Jim Grant Warns America's Default Is Inevitable

Tyler Durden's picture

Authored by James Grant (of Grant's Interest Rate Observer), originally posted at The Washington Post,

There is precedent for a government shutdown,” Lloyd Blankfein, the chief executive officer of Goldman Sachs, remarked last week. “There’s no precedent for default.”

How wrong he is.


The U.S. government defaulted after the Revolutionary War, and it defaulted at intervals thereafter. Moreover, on the authority of the chairman of the Federal Reserve Board, the government means to keep right on shirking, dodging or trimming, if not legally defaulting.

Default means to not pay as promised, and politics may interrupt the timely service of the government’s debts. The consequences of such a disruption could — as everyone knows by now — set Wall Street on its ear. But after the various branches of government resume talking and investors have collected themselves, the Treasury will have no trouble finding the necessary billions with which to pay its bills. The Federal Reserve can materialize the scrip on a computer screen.

Things were very different when America owed the kind of dollars that couldn’t just be whistled into existence. By 1790, the new republic was in arrears on $11,710,000 in foreign debt. These were obligations payable in gold and silver. Alexander Hamilton, the first secretary of the Treasury, duly paid them. In doing so, he cured a default.

Hamilton’s dollar was defined as a little less than 1/20 of an ounce of gold. So were those of his successors, all the way up to the administration of Franklin D. Roosevelt. But in the whirlwind of the “first hundred days” of the New Deal, the dollar came in for redefinition. The country needed a cheaper and more abundant currency, FDR said. By and by, the dollar’s value was reduced to 1/35 of an ounce of gold.

By any fair definition, this was another default. Creditors both domestic and foreign had lent dollars weighing just what the Founders had said they should weigh. They expected to be repaid in identical money.

Language to this effect — a “gold clause” — was standard in debt contracts of the time, including instruments binding the Treasury. But Congress resolved to abrogate those contracts, and in 1935 the Supreme Court upheld Congress.

The “American default,” as this piece of domestic stimulus was known in foreign parts , provoked condemnation in the City of London. “One of the most egregious defaults in history,” judged the London Financial News. “For repudiation of the gold clause is nothing less than that. The plea that recent developments have created abnormal circumstances is wholly irrelevant. It was precisely against such circumstances that the gold clause was designed to safeguard bondholders.”

The lighter Roosevelt dollar did service until 1971, when President Richard M. Nixon lightened it again. In fact, Nixon allowed it to float. No longer was the value of the greenback defined in law as a particular weight of gold or silver. It became what it looked like: a piece of paper.

Yet the U.S. government continued to find trusting creditors. Since the Nixon default, the public’s holdings of the federal debt have climbed from $303 billion to $11.9 trillion.

If today’s political impasse leads to another default, it will be a kind of technicality. Sooner or later, the Obama Treasury will resume writing checks. The question is what those checks will buy.

“Less and less,” is the Federal Reserve’s announced goal. Under Chairman Ben Bernanke (with the full support of the presumptive chairman-to-be, Janet Yellen), the central bank has redefined price “stability” to mean a rate of inflation of 2 percent per annum. Any smaller rate of depreciation is an unsatisfactory showing to be met with a faster gait of money-printing, policymakers say.

In other words, the value of money has become an instrument of public policy, not an honest weight or measure. In such a setting, an old-time “default” is impossible. How can a creditor cry foul when the government to which he is lending has repeatedly said that the value of the money he lent will shrink?

The post-1971 dollar derives its value from the stamp of the government that issues it. Across the seas, this imprimatur is starting to look a little tenuous. Lend us your dollars for 10 years, the Treasury proposes. We will pay you the lordly interest rate of 2.7 percent per annum. And at the end of those 10 years, we will hand you back your principal, which will almost certainly buy less than the money you lent.

This is the unsustainable conceit of the world’s superpower-cum-super debtor. By deed, if not audible word, we Americans say: “The greenback is the world’s great monetary brand. You have no choice but to use it. Like it or lump it.” But the historical record of paper currencies is clear: Governments always over-issue it. The people finally do lump it.

What to do? Let us face facts: We have defaulted in the past. Let us confront the implied message of the Federal Reserve’s pro-inflation policy: We will default in the future, though no lawyer will call it “default.” And let us preempt the world’s flight from our intangible money by taking steps to fashion a 21st-century improvement. We have the gold and the brains to find the solution.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
A Nanny Moose's picture

The dollar ended at least 100 years ago.

Theosebes Goodfellow's picture

Lost Lloyd either must not have ever studied the history of the Fed or is just another fucking bankster liar. Did he somehow forget about H.J.R. 192?


