Nightmare Scenario: The Fed Outlives the US Federal Government

This is a relatively short piece, because a longer one may
be considered "conspiracy theory". 
Similarly, I've removed all citations and references (US Supreme Court
rulings, etc.) because those may obscure the point, since people's eyes tend to
glaze over with such (mostly irrelevant) facts/details.  However, all assertions here are
easily/trivially provable with a simple web search, or are obvious logical
conclusions (with which the reader is free to rebut).

Rather, these are merely clinical observations and
assertions regarding what I would do to become King of the World, if I were Ben
Bernanke.

1. Background:  The US Federal Reserve (i.e.,
   "Fed") is a private institution, which the US Congress and US Supreme
   Court agree is not part of the US Federal Government.  Rather, the Fed is merely a private
   bank.
2. Many
   private companies exist in the United States.  The Fed is one of them.
3. Many
   private companies have contracts with other companies, and even with the
   US Federal Government.  Some private
   companies have "charters" established through the US Congress (i.e.,
   "Government Sponsored Entities [GSEs]"), and thus may be
   considered "pseudo-private". 
   The Fed has such a charter. 
   However, the charter merely establishes bounds regarding the
   institution's founding and behavior. 
   Typically, that charter still permits the chartered private company
   to sell shares and perform other market functions typical of a private
   company (that was the goal, which is why the GSE was sponsored in the
   first place, so the government could "kick-start" a private
   enterprise).
4. Should
   the US Federal Government dissolve, private companies would continue to
   exist (e.g., they are owned by their shareholders, they have debt
   obligations to their bondholders, and they engage in contracts with other
   companies, in addition to possible contracts with the Federal Government.)  True, private companies holding
   contracts with the (now-dissolved) Federal Government would no longer have
   those contracts (since the counter-party no longer exists).  This is a typical occurrence with any
   contract (dissolution through defaulted counter-party) which has nothing
   to do with the lifespan of the remaining party, except for possible losses
   associated with contract termination (e.g., loss of future revenue,
   etc.).  Similarly, a private company
   established through charter with the Federal Government would continue to
   exist when the Federal Government is gone (it just means the charter is no
   longer in effect, since the sponsoring institution no longer exists).  That now-unchartered organization
   continues to exist because it is still owned by its private shareholders,
   still has bond obligations, and still has other outstanding
   contracts/agreements.

The above assertions suggest the Fed, as a private
institution, can continue to behave as a viable private institution once the US
Federal Government is gone.  In such a
case the Fed would be just like any other private institution (it simply would
no longer have a US Congressional Charter). 
These are the implications:

1. The US
   Congressional Charter gave the Fed a monopoly control of the US
   $dollar.  Literally, the dollar (a
   "Federal Reserve Note") is the intellectual property of the Fed,
   not of the US Government.  The
   charter "promotes" use of the dollar as a currency, and in
   return the Fed (at some level) is "restricted" in what it can do
   with the dollar.
2. The
   Fed has claims on the US Federal Government.  The US Federal Government does not have
   claims on the Fed.  Thus, dissolving
   the US Federal Government does not trigger Fed liabilities.
3. In the
   event the US Federal Government dissolves, the charter would no longer
   exist.  However, the Fed would
   continue to exist (e.g., it still owns the intellectual property called
   the "dollar").  Other
   parties are free to interact with the Fed if they wish (like with any
   private institution).  However, the
   Fed would no longer have "sponsorship", so these interactions
   would be voluntary.
4. Without
   a charter, the Fed is free to arbitrarily establish policies for its
   intellectual property (the dollar), and even to establish a new charter
   with another institution.

Many assume that the Fed would not survive a dissolution of
the US Federal Government.  However, that
is not true:  The Fed will only dissolve
when its intellectual property (e.g., the "dollar") no longer has
value, and the Fed shareholders
decide to liquidate assets.  If people
still want dollars, the Fed exists. 
Since the dollar is an unsecured claim on Fed assets, even if people do
not want dollars, the Fed remains one of the largest real property owners in
the United States
(through its mortgage securities and stock market holdings).

