This page has been archived and commenting is disabled.
A Debt Default is Not the Real Problem for the US
Many
commentators are discussing the collapse of the US today. Indeed, the most
common theme I see one of “it’s all over,” usually focusing on the math/ debt
problems in the US.
Debt is a
major problem, but it’s not always one that destroys everything. History is replete with countries that
defaulted on their debt… and the world kept chugging along regardless.
So, the idea
that the US will default on its debt and we’ll somehow re-enter the stone age
is false. Human ingenuity and survival skills are far better than that. Indeed, the human race was in much worse
conditions when we were hiding in caves and running from prehistoric monsters.
We somehow survived
that situation and evolved to make peanut butter and jelly sandwiches and drive
cars… so I’m sure we’ll figure out how to deal with the collapse of the US
empire and the end of the Dollars status as world reserve currency.
So rather
than freaking out about our debt problems, I think we need to address the real
issue that LEAD TO our disastrous debt situation. And that issue in the the US
today is that the people making the major decisions are not problem solvers but
politicians.
Let’s
consider this for a moment.
Problem
solving requires critical analysis and flexible thinking. Anyone who’s tried to
tile a bathroom or even balancing their personal finances knows that the
process is not linear in nature. That is, there is no one single correct
answer.
Instead,
there are endless solutions and the real issue is one of picking the solution that
best utilizes what’s on hand in a realistic way to create the best outcome.
This
involves being able to accurately assess the situation/ problem, taking account
of the resources at hand, and then coming up with creative or traditional
approaches to use the latter to address the former.
In contrast,
a politician has one primary goal: election. Consider that the perceived problem in this situation is not
actually a problem at all, but an issue of ego, “I must win.”
These people
are not problem solvers. As we find out regularly, they often cannot organize
their own personal finances (or cheat on them), their personal lives are a
shambles (how many members of Congress leave their wives for lobbyists?), and
in truth they don’t even understand the issues they are debating/ need to
address if elected.
Instead, all
of their efforts are aimed at saying the right things so they can get in
office. And once elected, the
focus is on getting re-elected or preparing to run for a higher office.
Consequently,
their focus never actually shifts to address or implement real change or
solutions to the problems facing the country. The reason for this is:
a) none
of them have a clue how to fix these problems
b) taking
a risk with implementing a real solution could result in too much career risk
If your
primary concern is getting re-elected, you’re not going to go out on a limb and
implement some policy that could go wrong. Instead you’ll look for
half-measures, small moves that could produce small changes, band-aids for
society’s wounds rather than actual healing.
However, as
bad as Congress is, the US Federal Reserve is much worse. These guys don’t even
actually address reality, but are stuck in a world of models and formulas. Seriously,
they can say with a straight face that inflation is contained, fill their gas
tanks at the pump (with $5 gas) and not connect those dots.
You can see
it in their policies. The Fed really only has one policy: printing money.
Everything the Fed’s done revolves around this (interest rates, are secondary).
Every time a problem surfaces, the Fed’s answer is to print more money.
Small wonder
then that the US Dollar is falling off a cliff. And it’s only going to get
worse. The idea that somehow these guys are going to wake up one day and think,
“maybe we shouldn’t print money” is delusional. And any public comments they
make about considering this as an option is just posturing by those looking for
political points.
Which is why
the US is set to enter a period of mega-inflation in the coming months. The Fed’s
going to keep printing GUARANTEED. And we all know how this will turn out: the
Dollar collapses.
So if you’ve
yet to take steps to prepare your portfolio for the coming inflationary
disaster, our FREE Special Report, The
Inflationary Disaster explains not only why inflation is here now, why the
Fed is powerless to stop it, and three investments that absolutely EXPLODE as a
result of this.
All in all
its 14 pages contain a literal treasure trove of information on how to take
steps to prepare AND profit from what’s to come. And it’s all 100% FREE.
To pick up
your copy today, go to http://www.gainspainscapital.com
and click on FREE REPORTS.