My money is he's just another bankster liar. Fuck you, Lloyd, you lying sack of shit!

granolageek's picture

Because it didn't happen. Silver certificate holders were given 5 years (until 1969) to redeem them for silver metal.

Being old sometimes has advantages.

SafelyGraze's picture

"Silver certificate holders were given 5 years (until 1969) to redeem them for silver metal."

not sure I follow.

0. continental dollar

"the bearer is entitled to receive 55 spanish milled dollars, or an equal sum in gold or silver"


"In the 1790s, after the ratification of the United States Constitution, Continentals could be exchanged for treasury bonds at 1% of face value."


that's a default

1. greenback

"on demand, the united states promised to pay to the bearer 10 dollars"


doesn't have an expiration date. failure to pay 10 dollars (in coin) was a default.

2. gold certificate

'50 dollars in gold coin payable to the bearer on demand"


doesn't have an expiration date. being forced to turn in your gold certificates for fedres notes was a default. likewise, being told they were no longer redeemable after 1934 was a default.

3. siver certificate

'1 dollar in silver payable to the bearer on demand"


doesn't have an expiration date. being told it's not redeemable after 1969 was a default. just like the others.

brettd's picture


So distilled, "default" really is another term for "breach":  

Any unilateral change in the terms of value or of "exchange?"


AllWorkedUp's picture

CPL - I don't understand why you linked that.

CPL's picture

Rumour going around that the bail in's are starting over the weekend on accounts with more than 20k in them in the US.  Bunch of people are getting that message on US accounts and panicking.  Trying to determine if it's actually happening.

Still looking for anything confirming it except a banking screenshot and loons on a forum.  So it might be bullshit.


...yeah it's bullshit.    Meh, some guy posting from multiple proxy servers to bait threads.

Tijuana Donkey Show's picture

The good news is most people in America only have $20, on $20k in their account. How much is on my EBT?

CPL's picture

A six pack and a box of ho ho's?

Seer's picture

It's kind of like the almost-real stories popping up around Arri 1st.  Pay attention to the calendar.  In this case there isn't any three-day weekend (weekend plus holiday): well, I suppose someone might be able to confirm whether this really is proven historically (I make my statement in a semi-ignorant state).

CPL's picture

It's Canadian thanksgiving and Mabon is past and Samhain is coming up.  Nothing going on right now, it's very mellow. 

I did find a cool chicken coop concept, although I suppose 'cool' is relative.  Build a coop the length and width of a gardening patch and rotate it during the fall.  Chickens aerate the soil and add their ferts to the dirt.  Chickens are happy enough to till it while hunting for bugs and doing chicken things all day.



max2205's picture

Default to creditors  or fax default to citizens. ....citizens everytime

TheReplacement's picture

In our society, it is the fault of the citizens.  As such, it is the citizens who should pay.  Elections and morales matter. 

The only thing we learn from history is that we learn nothing from history.

cnmcdee's picture




Just as the European Central Banker let slip - Cyprus was a TEST CASE.

If you live in America - YOU WILL BE NEXT.

If you live in Canada - YOU WILL BE NEXT.

Start warning people everywhere! Cut and paste this message and send all over.

CPL's picture

Everyone knows it's coming like train and like catching a train, you get ready.  A couple of things no one has to do in that situation.

  1. Don't have to panic. 
  2. Don't have to run around like an ass.

Things people should do.

  1. Pack and be ready.

Just simply get ready and get what you'll need.  No need to freak out.  If you know it's happening, then you are prepared aren't you?  It's a situation that no one should be proud that they are 'right', they should be proud that they prepared to take care of their immediate business and family/community priorites.

Regardless of the fact, not conspiracy at this point; when the banks rob people blind because people are too stupid to understand the situation or properly examine their lives.  Who's fault is it for keeping the money in the bank in the first place?

It's not yours.  Not mine.  Not the bank's (well, it is because they are run by assclowns).  It's everyone's INDIVIDUAL responsibility to take care of their business.

If everyone wants to know the shortcut to capital controls.  Close your bank account.  There are no capital controls in that situation.  Once the account is closed, the bank's business is no longer YOUR business.  Then do what you want:

  • sew all the money into matresses or the curtains like the 1920's.
  • trade it for PM's
  • long term trade options pairing hookers and blow.

First though, stop panicking.