If I were Ben Bernanke and wanted to become King of the
World, I would:

1. Encourage
   nations all over the world to issue sovereign debt denominated in US
   dollars (Germany
   and numerous other EU nations are doing this now).  I would do this even if I needed to print
   dollars to promise/subsidize their debt issuance (it's "free to
   me").  This establishes a
   future need by that nation to come up with dollars at the sovereign level.
2. Print
   dollars to gift/loan massive amounts of dollars to nations all over the
   world.  I want as many (public and
   private) institutions using dollars as possible, and more importantly, to
   leverage debt denominated in dollars. 
   (This was the purpose for the AIG bailout, and continues with
   currency swaps and outright purchases of foreign sovereign bonds.)
3. Print
   dollars to purchase real assets and securities which establishes my
   "fundamental value" as a holder of assets (MBS purchases, POMO,
   etc.)

What would happen next:

1. Sovereign
   defaults will start worldwide.  I
   could even trigger them by restricting currencies, or buying/selling
   currencies to force a change in exchange rates that would trigger
   sovereign default (since nearly all countries are over-leveraged past the
   point-of-no-return).  The ECB can't
   freely print, but I can.  The US
   Congress can't freely issue bonds, but I can freely print.  You think a $700B bailout is a big
   deal?  Bah.  I can write checks $Trillions at a time with no vote and no review.
2. In the
   deflationary unwind, people would need dollars.  The dollars would not exist (e.g., debt
   would not be serviced, counter-party risk would be massive).  Suddenly, my ability to print dollars
   would make me even more important.  And, these are my dollars that I am free to spend as I please.
3. I'd
   default foreign nations first, and the US Federal Government last.  As the holder of the World Reserve
   Currency, I don't want the US Government to default first, because there
   would be a chance that another world reserve currency would replace
   me.  However, by removing all
   foreign currency viability *first*, and then defaulting the US Federal
   Government *last*, I would be the undisputed holder of the World Reserve
   Currency without a challenge.
4. To
   fortify my World Reserve Currency status in a new world of sovereign
   mistrust (which further undermines the chance of a new sovereign currency
   arising), now freed from the restrictions defined by US Congressional
   charter, I would establish a new charter with the IMF or BIS (each is outside
   the bounds of any given nation).  I
   would probably pick the IMF, since they are more "direct
   meddlers" with a good history of ensuring indentured servitude on
   nations.  I would thus enhance my
   protected "world currency" status, and the IMF would gain the
   power to print its own currency without the annoying influence of
   sovereign governments.
5. To
   show my "good will", I would start a "new" Marshall
   Plan to "print-and-gift" my dollars to countries that agree to
   use my currency.  This will ease every one's transition in a new uncertain world.  Why use "New
   Greek Drachmas" when you can't buy a tanker of oil with them?  I'll give Greece enough dollars to buy
   *three years* of oil, after which time the Greek economy will be entirely
   denominated in dollars.  Greece
   doesn't want to play?  Fine.  I'll ignore them for a few years until
   they realize the Saudi's don't want New Drachmas, and Greece
   gets desperate for my grace (at which point I'd make them an offer they
   can't refuse).

Not only is this plausible, it's rather simple.  If Ben can't pull this off, he really is a moron.

Comments

[mikla]

Ah, gotcha.  Thanks -- good point.

I'm constantly *amazed* at what people put up with.  The Eastern Block sat and suffered for decades until the wall came down.  Other times people overthrow their government.  It's hard (for me) to predict when people will "put up" with oppression, versus cast-it-off.

Humans are weird.

[snowball777]

Why would the House of Saud want your pieces of paper more than they'd want to sell product to Greeks today (even if only from something that can be traded for dollars with other Greeks)?

[mikla]

Only because seashells, salt, and feathers seem impractical, and the House of Saud can use dollars to buy shiploads of corn.

(It has to be priced in *something*.)

[working class dog]

The best thing that can happen is the US defaults on it's debts, than no more fed, no more problem. New govt will start over again,

hopefully it will not be a Facist dictator, coming from the ranks of the military.

[Pondmaster]

On Social Security . I have not plannned on seeing any SS. checks ( 55 yrs old paying into system since 16 . I am fortunate enough to have fair middle class paying job , and able to save for myself ( still hoping for a pension check though) But no willing to be dependent evenn that . If I end up with my wife and myself with just food and clothing I am willing to be content ( though not unwilling to object in anyway to stop the thievery of the middle class ). On the Fed and Benny as KOW , I agree with poster that it may well be the IMF with the charter and the one world currency or "mark" that all must have to even eat ( buy or sell ) . All in subjection to a number of a beast , not a currency . But as was written in article , if you won't play with " our reserve " you won't play at all , we will economically starve you out . Bow down and take our mark or starve ( Slaves were marked in Roman times to distinguish them from the free owners. Are we going to be slaves and happily take the mark cuz everyone else is . Watch whom you bow down to in the not so distant future. Not man , machine , or money .  

