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There's Only One Way to Avoid a Downgrade to U.S. Credit
According to Reuters, a majority of economists now think that U.S. credit will be downgraded.
The debt ceiling plans being proposed likely will not avoid a debt downgrade.
Indeed, as Zero Hedge notes, the cuts being proposed in the debt ceiling proposals would be offset by the costs of the downgrade:
The US downgrade alone, now virtually taken for granted by everyone, will offset any beneficial impact from any deficit reduction that will have to happen for the debt ceiling to be increased.
Indeed, many are starting to say that a downgrade is inevitable.
In truth and in fact, we could still avoid a downgrade ... but only if we immediately:
(1) End the imperial wars, which reduce - rather than strengthen - national security (and see this and this);
(2) End the never-ending bailouts for Wall Street;
(4) End the Bush tax cuts, which Ronald Reagan's budget director David Stockman said were the worst fiscal mistake in history; and
(5) Slash pensions for public employees, at least when they are pegged to an artificially "spiked" final year's salary.
The talking heads will say that these actions are not politically feasible.
However, as I've previously noted, that phrase is just code for:
The powers-that-be don't want it, even if the people overwhelmingly and passionately support it.
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Washington/Tyler - off topic I know - but keep your eyes on the Fukushima clusterfuck too. Reports of the highest radiation levels since the start of the crisis being detected outside reactors 1 and 2 : 10 seiverts per hour. Not micro not milli - but seiverts. Exposure to that would kill any human within a couple of days.
This thing is so far from over. Needless to say, almost nothing in the MSM.
http://www.monstersandcritics.com/news/asiapacific/news/article_1654280.php/Highest-radiation-level-monitored-at-stricken-Japan-nuclear-plant
GW nailed it as usual with his clear eyed vision.
I stand with luniticfrenge. It only takes 3% of the population to make the change from tyranny back to freedom and Democracy (government of, for and by the People). We will prevail but it is going to be a long and difficult struggle. It may take 100 years and much suffering and pain with the loss of millions of Americans lives.
These evil insane sociopathic criminals are at war with us and they will kill us all rather then capitulate. They have the mine set of Adolf Hitler and his philosophy, he is their hero and fascism is their game plan. It is futile to try and rationalize their mine set- they are insane!
The problem with Americans is that they live in our past Democracy and have never suffered real pain. Somehow, the suffering and death of the other people in the world brought on by the war criminals is removed from what the criminals have planned for Americans.
It all comes around to the banksters. They tried to overthrow President Roosevelt in a coup. They assassinated President Kennedy because he was in the process of doing away with the Federal Reserve and our Treasury was going to print our own money backed by gold.
9/11 was an inside job and in a mere 10 years the banksters have taken American democracy and the rule of law down. You are all witnesses to how it happened but are too brainwashed by their propaganda machine to realize what they have done. Now comes our pain. What is your threshold for pain? Do you think you can run and hide? For how long can you hide before they come for you debt slave? You and your family own them $176,000 (http://www.usdebtclock.org/) each and you know how the banksters are, they want their money.
It is your heritage to stand and fight for your freedom and democracy. Stand up now to save your family before the real pain sets in! Demand that the rule of law be reestablished and bring the criminals to Justice. Do not let the banksters rule with fear and terror!
We here (where XOE is housed) are irritated and anxious about how they might address point #3.
Of course, not that XOE is doing fraud and ill-gotting of the gains. Housemates, though, hear from me how I am doing 'clever things' currently allowed in the Wall St. Rules. (Betting against things and all - none really illegal i assure!)
But what if one happens to know a bit of what N.Roubini (I can't believe I spelled that right from only my memory! Hold on, checking on the internet Wiki page. Damn! I spelled his name right (This is the kind of thing the internet is hurting: our ability to calclate, spell, and memorize. Don't get me wrong, if Sherlock Holmes were alive today (and real) he would store much of his vaunted crime-fighting data off-premises, as much as possible. (After all, why try to memorize the streets of Victorian (1880's) London if you can use a Garmin or Google Earth {Note: anachromism})? Did I just write "calclate"? Pretend that's an amusing mis-pronouciation! ) Yet it is good to spell somebodies name write when making a point.
Close that set of parentheis before somebody gets hurt!) Besides, spell checkers miss when you type the wrong right, and write write.