StychoKiller's picture


                                  100 Items to Disappear First

1. Generators (Good ones cost dearly. Gas storage, risky. Noisy)
2. Water Filters/Purifiers
3. Portable Toilets
4. Seasoned Firewood. Wood takes about 6 - 12 months to become dried, for home uses.
5. Lamp Oil, Wicks, Lamps (First Choice: Buy CLEAR oil. If scarce, stockpile ANY!)
6. Coleman Fuel. Impossible to stockpile too much.
7. Guns, Ammunition, Pepper Spray, Knives, Clubs, Bats & Slingshots.
8. Hand-can openers, & hand egg beaters, whisks.
9. Honey/Syrups/white, brown sugar
10. Rice - Beans - Wheat
11. Vegetable Oil (for cooking) Without it food burns/must be boiled etc.,)
12. Charcoal, Lighter Fluid (Will become scarce suddenly)
13. Water Containers (Urgent Item to obtain.) Any size. Small: HARD
CLEAR PLASTIC ONLY - note - food grade if for drinking.
14. Mini Heater head (Propane) (Without this item, propane won't heat a room.)
15. Grain Grinder (Non-electric)
16. Propane Cylinders (Urgent: Definite shortages will occur.
17. Survival Guide Book.
18. Mantles: Aladdin, Coleman, etc. (Without this item, longer-term
lighting is difficult.)
19. Baby Supplies: Diapers/formula. ointments/aspirin, etc.
20. Washboards, Mop Bucket w/wringer (for Laundry)
21. Cookstoves (Propane, Coleman & Kerosene)
22. Vitamins
23. Propane Cylinder Handle-Holder (Urgent: Small canister use is
dangerous without this item)
24. Feminine Hygiene/Haircare/Skin products.
25. Thermal underwear (Tops & Bottoms)
26. Bow saws, axes and hatchets, Wedges (also, honing oil)
27. Aluminum Foil Reg. & Heavy Duty (Great Cooking and Barter Item)
28. Gasoline Containers (Plastic & Metal)
29. Garbage Bags (Impossible To Have Too Many).
30. Toilet Paper, Kleenex, Paper Towels
31. Milk - Powdered & Condensed (Shake Liquid every 3 to 4 months)
32. Garden Seeds (Non-Hybrid) (A MUST)
33. Clothes pins/line/hangers (A MUST)
34. Coleman's Pump Repair Kit
35. Tuna Fish (in oil)
36. Fire Extinguishers (or..large box of Baking Soda in every room)
37. First aid kits
38. Batteries (all sizes...buy furthest-out for Expiration Dates)
39. Garlic, spices & vinegar, baking supplies
40. Big Dogs (and plenty of dog food)
41. Flour, yeast & salt
42. Matches. ("Strike Anywhere" preferred.) Boxed, wooden matches will go first
43. Writing paper/pads/pencils, solar calculators
44. Insulated ice chests (good for keeping items from freezing in Wintertime.)
45. Workboots, belts, Levis & durable shirts
46. Flashlights/LIGHTSTICKS & torches, "No. 76 Dietz" Lanterns
47. Journals, Diaries & Scrapbooks (jot down ideas, feelings, experience; Historic Times)
48. Garbage cans Plastic (great for storage, water, transporting - if with wheels)
49. Shampoo, Toothbrush/paste, Mouthwash/floss, nail clippers, etc
50. Cast iron cookware (sturdy, efficient)
51. Fishing supplies/tools
52. Mosquito coils/repellent, sprays/creams
53. Duct Tape
54. Tarps/stakes/twine/nails/rope/spikes
55. Candles
56. Laundry Detergent (liquid)
57. Backpacks, Duffel Bags
58. Garden tools & supplies
59. Scissors, fabrics & sewing supplies
60. Canned Fruits, Veggies, Soups, stews, etc.
61. Bleach (plain, NOT scented: 4 to 6% sodium hypochlorite)
62. Canning supplies, (Jars/lids/wax)
63. Knives & Sharpening tools: files, stones, steel
64. Bicycles...Tires/tubes/pumps/chains, etc
65. Sleeping Bags & blankets/pillows/mats
66. Carbon Monoxide Alarm (battery powered)
67. Board Games, Cards, Dice
68. d-con Rat poison, MOUSE PRUFE II, Roach Killer
69. Mousetraps, Ant traps & cockroach magnets
70. Paper plates/cups/utensils (stock up, folks)
71. Baby wipes, oils, waterless & Antibacterial soap (saves a lot of water)
72. Rain gear, rubberized boots, etc.
74. Hand pumps & siphons (for water and for fuels)
75. Soysauce, vinegar, bullions/gravy/soupbase
76. Reading glasses
77. Chocolate/Cocoa/Tang/Punch (water enhancers)
78. "Survival-in-a-Can"
79. Woolen clothing, scarves/ear-muffs/mittens
80. Boy Scout Handbook, / also Leaders Catalog
82. Graham crackers, saltines, pretzels, Trail mix/Jerky
83. Popcorn, Peanut Butter, Nuts
84. Socks, Underwear, T-shirts, etc. (extras)
85. Lumber (all types)
86. Wagons & carts (for transport to and from)
87. Cots & Inflatable mattress's
88. Gloves: Work/warming/gardening, etc.
89. Lantern Hangers
90. Screen Patches, glue, nails, screws,, nuts & bolts
91. Teas
92. Coffee
94. Wine/Liquors (for bribes, medicinal, etc,)
95. Paraffin wax
96. Glue, nails, nuts, bolts, screws, etc.
97. Chewing gum/candies
98. Atomizers (for cooling/bathing)
99. Hats & cotton neckerchiefs