[Bob]

I'm reminded of the Microsoft model.  They invested in their future dominance by giving away the OS for free, then started charging pennies and so on.  In this analogy, the Fed already has a massive head start. 

[essence]

This scenario is not only plausible, for me it's the leading theory that accounts for the Feds actions. Therefore it's good to see it run up the flag pole and I urge Zerohedge readers to consider past and future events in this context. Suddenly you'll find things start making sense.

Ben isn't a moron, rather he is a smart and capable servant to his masters.
I can just imagine as he gives his 'dog ate my homework' lame replies in Congressional hearings that he is really thinking ...  "these imbeciles have no idea what's coming down the pike".

A worldwide Fed is one's worst nightmare come true. The US has been hijacked by the banksters and taking back our country begins first & foremost with the abolishment of the PRIVATE federal reserve.

[Waterfallsparkles]

December 21, 2012 is right around the corner.

Makes you wonder if there is any way to prepair.

[Sudden Debt]

One thing that is a common thing from private institutions that become to bag and have been arround for to long = THEY COOK THE BOOK WHEN THEY CAN PROFIT FROM IT.

[Hang The Fed]

I've wondered for some time what the madness that we're experiencing might add up to, and this does a pretty good job of outlining an extraordinarily plausible scenario...TOO fucking plausible for my liking, quite frankly.

Kudos on staying away from too many charts, graphs, etc., as those are apparently becoming greater tools for confusion and obfuscation...greedy, self-serving human intent does not always obey statistics, after all.

My name says it all...hang them, or they will hang us, but only just enough so that we can still gasp a little as we're dangling from the gallows.

http://www.youtube.com/watch?v=R1kxb1FC3Vg

[kathy.chamberli...]

great reading understandable, thanks. I don't think I have ever read an article authored by you, just your posts, good sir.

[covert]

silver would become the next currency.

http://covert2.wordpress.com

[Glenjo]

Ben certainly exists separate from the government, but he will always be just a hand puppet for those on Wall St that have already taken over the government and are bleeding it dry.

[surfsup]

...and supra national interests ie, Bilderbergers and fries...  They just got Wall Streeters hooked on Gresham's Law (monetary incentives to be crooked and the worst rise to the top).  The entire push for central banking has always been a colonial agenda for stealth kingdomhoodwinking...  Just follow who funded those who sought to put the Fed in place.  

[fiftybagger]

" The entire push for central banking has always been a colonial agenda for stealth kingdomhoodwinking"

The entire push for central banking has always been a stealth agenda to destroy the free west and bring those rogue protestant peasants back to mama:

http://www.vaticanassassins.org/

http://www.youtube.com/watch?v=nqzEiUOWs5s

[i-dog]

ALL religions are just bishops on their chessboard for these people. Don't be fooled by their disinformation merchants into an hegelian dialectic over whose religion is best/wants-to-rule-the-world. They are NOT religious.

[TheMonetaryRed]

It's interesting to read libertarians start to understand the implications of their own ideas.

Yes, you see when you abolish the government, you leave the power in private hands - very big private hands.

Like, not your hands.  

It's the way the world works most places and has worked for most of history. Rich, powerful people rule without any check or balance on them. 

Because, if you think about it, a consortium of private, international banks with highly opaque, unregulated balance sheets could do exactly what the author describes the Fed doing - particularly with new market-controlling powers like HFT. 

Who needs central banks when you've got all the money?

[Popo]

Yes.  But the Federal gov't can annul any debt, revoke any charter, and oh yeah:  kill anyone they want.

Stop pretending that contracts are unbreakable.  We break them all the time.

[knukles]

Of late, the abrogation of senior bond holder's rights with respect to the GM and Chrysler bankruptcies, driven exclusively by the government. 

[mikla]

Stop pretending that contracts are unbreakable.  We break them all the time.

Absolutely.  Many contracts will be broken in the debt unwind, private and public, including betrayal of social contracts (e.g., SS and Medicare checks won't come).