Good
Investing!
Graham
Summers
- advertisements -
I know I've got the working wrong but When every problem is a nail, the answer is always a hammer - that's the Fed
Every answer is 'print more money' which is antithetical to The Peoples problem, the people don't need more money in circulation (which causes greater inflation); the Fed was created for the purpose of stabilizing the currency. Being unable to ever do this, the Fed (among other things and reasons) is a fraud; we don't need it and it works against us.
End the Fed, End the IRS, free the people - otherwise you can live without liberty with this motto: "Laws and Taxes are for Peons and Peasants" and "Long Live the Kings, Banksters & Politicians"
As Dr. Englai wisely points out above, it is virtually certain certain that "The Plan" is to hyper-inflate 'US' out of debt. TPTB which I think is more precisely depicted by adding in the word "FEW" [TFPTB] have just been stalling to gain time to meet and decide how best to unwind some deals to their gain, grab what they can take then cover their asses and assets for the next century. I hope everyone isalready wisely prepared. I am interested in watching the emerging Barter Economy as it grows. ****Yet, After the initial food riots, the first robberies of my home, the first few "Official" home confiscations by the unprepared or the self or govt. appointed Confiscators of Items "Necessary for the Public Good"...even after all the beggars, all my unprepared family and friends have been made sure I'm as bad off as they ...(events I have carefully planned as part of my overall survival strategy using My Thuggie Supply Goods and pre-planned hiding to be caught places)...I am trying to figure out how can an older person living alone who will still have huge stores of PM's, Booze and Barter Goods Galore (BGG) actually trade without being ID'd as one who still has "x" or has just purchased "y" and thereby be victim to further "confiscations" or worse? I am wondering how and, if wise, when to create some kind of middle entity be used to broker the trades and perhaps hold goods in escrow so buyers and sellers may remain anonymous. The cons of all options seem fraught with peril, but anonymous trading will need to happen, I think. Any good books on the fine details as to how bartering was achieved safely in the past? I'll research black market tactics...
great article! yeah the problem is that bankers and war pigs are in control....bankers make money (now out of thin air) and war lords make killing machines. Neither make good infrastrucutre for long term economic growth.
I kept waiting for the author to get to the real problem with the endless growth paradigm.
Where does the author mention Peak-cheap-Oil?
Your premise is solid but we have to face that the common state of man is warfare. In history man has been at war more then he has been at peace. If the USA rolled back its military spending to zero, we would find our access to vital needs cut off, and yes the world would be a lot worse place. But $700B is too much. We all know it exceeds the cumulative sum of all other nations' spending, with China at $100B (although their soldiers are paid less, stretching the effectiveness of the $100B).
In 2003 the USA military budget was $350B. Surely we can get back to less than $500B. That $200B plus other savings can get us over $500B per year saving. That will help the dollar, the economy and our future. I'm afraid our deficits are a worse enemy than the $200B saves us from.
I absolutely and completely deny that --- that is just a malicious lie repeated by statists to justify their existence.
The natural, common state of man is peace; you have only to examine your daily life to see overwhelming evidence of that. How many times in the course of the day do you use force and violence against others? How many times in the course of a day do you see anyone else doing the same? How often IN YOUR LIFE have you seen anyone use violence against another person? Most likely only a handful.
No, it is only psychopaths and sociopaths who are compelled to use violence, the sociopaths much the worst because they have so often convinced or conscripted the ignorant and the gullible into their cause, under the banner of "patriotism", or some other collectivist slogan or malevolent rationalization . Put a rein on the State, and war --- the mass exercise of evil through violence ---- is not only impossible, but unthinkable.
I hope you are right, but it seems the psychopaths are the ones that seize control of governments, and people (fighters) follow them. History is replete with plunderers who sacked peaceful places and killed, raped and razed entire civilizations. It only takes a few bad ones to destroy many good people
Flagged as excellent.