OldPhart's picture

Why in the hell are you still banking with BankAmerica?! 

Seer's picture

Reason #1: Stupid

Reason #2: There are no other reasons

CPL's picture

I'm not.  It's OPP.

Winston Churchill's picture

Paper gold., and all the IOU's that Ft.Knox can hide.

Jumbotron's picture

Sho' nuff' we gots the gold......it's in ma teeph, bitchez.

bank guy in Brussels's picture

Wonder if Jim Grant is naive, or just pretending the gold is still there in the USA

Fascinating photo article with black and white photos, of the last allowed visit to the Fort Knox gold vault, by members of the US Congress and some journalists on 23 September 1974 ... 39 years ago !

They even visited the little-known tunnel leading out of the gold vault - but no worries, they said, the tunnel still surfaces inside the building, ha! And they admit that a lot of the gold they felt they saw, was the off-coloured coin-melt gold of lower purity.

Whether fact or fiction that 'the only gold in Fort Knox is in the security guards' teeth' now, interesting piece


Arius's picture

"Even former presidents are denied entry" 

Of course they are ... what do you think?  it reminds me the minutes of a important Kissinger meeting someone shared,and how Kissinger stated that Shultz had told him to stay off the topic of gold.... imagine that and he is talking about presidents.

That guy who wrote few people would be able to understand the system was sharp .... clearly no fault on the design


those were the times ... just some complains, the Congressman talk to the treasury and boom right away a visit is arranged and a guy just out of school invited to participate as freelance reporter ... if you see it in hollywood, you would complain about the lack of fantasy on the part of the screen writer/producer etc.  here he pretends it happened in real life ... well i am a bit skeptic but thats just me

Even former Presidents are denied entry.
horseman's picture

I took the "we" to mean each individual to hold gold in preparation for default.


Mike in GA's picture

Jim Grant is more trustworthy than everyone in FedGov put together.

Incubus's picture

"I gaurantee it." -George Zimmer



Yenbot's picture

we have the gold???


acommenter's picture
Karen Hudes says here that there is plenty of gold...


bunnyswanson's picture

"What happened to the treasures after the war? Sterling and Peggy Seagrave claim in their book "Gold Warriors ", that the driver of general Yamashita was tortured by the Americans and that he betrayed more than twelve hiding places. The Americans would have lifted the findings in cloak-and-dagger operations and transferred them to America.

"President Truman - so this theory - declared the findings as a state-secret "in order to exclude rights for compensation of other states and private-persons."


Yamishita's Gold

Bay of Pigs's picture

170K tons of gold? Complete nonsense.

mvsjcl's picture

Don't worry. We have tons and tons of gold--in deep storage.

Winston Churchill's picture

I've listened to most of her interviews.If any of what she says is true:

She would have died long ago in an 'accident'.

Such 'accidents' happen frequently in the biz world for sums in the hundreds of thousands,

not even millions.You would be surprised at how common it is.

The lady better get back on her lithium.

Ludwig Van's picture


@ Winston --

I've also watched a few interviews of Karen Hudes and read some quotes and ideas attributed to her by sources I respect.

In a good crossword puzzle, Down and Across fills are tightly knit and seemingly inevitable, no made-up words, forced or idiosyncratic puns, obscure initials or whatnot. It is its own proof; it demonstrates its own integrity. Sometimes people can be read that way.

Karen Hudes cannot carry herself in alignment with her self-description; she cannot speak articulately of matters core to her supposed former career. She claims to have served as an attorney. Within two minutes of her opening her mouth, you realize she's just too scattered to focus and lacks the ability to connect a few rudimentary sentences into a coherent statement. The old bitch is nutzoid.

I think the reason "They" let her live is that she's a harmless fool, more full of herself than of a sense of mission, and a perfect example of a half-cocked conspirator to turn off those new to the inquiry.


