised.
if the american people put their actions where your mouth is, you will be proven right. But I don't see that happening. I get the feeling that you are a populist idealist living on Hopium. You have no idea how relentless the NWO can be with those who defy it and then come to CLAIM it's moneyed blood line. Time will tell...The most likely current outcome will be different forms of international war this century to come out of chaos. That looks on the cards in the current mindset of TPTB in the face of the coming black swans. (Pop.incr./Oil peaking/Debt to infinity/Hyperinflation/Food-water sortages/ Mega world pollution/WS+ world wide inevitable asset-commodity bubble implosion).
The French revolution was no Boston tea party! And, it took the french Three revolutions (1789/1848/1871 commune) to get a semblance of working republic after return to dictatorship. It is never an easy road to defy the powerful in their OWN very back yard.
Just being rational and basing my comments on past history...I don't have a personal agenda on this issue, even though I may have personal beliefs on value systems.
Paying back creditors with devalued currency is another form of default
Exactly! And that has long been the plan, while the rest go hungry and without a means of earning a living....
the preferred method....sneaky, under-handed & vehemently denied
Pick your poison. Either that, or status quo with the government, bureaucrats, unions and bankers bleeding the middle class private sector bone dry. Quick amputation and reset or slow strangulation.
Of course. This is an argument of Form Over Substance. "We" chose default years ago by making traditional medicine a set of monopolies, exempt from competition, and promising defined benefit pensions based on nothing but fraudulent accounting. Now that cuts have to be made, they will hit the most abusive programs hardest because that's where the problem is.
Bruce and Leo can get their panties in a knot over this as often as they like, but that which cannot be paid will not be paid. Well said, pick your poison.
k-hoff, slewie is into the Constitution: "We the People..." and so on. goobermint of, by and FOR the people. admittedly, a coupla biiig shitloads have gone really wrong under baby boomers & their parents, and now, their children, too. certain;y, none of us is innocent of this clusterfuk, ok?
that said, i really think we must get real clear about telling those who actually believe they are our masters, what our moral/legal position is, and why they are totally fukin wrong about that shit, sorry, not negotiable, asswipes!
if 50-100 million pissed off, legally-armed-up-the-ass american citizens could ever find the voice to express this truth, together, some fine bright morn, maybe the asswipes might begin to, somehow, understand how serious a gaggle of armed clowns can really BE, now & then, capiche?
that is why, to me, it is not some kind of tweedle-dee/tweedle-dum or "pick yer poison"---b/c this is real, legally and morally, if those words do not find you deaf, wo/man! WE know they work for us. we don't work for them. this little misunderstanding, along w/ the innocent little dynamic of debt enslavement for us and our children and their children, is really quite the current theme, for at least some, here. and we didn't toss a fukin coin to get there!
and if you look around, you may begin to see that i'm not the only Z with these views, just one of the biggest assholes about their importance and the need to push them here and now.
other than that, slewie is pretty fukin crazy! trust me!
unhhh,...k-hoff, whoever tf you are: dawned on you, yet, that abt 60% of goobermint "employees" might come first as a "problem" or is that too subtle for a big thinker like you?
other than that, carry on, bro/sis, and gd4U putting leo up for a little tar & feathers, too! peace.
The only fool here is Krasting. Your 'argument' can be summed up as: pay the banksters, screw Americans who've paid into Social Security.
Debt is debt. If we're going to go broke, let's pay ourselves back 1st.
yes weinerdog, bruce is a big fukin douchebag, always has been, and always will be. that said, he's kinda charming in some ways, too, like many sociopaths, really. and very, very "smart" too!
the first time i posted on one of his moronic stoolie rants, i said something like: why don't you tell us how you really feel, brucie?
he's obviously an elitist, totally divorced from the true needs of the citizen or person, and is the true faustian anti-hero of zH, forever, for me! he seems to want to pretend that he has a human soul, sometimes, but can't seem to understand what might have "happened" around it. funny, really, and so transparently empty, the man is dangerous only to folks who might trust him. Hahaha! clients? no, more like his kids, unfortunately, and fuk him if he doesn't like me saying so, too...
Agreed - Krasting's argument is just carrying water for the banksters; nothing they fear more than the thought of being totally screwed by the most obvious remedy available. There will be many many more Krastings springing up to proclaim the worst possible thing would be for the US to default. An outright default would indeed hasten the 'new world order', but it would be one where the banksters get what they deserve and the American people aren't relegated to perpetual serfdom as per the bankster plan A.
Krastings was a cheerleader for TARP, rewarding failure and socializing the losses of said failure. It is my belief that he benefited handsomely from the S&L bailouts of past.