What was I....oh, yeah.... what if my perfectly legal guesswork happens during a "flash crash" - when the nice people with super computers predict much faster than me and are told to put the money back?
It seems unfair. So be careful, Elizabeth Warren and-or SEC bosses!
That's all I'm saying.
XOE
Excellent article, GW.
Where being downgraded, big time.
It's too late to avoid a downgrade.
The best we could hope for is to postpone a downgrade.
Saying we could avoid a downgrade is like saying you can successfully wind-down a Ponzi scheme that's been running for over half a century and everybody comes out ok.
Can't happen.
100% to 500% VAT tax on everything imported! try it -you''ll like it-- and of course bring all troops home and close all military bases overseas and bring home all the carrier fleets ---lay off the contractors-- close 50% of govt departments-- reduce the other 50-% by 50% --oh yea and lower the debt ceiling !! --faze out the fed--
Are you crazy? End tax cuts. Starve the beast (government).
Thanks GW and I agree totally, although we all know this will never happen. I'm guessing the wheels will need to totally come off the bus before we withdraw any troops or cut back on the contractors.
Earlier today I noted a comment elsewhere which stated the armed forces/contractors are equal to about 3% of employment (so ending the wars would mean a bump to 12-ish % using the gov lies, er ah, numbers).
I'm waiting for the gov to get really desparate and start handing out low low interest loans to small biz (no not SBA, I mean "real" loans). That's the only way the economy will restart IMHO.
"In truth and in fact, we could still avoid a downgrade ... but only if we immediately" declare open season in the DC "game" preserve; no bag limit, any means and blanket amnesty.
What was the question?
re :
The whole of America knows the truth deep down. The legacy of Reaganomics and the mind set it created was to install the bubble cycle to replace the business cycle. Fed on irrational exuberance in the aftermath of the Berlin wall collapse and the NWO dictat. The triumphant Oligarchs who received its legacy as their feudal inheritence then decided that the financial world was theirs. Greenspan's zero interest hyperinflationary asset bubble funding, consumer spending and global outsourcing created the FIRE inflationary risk asset tsunami that fed two bubbles; where in their incredible arrogant 'we can't lose' hubris, the Oligarchs lost 2 trillion in the dot.com bubble, then another 12 trillion in the sub prime capitalistic debacle that nearly tanked the capitalist system; only saved because the FED and WH allowed debt to be socialised and profits to be privatised massively on unprecedented scale. A day in infamy...like never before.
Now in the winter of their discontent the same Oligarchs want to make a market killing of 20 trillion to win back what they lost. They are prepared to tank the world economy, engineered by GS, for their benefit so that they can dominate once again the world and make up for their past losses. We all know it won't work. But they won't admit it.
They know they have middle america by the short hairs. As, what is wose than the hyper inflation this new bubble generates is the hyer deflation required to cure it, which will bring down all of USA. They know that you know that the alternative to hyper inflation bubble cycle is worse medecine than their bubble play which leads nowhere. They know that middle america wants them to keep kicking the can, as to face the ONLY other alternative in PEACEFUL times is worse than the present crazy trend. They know that and play on this FEAR of middle america. Your damned if you do, your'e damned if you don't. So they play along hoping to make their next big kill and hoping the silent people will swallow the bitter pill...No way out!
NOTHING will Happen in the streets of DC or the states until the masses are hungry.
The Arab spring demonstrations were sparked by "great difficulty in finding food, especially the staple - bread" according to one who lives in Cairo.
Let them eat Cake
And we all know what happened next because the citizens had no bread.
HUNGER is all it takes.
Soon come ... ?
so true. Something tells me peak oil and its equivalent to food will make for a very interesting global stage before the decade is out. Now back to my garden
Okay get your hands up all you banking scumbags... you heard me Dimon reach for the sky asshole!
Now... you have the right to remain silent (whack of the billy club to the skull)
You have a right to an attorney (kick to the gut)
If you waive these rights the mob outside may have something for you.
I am The Chief!
OR US can just default
Wikipedia's article on national bankruptcy... Consequences for the citizen
National bankruptcy always means for the private citizen a dramatic devaluation of his monetary wealth, because the private/individual saver is often an important creditor of the state (e.g. government bonds).