Shell Game's picture

Mathematics always catches up.  The real question is are we going to allow the control freaks to muddle* us through? Or are we going to grow a fucking pair and stop paying the IRS thugs?  The only thing Leviathan fears is the loss of consent of the governed. 


*the new muddle = relentless surveillance, relentless forced taxation, food control, currency destruction, FEMA camp 'relief', crushing health mandate, etc.

Pareto's picture

Mathematics always catches up........I agree.  But, when everybody prints, or, if you enjoy a reserve currency status - the math, in my opinion, doesn't seem to matter much, because if it did, it would have mattered a long time ago.  It seems that Leviathon is teflon for the time being and math is taking a back seat.

cifo's picture

"for the time being and math is taking a back seat."

Or at least until everybody is broke.

Pareto's picture

For sure I don't disagree with anything said above.  But, I've been on the "we're gonna go bust" train since Greenspan, and as somebody here on ZH once said, this process of debasement and gutting of the middle class could go on a lot longer than we think or can afford.  way longer.  For the same reason i think Bass has underestimated the length of time for Kuroda"s monetary experiment to implode, so too will we underestimate the resiliance of the dollar, the commitment to it and the likely unwillingness to actually pull the trigger on it in the absence of any credible substitution/alternative that can persevere through the backlash you invite when abandoning the $USD for trade - just ask Hussein, Ghadaffi, Asad, Achmadinijad (sp) et al. despsite exponential math - is all I'm saying.

greatbeard's picture

>> when abandoning the $USD for trade - just ask Hussein, Ghadaffi, Asad, Achmadinijad (sp) et al.

No need to go that far.  Just ask any gold bug what it's like to besmirch the dollar.  We've been beaten like a red headed stepchild for better than two years now and it's not going to stop.

Shell Game's picture

So, you are saying because it hasn't happened on your time frame it won't happen at all....  Shirley you are right.  ;)

Imminent Crucible's picture

"because if it did, it would have mattered a long time ago"

For some reason, you remind me of old Harry Truman that lived in the shadow of Mount St. Helens in 1980: "Blow? That thing ain't never gonna blow. Hell, if it was gonna erupt, it woulda done it a long time ago."

Old Harry's down there somewhere, under 540 million tons of volcanic ash.

Seer's picture

Have you not understood what all those "wars against terrorism" are about?  I'd hardly think that things are all peachy.

"Got physical?" is applicable to more than just PMs.  Go ahead and see how much actual work could be done if much of today's energy imports were cut*.  We know what happens, what things look like: review what happened to Cuba when the USSR collapsed; Cuba's implosion, however, was cushioned beause the rests of the world wasn't fucked, like it is today.

* Further add in the notion of economies of scale reversing.  Mega-scale stuff, such as energy production, require a lot of infrastructure, and when such infrastructure processes less volume due to decreased feedstock or decreased demand (when everyone's unemployed), the margins will be smashed- deficit production!

Kissinger et al miscalculated.  I don't think that they realized that the growth from the "developing world" would bolt like it did: one can read lots about what they'd written and see concerns about population sizes, though it seems that they were confident that they could manage them (yeah, the though that they could control population sizes in other countries).  Oh, and the reason for the concern?  The drain on resources, resources that weren't under the direct control of US interests: that's why the big push into the Middle East; it didn't happen fast enough (though I doubt that it would have ever succeeded).

No, math is continuing to steam right along.  One can see the effects via time slices.  Cycles/events are occurring more quickly.  This is exactly how exponential functions behave.  Math/physics/Mother Nature are all running normally...

GMadScientist's picture

Agreed, this math is a steamer.

Simplifiedfrisbee's picture

Your playing cards in the wrong room. The real players already formed the beginning era of Neo-feudalism. Math is no longer necessary. For those in power, what they lose, the citizens abide to replace. 0-1= a negative to the people, not the feudalistic entrepreneurs. LTER can perhaps explain in better context.

Ignatius's picture

Who owns the debt?

logicalman's picture

A question I have pondered for a long time.

Let me know if you get a good answer.

emersonreturn's picture

what if some one ran for office on the platform of ending the fed---and making the fed pay back all the money it printed.  dream, of course...

Mike in GA's picture

Who owns the debt?

"...the public’s holdings of the federal debt have climbed from $303 billion to $11.9 trillion"

Public and private pension funds, individuals, corporations, mutual funds, ie, The American Public

The remaining 5 +/- Trillion  is owed China, Japan, Britain, France, Singapore, Brazil, etc. 


The Burning Planet's picture

"Well I'm puttin' that cotton in a eleven foot sack
...with a 12 gauge shotgun at my back"