The assertion is that *some* unit will be needed for international transactions for a *future* tanker of oil, and a *future* barge of rice.  IMHO, a very likely unit is an IMF dollar, post US Federal Government collapse.

[LeBalance]

You infer that the FED "exists within the US" as in is incorporated therein.

Like the IRS it is not.

You suppose that BenB wants to be KoW.  He is an employee of his masters, the Owners of the FED, and they already are.

The FED probably will last longer than the US, but it is "above" the US in the org chart anyway.

Your article is a nice statement of the issues and a good brain exercise.

[mikla]

You infer that the FED "exists within the US" as in is incorporated therein.

Like the IRS it is not.

Agreed, I've over-simplified, but your details bolster my argument.

You suppose that BenB wants to be KoW.  He is an employee of his masters, the Owners of the FED, and they already are.

"I am King Ben" is a metaphor, again for over-simplification.  Doesn't matter.  The IMF wants its own currency, not tied to the US Federal Government.  It is every central banker's wish to execute monetary policy without bothering with the silly congressional testimony.

So, yes, Ben's masters want to move the charter from the US Federal Government to the IMF (that is the desired outcome, whether it was planned or not).

I think we agree.  ;-))

[RockyRacoon]

If we've ever wondered how the NWO would be implemented, then here is your plausible scenario.  The IMF issues dollars as a world currency, the same shady "owners" still in place.  Neat and clean.  Well, maybe not as clean as they'd like but better than wholesale slaughter.   No world war to diminish the world's asset values; who wants to rule a world of rubble, death, and starvation?.  I think it is commendable that no breakout of gold fever has infested the comments section yet, and that is how it should be.  Deal with the topic at hand.  Some very civil and thoughtful comments by all -- so far!

[surfsup]

Being that several of the Fed's shareholders are NOT from the United States the incentive is viable... Problem, Reaction, Insertion (solution)

[metastar]

There is one and only one thing which gives these worthless Federal Reserve Notes any value, ... that is FEAR, not confidence!

Taxes are to be paid using counterfeit federal reserve notes and not constitutional money. Tax laws rule over all commerce. If taxes are not paid, men with guns will come and take you away, or shoot you if you try to resist.

The Fed can only exists if it partners with a new replacement criminal organization which puts the threat of force behind its otherwise useless currency.

So, I suppose you are correct in asserting that the Fed might outlast the US Government. It would continue to exist as a partner in crime.

[CustomersMan]

In the current configuration, the FED can exploit any market, physical or paper and turn their dollars into hard assets, then withdraw support and short it all the way down converting their hard assets back into cash.

It is remarkable that they have conieved their way into this position, probably have most of the worlds gold,silver,etc. paid for by the dollar franchise they own.

Since 1913 the dollar has lost 98%, they have earned interest the whole time, have had the U.S. and global citizens buy them the best military, paid for it printing our money, and stolen Trillions.

How is it they can even walk the earth? Beyond comprehension.

[anonnn]

Surprise! So the AngloAmerican financial Scrooges have been operating according to a plan with a purpose.

Mikla, you are the 1st to posit how the financial shenanigans and madness and repulsive, in-your-face accumulation of power and one-ring-to rule-them-all...can make sense!

The apparent chaos and randomity is a screen to hide a global control takeover..

Could be. Ouch! Thanks the heads-up.

[snowball777]

Uhh....if the federal government no longer exists, to whom will you appeal when your contracts are breached? And how will you guarantee that this private authority won't be offered slightly more by others to rule against you?

Your anarcho-capitalist experiment is amusing, at best.

[nevadan]

Excellent point snowball.  In addition FRN's are money in that they are backed by the full faith and credit of the Federal government.  Without the police powers of the government to force legal tender laws why would anyone want to accept FRN's as a store of value?  The assumption that the rest of the world would continue to use dollars is the fatal flaw in this argument.

[mikla]

Without the police powers of the government to force legal tender laws why would anyone want to accept FRN's as a store of value?

Not as a store of value, but as an international unit of transaction.

An IMF dollar works because of lack of an alternative, and because of Gresham's Law (bad money forces out good).