More severe is the impact on the national economy. These comprise typically
The citizen feels the impact indirectly through high unemployment CHECK and the decrease of state services and benefits. CHECK
2nd time was a charm, she is my GS cheerleader
At the risk of igniting a flame trail. In my experience and observation, that very thing CD described between his son and wife is a primary event that defines character in a way we can all see. Both the man and woman.
Congrats on character JohnG. I also chose character and experienced the same, epicly nasty divorce. Absolutely astounding what people without character will do when they can not get their way. Even when it is clearly self destructive, it is still all about "me". Evidently it is good to destroy self and everybody else if they don't get what they want.
Bottom lines...It was an excellent friend filter (completely new set, very carefully developed), an unparalleled character tester, and a spectacular set of examples for clues to look for in other people. Was the best experience of my life, I am a much more wise, careful, and mature person for the experience. Getting through it on the other hand was quite a challenge.
Observations, eventually she was declared mentally ill, but the rub is that I see the same behaviors nearly everywhere I look. Self centered, self absorbed, utterly ruthlessly manipulative to achieve self gratification.
My conclusion, the man must lead and must address those issues or suffer the consequences at a later date. They only grow with time. If the reason you don't do it now is because of the consequences, they only get worse later, in ways you can not even imagine.
It appears to me that one can apply these principals to all aspects of life. Principals and character are everything, without such, you really have nothing.
Best wishes ZH.
Yep. I learned a hell of a lot about people during that time. Rough way to have to learn these things, but they do get remembered.
In other words as soon as all your politicians turn honest your troubles are over.
GW,
Apologize to the families of 9/11 for $hitting all over them.
GW,
Apologize to the families of 9/11 for $hitting all over them.
Bubba - appologize to the human race for your birth. Thanks.
You know, I thought a few weeks ago that I was being too paranoid.
Now, I wonder if I've been paranoid enough.
As I've written before, I think the debt ceiling debate is a sideshow – a small part of a bigger global picture. I think there are factions in government/finance in Europe and the USA who want to collapse the USA and European economy to preserve Euro-American hegemony (and neutralize the Chinese) by killing the US Dollar and the Euro.
Roughly, this is how I think it'll go.
1) No debt ceiling agreement is reached by the aribitrary August 2nd deadline.
2) Congress dithers for weeks or months as the government meets fewer and fewer of its financial obligations. As a result, the USAs credit is downgraded, perhaps more than once if this goes on long enough.
3) Eventually, the bond market panics. Next to nobody will buy USA bonds, regardless of the interest rate, which will go sky-high, exacerbating the debt payment problem.
4) The USA’s debt is now unfinanced by China, et. al. The panic spreads to Europe where the Euro starts to die a noisy death.
5) The shrinkage of government money tanks the economy of the USA. Deflation follows rapidly. The Euro becomes yet another failed fiat currency.
6) Through QE3, QE4, QE-forever or some other method, the government starts printing money in dollar denominations and injecting it into the economy in any way it can until inflation reaches Zimbabwe levels. This is allowed to go on until the term "cash" is semantically equivalent to "toilet paper."
Result?
1) In the traditional fashion, the USA has hyper-inflated its way out of dollar denominated debt.
2) New currency is issued (after a year or two), but in such a way that wages and prices in the USA are now realigned with BRIC and Chinese standards, making the American economy competitive on price.
3) The Chinese must either keep their currency pegged to the dollar, making it worthless and causing major political upheaval at home, or let it rise, making their export market much less competitive, which suppresses their economy.
In short, China is de-fanged while America and Europe are given breathing room while they still have military power, and oil is plentiful. The alternative, waiting 10 years for the inevitable default, would simply give China and the BRIC countries overwhelming military and economic advantage.
Better to take your pain now, if it takes your enemies with it.
Put yourself in the position of the "old money" elite in the USA and Europe vs. the upstart and uncooperative Chinese elites. If you were old money, what would you do?
....and, let's not forget, along with your final 1,2,3 there is a number 4-The standard of living for 90% of Americans falls to levels unseen since the depression.
Brilliant, just brilliant....but you forgot Civil War II. Cancels out all your other nonsense.
Actually, I'd go as far as ballparking that in at about 2015 if things don't change course. I think the final straw might be oil prices. We'll be broke, and incredibly vulnerable to oil price changes. Nobody gets to work. Food and medicine doesn't get to the stores. When it does, it's almost unaffordable. Not a good situation.