The answer to capitalism's problems is not socialism, nor regulation. Its lying, cheating, stealing bankers and speculators eating ALL their own shit. The fact that they colluded with government (citizens asleep at the wheel) doesn't make it okay. Pity.
Where did I say that?
Thank you for summing it up quite nicely, weinerdog43.
Just to be sure, I looked up "fool" in the dictionary and found the name "Krasting" -- then looked up "Krasting" and found the word, "fool."
But to Krasting, debt isn't really debt when it's securitized debt, then it's a financial instrument from the banksters which must be underwritten by the people.
Yes, Bruce thank you. I now have one more contributor that I can permanently ignore. You are a banker shill that uses the mutual destruction card to enslave the serfs.
Why don't you ask the question why 'we' have debt at all. Why? Why does a sovereign country borrow its own currency from private corporations (the Fed and fractional reserve banks).
All of your fear mongering ignores the possibility of the simultaneous issuance of a no-interest, no-debt currency. Like a Limcoln Greenback.
Read up on some history of our monetary system - it's working exactly as it was designed: www.bigeye.com/griffin.htm.
One last parting comment: fuck you bankster shill. It's not my debt, and I ain't paying it back.
"Bruce, you wrote something I disagree with! Fuck you! Fuck off, asshole! How dare you?!?! Fuck you, again!!! Yup, this was written from my Ipad. Yup."
But seriously, whether one agrees or not with Bruce on this one...he does a great job. His posts are consistently insightful and interesting.
So, fuck off Trader Joe. I disagree with you you. You wrote something I disagree with! Fuck off, asshole.
The irony of your comment is delicious:
1. You do exactly what you decry of me. Welcome to my level of (im)maturity.
2. Your grammatical mistakes can only suggest another iPad user (don't know what that has to do with anything).
Whether you believe in the legitimacy of our current monetary system, and its ensuing debt-based money, national debts, and interest paid to the TPTB, is a FUNDAMENTAL position, IMHO. Bruce revealed himself to be on the side of bankers. That now colors/discolors all of his other 'analysis'.
Anyone on the side of the bankers is not on the side of the 'people'. What side are you on?
Josiah Stamp, Governor of the Bank of England (1920).
I wouldn't go as far to call Krasting a shill of any type. He just has his own perspective.
But more to the issue at hand COLLAPSE is inevitable. Whether the US continues to default a little each year, as it has for almost 100 years, or it defaults out right, the debt will never be repaid. Americans can't pay themselves first - the money no longer exists as it was misappropriated by parasites long ago. The USA, along with every other gov't in history, is going the way of the dodo. Anybody read history around here? This is NO surprise except for the gullible.
Prepare your contingencies.
Tks for sticking up for me. It's okay. I can take it.
I wrote in the piece that default would be a popular option. I was right. It is. The evidence is in all these comments.
I'm no shill for bankers. Believe as you will. Those that say this about me shoud be reading all the other things I write about. If they did, they would know that I am no fan of the banks and what has happened.
Mark my words. If we go down this route it will be most unpleasant. If you think default is the way out I would suggest you get some land to grow food. A gun or two will come in handy as well. If you think this is the easy way out, you're wrong.
I figure the odds are about 50-50 we go into chaos. So you just might get what you ask for. Ready?
Money is being lent to Argentina and Russia as we write.
Not advocating default or repudiation. Just saying money would be lent again. Just might as for more details and keep a lid on degree of borrowing. But probably not. The attention span of gnats.
+1
The US has defaulted on its debt several times, especially in the pre-Civil War era.
PT
Back then it didn't matter as much, probably as a percentage of the global GDP US role was as big of Argentina's when it defaulted. These days the US is the only global emipre left standing, trade deficit and massive debt basically represent a carrying cost of this empire. If/when US defaults, the repercussions will spread much further than just a financial system, think of the succession of the US over Great Britain and what events were surrounding it.
No one will ever lend usa "money" again.
We should not be "borrowing" any in the First Place.
Shut down this "Fed" Bank.
The US Govt is bigger than any "Bank".
Greenbacks, printed by the Treasury, not this Delaware Corporation.
Why not just default on paying back the Fed? We owe them half...just don't pay back that half...pay everyone else.
Food for thought: The Fed has been the lender of much debt, so let the Fed take on as much debt through QE 3/4/5/6 and THEN default.
Fuck the Fed!
BINGO!!! My thoughts exactly!! And just who is the main beneficiary of all the Treasury/Fed largess??.....
"No one will ever lend usa "money" again."
Who cares.
The dollar is in a steep kamikaze dive with Fed ace Banzai Ben at the stick. The target is defined and destruction assured. Tora! Tora! Tora!