[knukles]

^{If the federal gubamint dissolve and its successor repudiates the former's debts which rest on the asset side of the Fed's balance sheet, then the Fed's liabilities (dollars) are backed by naught.}

^{A different kettle of rotten fish than is otherwise being discussed, making most ruminations contained herein immaterial.}

[nevadan]

Money by definition is a store of value.  IMF dollars have the same intrinsic value as the product of the private company known as the Federal Reserve--zero.  Without the backing of government and the use or threat of force those dollars are worthless.  If the government goes, so does the bank.  Something has to anchor a fiat currency, without an anchor FRN's, IMF dollars, and Parker Brothers Monopoly money are equal. 

[mikla]

California has-and-will issue coupons, which people will receive-and-spend.  They are not a store of value.

I wouldn't want them.  But, if they were "shoved" on me, or I found them in the gutter, I would spend them as fast as I could.

Further, if you want oil, and oil is priced in dollars, you will have to go find some dollars (whether you like it or not).

[nevadan]

As far as having to have dollars to to by oil, that is currently true.  But will it always be so?  I think not.  There was an interesting article on ZH a while back that might show a change is possible.  Gold as a medium of exchange again?

http://www.zerohedge.com/article/cme-allow-gold-margin-requirement-colla...

[Spalding_Smailes]

As far as having to have dollars to to by oil, that is currently true.  But will it always be so?

Yes.

Analysis: Saudi deal could be first of more Gulf U.S. arms pacts

U.S. plans unveiled this week to sell Saudi Arabia up to $60 billion in aircraft, helicopters and other arms could lead to the six Gulf Arab states spending as much as $100 billion in the next few years to overhaul their armed forces, analysts say.

European arms suppliers, less well established in the region, are likely to miss out on what promises to be a massive regional rearmament program, the analysts say.   ~Sep 15 2010

[Bob]

How interesting.  If the US "military-industrial complex" were on board, that would probably seal the deal virtually in advance.  A world of cascading sovereign defaults would become an infinitely more troubled one . . . and the US is solidly the arms merchant to the world. 

Most of the world would be begging for what we sell--and pay for it in whatever terms the producers dictated.  Dollars, in this scenario. 

[nevadan]

Yes is a bold statement.  This article asked the question whether the Fed could/ would succeed if the  US government failed.  I'm more interested in the question of whether the US government can succeed if the Fed (dollar) fails.  I'm thinking there is a good chance that the Fed will in the end screw itself and the rest of us along with it.  All assumptions of dollar supremacy will vanish if that is the case.

[mikla]

+1

Turning it around (Fed fails before the US Government fails) would be my "happy dream" scenario.

It's still painful (a necessary transition), but it would avoid the Worldwide Tax to the Worldwide Central Planner.

[nevadan]

We dream the same dream.  It is my expectation though.  What comes after I'm not so sure.....

[nevadan]

I'm not sure how that applies to a reserve currency system.  California coupons are still an example of a government backed issue.  The bottom line is this, for any currency to work it has to be accepted by people for use as a unit of exchange on both sides of the transaction.  Without a governmental body enforcing the use of whatever fiat currency and the acceptance of the general population that the currency will be stable in the future they will "spend them as fast as they can".  If one side of a transaction declines due to a lack of faith in the medium of exchange there is no trade.  Your coupon example is an example of a store of value with a limited shelf life.

[mikla]

The bottom line is this, for any currency to work it has to be accepted by people for use as a unit of exchange on both sides of the transaction.

We agree.  Our points of possible disagreement may refer to the "store of value" (perhaps this is a minor problem in definition-of-terms?)

IMHO, most people (in the US and worldwide) would not view a US-chartered dollar as any different than an IMF-chartered dollar.  In fact, people outside the US may *prefer* the IMF-chartered dollar.  I'd even go so far as to assert that most large US companies (which are really international companies) would similarly *prefer* an IMF-chartered dollar, to simplify/stabilize exchange rates for international transactions and reporting.  So, it's quite possible this "mere charter change" is very simply done with great international support.

I don't think the US dollar is a great store of value, but it sure is used a lot.  I don't think the IMF dollar would fare any worse.

Without a governmental body enforcing the use of whatever fiat currency and the acceptance of the general population that the currency will be stable in the future they will "spend them as fast as they can".