Inflation is coming over the next few months and after medium and long interest rates jump a couple of points; it will destroy housing and stop consumption and we will move back into deflation. The only way out of this mess is a low inflation environment because we have too much debt and too many indexed government costs. If you think deficits are bad now---try to inflate your way out. The Fed will have to stop QE because they will need to work to regain global confidence in the $ as a means to reduce this inflation. They see it and IT IS COMING from China, weaker $, from food, from oil, from commodities. We have lost a lot of good jobs and replaced them with part time jobs and think there is enough income to create real lasting demand. Don't think so!
Capitalism spawns corruption if it is not regulated. We now have corruption in our country big time. Supreme court, Congress, White House - they are all corrupt. Everybody knows it but won't admit it to themselves. It would destroy the myth of American "exceptionalism".
A Debt Default is Not the Real Problem for the US
Right. Because there won't be a default.
Endless currency printing allowing endless borrowing is the chosen path. Call it inflation, biflation, stagflation, hyperinflation, Weimar, Zimbabwe, whatever.
Yes Bernokio will keep running the presses and debase the dollar to nothing.
Debt ceiling doesn't matter. It'll be 100 trillion eventually, if not abandoned completely.
Debasing the currency is a form if defaulting. Paying the debt back with worthless dollars.
Obama: Let’s fund clean energy by stripping giveaways to oil companies
http://www.rawstory.com/rs/2011/01/26/obama-strip-subsidies-oil-companies/
So the oil companies are being punished and GE is getting rewarded.
Hang the Bitchezzzzzzzzzzzzzzzzzz and don;t stop until they are all hunted down . Crimes against the US Citizens is unacceptable.
The BIG PROBLEM is that when those other countries defaulted. They WHERE NOT THE RESERVE CURRENCY OF THE WORLD! The QUESTION then is WHO OR WHAT WILL BE THE NEXT RESERVE CURRENCY?
CHINA? NO WAY.
the EURO? HELL NO!
CANADA? I THINK NOT.
THE ANSWER IS GOLD!
This why,I think that a VERY Large Portion of the AMERICAN PEOPLE VOTED A BUNCH OF IDIOTS INTO OFFICE BACK IN 2008.
HAD ENOUGH National SOCALISM and COMMUNISM YET?
I sure as hell have. Go TEA PARTY.
The BIG PROBLEM is that when those other countries defaulted. They WHERE NOT THE RESERVE CURRENCY OF THE WORLD! The QUESTION then is WHO OR WHAT WILL BE THE NEXT RESERVE CURRENCY?
CHINA? NO WAY.
the EURO? HELL NO!
CANADA? I THINK NOT.
THE ANSWER IS GOLD!
This why,I think that a VERY Large Portion of the AMERICAN PEOPLE VOTED A BUNCH OF IDIOTS INTO OFFICE BACK IN 2008.
HAD ENOUGH National SOCALISM and COMMUNISM YET?
I sure as hell have. Go TEA PARTY.
Duh... No need to default when you have a printing press. It ain't gonna be default that causes our problems...
http://www.imdb.com/title/tt0090605/quotes
Frost: Hey, I sure wouldn't mind getting some more of that Arcturian poontang! Remember that time?
Spunkmeyer: Yeah, Frost, but the one that you had was a male!
Frost: It doesn't matter when it's Arcturian, baby!
I look at the unfortunate lack of leadership as being a symptom of the human condition.
1. When faced with a problem or the option to ignore the problem we tend to choose ignoring the problem
2. Faced with being told an ugly truth or a pretty lie, we choose the pretty lie.
3. According to some studies and the US military: Over 90% of people are predisposed to being followers. 5+% want power regardless of whether they can handle it or are worthy of it. Less than 2% can actually look at situations objectively without want to be lead or lead.
4. Being entertained in a fantasy world can be much more interesting than living in the real world (at least in most people's perception of the real world).
So, we tend to choose entertaining people, who WANT to lead and lie to us and make them the center of attention. Why would we ever confront our problems and solve them unless we have no other choice?
Yes.