By and by, I think that Russia, the Arab states and Venezuela and even Mexico might just decide to keep their oil for domestic consumption, perhaps selling small quantities later for much higher prices as scarcity hits home. Russia will do it for military reasons. You can't run a military force without fuel. Venezuela and the Arabs will want it for domestic power and transportation. Mexico will also need fuel for domestic consumption and to maximize revenue.
HIgher prices, more money, more gas for the folks at home, a strong military. Those are pretty serious motivators for a politician.
I may be off on the timing of this. I hope so. It may not happen in 4 years. It might take a long as 20, but I think it's dead certain that someday this does happen.
You can only store so much oil. If you shut down the pumps, they will cost a fortune to get started again. Oil is not easy to store in large volumes. They have to sell. They can't eat sand. Venezuela has to sell. They produce nothing else to export or trade.
Oil is not used to produce electricity. You're thinking of natural gas.
Then the downgrade occurs anyway.
Because if you enact all five of those points, you no longer have a stock market, nor a banking system.
Ka-boom US Dollar anyway.
It's over. It's -- completely -- over. Just a matter of when the can would not be able to be kicked any more.
You can no longer kick the can down the road....when both your legs are sawn off.
flesh wound
My favorite Stockamn quote: “I invest in anything that Bernanke can’t destroy, including gold, canned beans, bottled water and flashlight batteries."
Sensible ideas. We are all going to have to learn how to live with changes. I would suggest ways for the goverment to actually do something useful for the people and promote thrift and frugality to make the transition easier. They were masters of propaganda trying to get everyone to shop and consume on worthless crap and by a McMansion during the ponzi bubble so this would probably ring hollow but nonetheless I think it's a good message to get out. The proles are going to have to give up their SUV's one way or the other I guess.
What George fails to realize is the paradox that all solutions lead to the same outcome - the inevitable default. Slash pensions and you will destroy the economy, cut federal spending and you will destroy the economy, cut spending on the military and you will severely hurt the economy because the number of US based defense contractors who pay higher than normal wages, end the tax cuts and you will further reduce spending thereby destroying the economy, end wall street bailouts and you will create a liquidity nightmare that will destroy the banking system thereby destroying the economy.
When will you understand, there is only one solution. Default, take the pain, and reorganize.
Of all the spending the US government does, the military spending is actually an overall harm to GDP and jobs. Look up GW's previous posts on the matter. It's undeniable. It would be the least worst way of cutting government spending with the most minimal harm to the economy.
If we immediately withdrew all troops from Iraq and Afghanistan, we'd be able to immediately cut our deficits by the needed amount. If it wasn't quite enough, ending the Bush tax cuts to the wealthiest and eliminating current loopholes would cover the rest.
Spot on sir!! Except that the economy is already destroyed. The items you outline would just force people living off the theft in different parts of the grift game to relaize economy is detsroyed.
peace
Keep the music playing, there's STILL CHAIRS LEFT.
I am all for every bit of it except 4. Confiscated wealth is confiscated wealth. This country boomed long before there were any "taxes" to speak of. Stating tax cuts equal deficit spending debt is to imply that those moneys taken through those taxes belonged to the government to begin with and that money was not the wage earners money despite the fact he/she labored to earn it. Slash pensions is great but go even further slash government employment and make people live with smaller government. As an aside charities were very able to adequately address the poor and needy in this country before the income tax was devised and sprung like a trap on the masses. If income tax were done away with I am sure people would give more to charity and the charities would be better able to address the needs of those who need it without the waste, abuse, and overhead required by the government to do the same. PRE 1913 rules!
It's easy for an economy to "boom" when it's getting slave labor, child labor, and indentured servitude. Not to mention a continent full of yet-unexploited resources.