The assertion is that the IMF is that institution.  This has "short-term" and "long term" aspects:

1. In the "short term", GE (or any company) will do whatever it needs to do in order to get capital.  All its contracts are denominated in dollars, so it wants dollars.  From a practical standpoint, the "momentum" of the current system demands more dollars everywhere dollar-debts are levered (and that's everywhere).  Companies don't care how they get dollars -- they want them.  IMHO, this ensures "short-term" success by the Fed, even after the US Federal Government is gone, and before it has an IMF charter.  If the post-US Fed gave dollars (in exhange for corporate bonds or assets at any arbitrary price), the companies would take them (because not taking them means the company is gone).
2. In the "long term", people assert that for the purposes of stability, the "dollar issuing institution" needs a military.  No.  The ECB doesn't have a military, and it's trying really hard to be the world reserve currency (IMHO it will fail).  All the ECB would need is for everybody to merely agree to *price* things in Euros, and then *poof*, there's worldwide demand for Euros.  However, this raises the general issue of "stability":  The IMF would provide that stability.  It's a big organization with the promise that it will *also* be here tomorrow.  It has the benefit that it is *above* any given nation.  So, an IMF dollar would be viewed as "stable enough" that people would actually use them for long-term transactions (unlike California coupons).

Your coupon example is an example of a store of value with a limited shelf life.

True.  The shelf life is implied because California is precariously placed.  However, the IMF is *not* precariously placed -- in fact, it is more stable than the US Federal Government, because it doesn't have *any* Baby Boomers with capricious voting habits.

My assertion is that upon US Federal Government default:

• short term -- an IMF dollar is most practical and likely as the new international unit
• long term -- an IMF dollar is most practical and likely as the new international unit

I don't like it.  I fear it.

[Bob]

You present a disarmingly simple, yet sophisticated and fascinating argument, mikla.  I think it works beautifully from an economics perspective. 

I'm glad that you've put this out here.  It behooves us to really think about this.  As far as I can see, the only potential fly in the ointment would be a very quick reconstitution of a US federal government.  And I do mean quick--once the IMF currency pact were made, it would be game over as far as any subsequent US government's ability to rein in the Fed is concerned. 

I wonder if the current gov has done studies and made plans for this sort of event. 

[ViewfromUnderth...]

US President appoints the Chairman of the Federal Reserve

Presumably, the Fed would want re-constitution of the US Gov't, or at least POTUS during Ben's lifetime....which could be brief in these circumstances, as could mine, and yours.

[nevadan]

First off, thanks for the lively conversation Mikla.

We obviously have a different definition of how money works and what it is.  I believe that any fiat currency needs at least an implied threat of force behind it to be viable.  The ECB doesn't have a military at present (and I agree it will probably fail as well) but it is not the worlds reserve currency at present or it would have that need.  The US is the leader of the pack so to speak and performs the "policeman of the world" in monetary functions as well (NOT advocating that as a good thing but it is true none the less.  I wonder if Saddam ever regretted trying to sell Iraqi oil in Euros while he was hiding in his spider hole), but in the event of a failure I really can't see business as usual with the whole world just stepping into a new currency system without some major dislocations.  There are just too many competing interests.  Getting everyone to merely agree on pricing seems unlikely at best.  As far as the IMF giving long term stability that seems to rest on the length envisioned.  Bretton Woods was supposed to give that, and it did until it didn't.  I expect the bankers and politicians would muck a new system up eventually as well.  Maybe it will come to pass that a new fiat regime will come into general use but my gut says no.

[Spalding_Smailes]

Every bank in the world needs dollars to service debt made in dollars, this can not change. They need dollars to purchase oil. The dollars underpins every other currency. They all fall before the dollar ....

1. Of the USD 13.6 trillion of goods and materials traded worldwide per annum, 90% rely on letters of credit or related forms of financing and guarantees such as trade credit insurance. International shipping works on “letters of credit.” These financial guarantees are issued to buyers of bulk cargo by their banks. This system has greased the wheels of global trade for the last 400 years by transferring payments internationally from buyer to seller once shipments have been delivered. With the collapse of the credit market - and banks now sitting on their hands, refusing to lend - the fast-moving wheels of global shipping have come close to halt.

This is a massive disruption in the freight market with asymmetric consequences for world trade, which poses systemic risk for many nation states. Liquidity has to return because if there is insufficient money to provide standard finance, world trade is being sharply cut back and economic growth is not only stalling but likely to implode. If cargo trade stops, a whole lot of supply chain disruptions start. For example, if the iron ore does not go to the refinery, there is no plate steel. If the plate steel does not get shipped, there is nothing to fabricate into components. If there are no components, there is nothing to assemble in the factory. If the factory closes the assembly line, there are no finished goods. If there are no finished goods, there is nothing to restock the shelves of the shops. If there is nothing in the shops, the consumers cannot buy. If the consumers cannot buy, there can be no sales!  ~ November 22, 2008

[mikla]

if the federal government no longer exists, to whom will you appeal when your contracts are breached?