The only way to get out of this cluster f... is to make a small, but radical systemic change to the creation of financial ressources: let government borrow to fed at 0% forever, but for public expenses only and with a cap.
I describe this in a blog post: http://jverstry.blogspot.com/2011/04/pushing-for-debubbling.html.
I think it's time to break the country into smaller segments and have a continent of regional states in negotiated union.
The Federal Government has botched it all. Game over.
Yes ... and we can call those smaller pieces states and we can give all of the powder to the states except those involving the dealings between states and defending the country.
Oh, wait!! that is what the US constitution did ... and unfortunately it has be suborned by the international banking empire.
I think it's time to break the country into smaller segments and have a continent of regional states in negotiated union.
The Federal Government has botched it all. Game over.
That's how the good ol' USA started out over 200 years ago until Washington DC became an imperialistic parasite.
Here is a leading deflationista.
http://theautomaticearth.blogspot.com/
Some people are still searching for the edge of the flat earth --- how sadly pathetic.
Even Rick Ackerman has given up that search:
http://news.goldseek.com/RickAckerman/1303829097.php
Totally wrong.
Anyoe else want to take a shot at the deflation scenario? If there is any way for the fed come out ahead then how can it be ruled out? I mean if there is a way for them to maintain their current level of control through a series or rule changes combined with throwing up their hands while deflation occurrs only to remind everyone conveniently that its still a market afterall..............why can't it happen. The current banking structure remains largely intact, with a few token failures, the fed continues to put thte hurt on the rest of the world by making them use dollars, am I missing something?
Deflation might show up in products/services which are plentiful and not geographically locked. Turning a trick for 4 potatoes vs. Cannot buy wheat flour because the Chinese can offer a higher price than Americans. There might be 4 men knock on your door to mow your lawn for $10, but gas will be traded for precious metals only.
No, I think the Fed and their masters will accept a certain level of "loss", especially since the "wealth" they will lose will be imaginary to begin with. They will still hold on to real wealth and power at all costs.
No, won't be the end of the world. Mankind will survive as it always has, but we will have episodes like the Weimer Republic which saw years of great suffering and privation (read WHEN MONEY DIES by Ferguson). Prepare.
Bondholders and pensioners will take it up the ass
You don't even have to be ingenious- it's all mapped out for you.
Hey, Dude, lighten up. No one cares about the Debt and Deficit anymore. It's all about important stuff in life:
1. What's happening with the NFL lockout?
2. Will the Royal Wedding really cost the UK $50Billion?
http://royalwedding.yahoo.com/blogs/royal-wedding-to-hurt-britains-econo...
and,
3. Will Tom Delay make a re-appearance on Dancing with the Stars wearing his prison uniform?
Ya gotta remember our priorities, Dude! ..and they ain't about learning about the moinetary system, the federal reserve, fractioanl reserve banking, and stuff like that.
NB: My sarcastic side unfolds this early in the a.m.
Maybe the judge that ended the NFL lockout considered the potential energy of millions of unemployed men, starved of their fall soap opera...
And to prove my point refer to what happened to Great Britain. Yeah that was a real walk in the park for it's citizens wasn't it! Nevermind though, then the US took over and the world kept 'chugging along'.
The main objective of most politicians is to remain in politics as long as possible in order to increase their wealth and power. They do this by selling their soul to the highest bidder (lobbyist or superior Congressional member) and could care less about the working class or the health of the country. The thrust of any analysis should focus on how to effectively eliminate this behavior: i.e. 1 term limits, no lobbyists, a contract that spells out specifically what they will do concerning budgets, debt, health care, wars, military, foreign aid, etc when elected. Unless they are held accountable, the country will continue to deteriorate to 3rd world status.
Well, that is the only way to compete with third world labor. It you want to compete, you must obtain third world status first.