Are you saying that perpetual growth (on a finite planet) is possible, but just not by govt(s)?
cockroaches
No not growth in the sense we think of growth now (inflated money supply produces artificial growth). With sound money the only growth that takes place is the growth of purchasing power. Things cost less because there is a finite amount of money. There are also a finite amount of resources and land as well. Those finite resources and land to an extent may go up in cost but also they may not depending on what condition they are in (i.e. polluted land may be worthless that is until technology comes along that allows for it to be clean, then it may have value again, same for say a body of water). But consumer goods will surely drop in price because there is a finite amount of money. The same amount of money chasing more goods. We need to evolve from the farce of 'growth models' we currently embrace. None of this is growth except in money supply. With sound currency there needs to be no cost of living raises because the money supply only increases when whatever is backing it increases (i.e. oil, gold, silver, etc.). Growth would take place because prices would drop. People would be richer. Imagine if you could goto the store and go wow my (insert currency here) buys more today than yesterday. So maybe if you look at true growth not artificial inflating it is possible. It would be a paradigm rarely seen before though, (I think maybe late 1870s through 1910 was a period of dollare gaining purchasing power). Unfortunately, most people will not even comprehend that idea. By the way as you were saying decentralization is a great start. Competing currencies is a great idea. By nature, the strongest ones will survive and go on to become the standard no central banks. The only reason dollar hegemony has persisted for as long as it has was until the recent past (less than 40 years ago) it was backed by gold and very durable. Now it has been relegated to the dustbin of history though it nor all of its holders may not be aware of it quite yet.
Except that resources are finite so even with sound money practices geology still enforces its laws on us and prices will go up.
False. You act as if we have no technology. Real prices, on average, have declined for over 200 years.
Technology won't change the limits of geology.
Maybe they can though, or even now new uses with the resources we have are being found every day. Take silver for example, yes it is money, yes it works good in electronics, but it also kills dead more infections and viruses than anything on the planet. Technology would help. It was like the Malthusian prophecy of world will overpopulate and run out of food. Lo and behold, technology has still kept that prediction at bay. I mean geology is geology but innovation has gotten us this far. Who would of thought 150 years ago the world would run on oil out of the ground, and who would of thought that 50 years ago it would be found that oil is very possibly/probably abiotic? As knowledge and technology increases we can do more with less, so there may be finite resources, but technology through need will always find a way to maximize those resources. Maybe even a way to create more dry land much like the islands created in the middle and far east for airports and resorts. Kind of long winded but you get the idea.
They all want a downgrade so they can privatize entitlements.
But how much will a downgrade increase the cost of money?
"According to a New American article:
A Bloomberg story pegs the impact as being a little more significant, but not earth shattering:
Bloomberg reported the results of a debt survey in early July:
http://globalresearch.ca/index.php?context=va&aid=25799
I love u George... I wanna have your babies.
My comment is referring to issue 5.
I worked for a city which used this metric of retirement based on the best year of our last three years of service.
Overtimes, which were abundant due to a lack of manpower, were allowed to be "traded" or "given away".
So all the retiring guys would pay cash to "buy" overtimes for a few hundred bucks from the next guys up on the OT list.
Some of the chiefs retired making $30,000 a year ABOVE their base salary in retirement. (six figures in retirement.)
The city went bankrupt, the job was gutted, and the work schedule changed from 42 hours a week to 72 hours a week, 3 out of every 4 weeks. (72,72,72,48 hours and repeat)
I did not agree with the city forcing another 20 hours a week, for LESS pay and I retired and learned a great lesson about government. I saw the State and City work closely to change laws to impose their will.
I'm much happier away from the city, and working for myself. I know that my family needs me (NOT the government) to provide for and protect them, plan for the future and be prepared with food, water, guns and wood for heat.
What the Federal government is doing in Washington was a total failure in Connecticut. Promises or entitlements which can NEVER be met ends in financial disaster.
My solution is to get as far away from the government's reach as possible. Reliance on the government is a fools game, especially for one's retirement.
That's been my experience...
A long time ago, I worked as a travelling sales rep, across several states in the US. I can tell you that the smuggest bastard I would meet in any small town would be the retired police or fire chief. When someone explained that these guys were getting 6 figure pensions for retiring at 55, it made sense.
"My solution is to get as far away from the government's reach as possible. Reliance on the government is a fools game, especially for one's retirement."
Government is an abstract concept mitigated by human beings. Blaming government doesn't really solve anything because those individuals working with/for 'government' are still in power.
Getting rid of those people IN government will do you so much better. Blaming government shifts away your responsibility to take account of your elected officials. By running away and talking smack about your government (through your experience) will make you feel good but will not solve anything. While you're waiting for your nonaction to have an impact on government though, your government will keep doing what you disagree with... to you and your friends and family.
There may be a problem with your experience but categorizing it as 'government' problems, 'government' evils, etc. etc... holds no one responsible for anything because 'government' isn't a person.
Thanks for your service