State governments.  For example, the entire insurance industry is chartered and regulated by individual states.

The Federal government only has a narrow role for contract arbitration internationally, when that contract spans state boundaries.  When the US Federal government defaults (and it will), the State governments will merely fulfill their sovereign roles.

People misunderstand the US system:  The State government and the Federal government are *equal sovereigns*.  The only difference is that when the two have laws in conflict, the Federal law "wins" (but only for those narrow areas permitted by the Federal Constitution).

And how will you guarantee that this private authority won't be offered slightly more by others to rule against you?

True.  A state could rule that all "dollar contracts" are unenforceable.  However, everything is now ambiguous:  One guy rents an apartment from another guy.  Did you just say you're re-pricing what's being paid?  Did you say the tenant can live for free?  What did you just mean to say there?

If we don't use dollars, we need *something*.

In the absence of the Federal government, New Jersey can attempt issue its own currency, or price-fix the value of someone else's currency.  Or, states can "band together" to issue regional currencies.  The only question is whether Saudi Arabia will accept it for oil.  If the answer is "no", then those states are stuck with the dollar.

In all these cases, the Fed doesn't care that your state can't figure out how to lease apartments.  You'll quickly find it is easier for your state to merely let people come to their own agreements on what currency to use, and they are currently using dollars.

Yes, this is largely uncharted territory (e.g., no legal nor Constitutional precedent).  Doesn't matter.  It happens anyway.  California will default (even though it legally cannot) and rewrite its Constitution (even though there is no legal precedent).

Your anarcho-capitalist experiment is amusing, at best.

None of my post relates to capitalism.  None of my post relates to anarchy.  All of it relates to re-establishment of international transactions in the event of currency crises from worldwide sovereign default.

I don't like this scenario (I'm not promoting it as a "good" thing).  However, IMHO, this is one of the most plausible outcomes.

[snowball777]

I guess I'm just not seeing how a government collapse would not be commensurate with currency collapse (our paper is only as good as the gang coercing the workforce to make good on the sov debt).

[mikla]

A reply elsewhere in the comments, that:

• short term -- companies/people need dollars, even when the US Federal Government is gone, because contracts are denominated in dollars (the Fed would fill that role, even when the US Federal government is gone).
• long term -- the dollar remains because it is a simple/minor thing to merely re-charter to an IMF-dollar (from a US-dollar), and the world would perceive the IMF-dollar as more stable than any other sovereign currency.

Since government collapses are highly deflationary (no SS nor Medicare checks go out, people are starving for dollars), the Fed would have *tons* of discretion.

The US Federal Government cannot hyper-inflate the dollar.  Rather, it can only hyper-inflate the US Treasury Bonds.  People won't want the US Treasury Bonds, but they *will* want actual dollars (since in a deflationary collapse, dollars are more scarce).  (Of course, this touches on the "Inflation v. Deflation" debate.)

[blindman]

@"Not only is this plausible, it's rather simple.  If Ben can't pull this off, he really is a moron."

.

Nightmare Scenario: The Fed Outlives the US Federal Government.

.

what?

 the question is what kind of moron would apply their considerable

talents to pursuing a nightmare scenario outcome? 

.

a twisted question i guess?  we seem to have diverged from / lost

the center and probably some time ago this already happened and

what you are writing about is already happening to some degree

in which case we are all waisting our "time" and life doing anything

that does not confront the myriad facades directly. 

.

what is at the core?  i know, nothing.  but, the one big thing near the core?

[Spalding_Smailes]

***Nightmare scenario for (global joe six pack.)

This is the latest technology from the largest manufacturing expo in the world.

At 1:55 in the 1st video those parts are being separated by color .... Unreal

http://www.youtube.com/watch?v=iSL-chxmuEA

http://www.youtube.com/watch?v=HIqNgYbAiGo&feature=related

http://www.youtube.com/watch?v=K_4DkosGKjc&feature=related

http://www.youtube.com/watch?v=tu2GFst6Ehs&feature=related