I completely disagree with a default 'not being a big deal'. Sounds to me like the author is also one that has too much money and isn't that concerned while 95% of us are going to get slaughtered and screwed sideways. Everything else I pretty much agree with, but don't act like it's just another day. That was an incredibly stupid comment 'countries default and the world keeps chugging along'. WTF?? The world?? Who gives a flying rats ass about the world you globalist POS im worried about my situation, right here----in the US!!! I don't give a fuck about the rest of the world.
Why would we have to default on debt?
Interest payments = $185 billion per year
IRS collection = $2.2 trillion per year
Federal government spending would have to be cut from $3.7 trillion to $2.2 trillion. We live within our means.
Sun Tzu warrior/general/philosopher - Re: Why would we have to default on debt?
Two words you have to consider - Politics & Riots.
I don't give a fuck about the rest of the world.
Aw, c'mon, we really care about you.
This is a very good article, BUT Phoenix Capital also 'sells" things and I look at the articles as slanted in that direction. It is NOT that they aren't right, it's just that I read it with a grain of salt. I guess everyone has vested interest in their opinion, but I read it with that in mind.
Nope....
Here is why....
The Fed has not..will not..cannot print the amount of money that has..will be lost in terms of debt related economic items....
Simply said....
Pretend there is a simple box which contained the total economy in 2006...
In 2006 The available credit..savings..fake equity..earnings dollars surpassed what is currently in the box by more than 3 to 1....
The Fed can get no where close to what used to be....and only negates valuation which is in effect further reducing US economic capability.....
Now factor in the deflationary effects that are ..likewise.. in Europe etc...
There is also a China peak....
The point of confusion is the zero cost money that has pumped commods and equities....
This will be a short run phenomena as interest rates move back up...even small up....
The name of the game will be deflation not inflation.....
And by the way...the bankers could care less about the name of the asset that is being pumped....it does not matter if the name is oil...sand....blocks....right now it is commods.....and commods will crash hard.....
marketfox, would like to hear more about your theory. I can see the scenario for big inflation...very few are talking about deflation. Its either quickly dismissed or explained away as impossible. Leaving open the possibility for a moment, just to examine who wins and loses in that scenario, and ultimately what might a possible combination of 'pain-losses-rule changing-new formats' thought up by the fed and govt. I wonder about a major deflation or re-pricing and how that would make QE actions look in the rear view mirror. Seriously, I think you have a point.
deflation = default
[The Fed has not..will not..cannot print the amount of money that has..will be lost in terms of debt related economic items....]---MarketFox
Clever post, MarketFox. But clever does not win the day. In the end, history wins the day. And history is on Graham's side.
They always print. History lesson over.
Nope....
Here it is....
Picture the total economy in a box....
There is a summed value which chases a single price....one item to buy....
If I give you a box with $6X....
And then replace the box loaded with $2x....
It does not matter in this case how $2X got there.....it matters that $6X was 3X what you have now....meaning that the maximum price possible is $2X....
It is as simple as that....
.......................
Furthermore....the problem is one of production of goods and services.....
And as we speak ....whether Americans like it or not....American labor is not worth 10X Chinese labor.....and this equation is equilibrating as we speak....and is a slow multi generational event....
................
If the US was serious about solving this issue....it would be downsizing the government in earnest....as it is just another cost to production.....Preferably no more than 10%...and in a consumption tax format.....
This combined with labor moving towards equilibrium will lower the difference between BRIC vs American labor....
And believe this...this problem does not ....will not go away without some form of this happening.....
And Inflation cannot happen with a third of the previous money available....
The commod kick is a multimonth shift caused by a 0% interest rate policy....and this will change....and when it does there will be less than 2X in the box....and the deflationary effect will be even greater.....just delayed....
USA can default or whatever but how to achieve any sort of sustaiable "development" with outsourced and destroyed production capacities?
Default will solve nothing. Similar history example - UK - managed to pull trough replacing production by blabla services since it is comparably smaller than US ... but USA is much larger and sustainability will take some time.
Maybe new union: USA+Mexico+Canada?
Sucking cheap labour force and resources from south and north for next 50 years?