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Three Reasons Why The U.S. Government Should Default On Its Debt Today
Submitted by Doug Casey via InternationalMan.com,
The overleveraging of the U.S. federal, state, and local governments, some corporations, and consumers is well known.
This has long been the case, and most people are bored by the topic. If debt is a problem, it has been manageable for so long that it no longer seems like a problem. U.S. government debt has become an abstraction; it has no more meaning to the average investor than the prospect of a comet smacking into the earth in the next hundred millennia.
Many financial commentators believe that debt doesn’t matter. We still hear ridiculous sound bites, like “We owe it to ourselves,” that trivialize the topic. Actually, some people owe it to other people. There will be big transfers of wealth depending on what happens. More exactly, since Americans don’t save anymore, that dishonest phrase about how we owe it to ourselves isn’t even true in a manner of speaking; we owe most of it to the Chinese and Japanese.
Another chestnut is “We’ll grow out of it.” That’s impossible unless real growth is greater than the interest on the debt, which is questionable. And at this point, government deficits are likely to balloon, not contract. Even with artificially low interest rates.
One way of putting an annual deficit of, say, $700 billion into perspective is to compare it to the value of all publicly traded stocks in the U.S., which are worth roughly $20 trillion. The current U.S. government debt of $18 trillion is rapidly approaching the stock value of all public corporations -- and that’s true even with stocks at bubble-like highs. If the annual deficit continues at the $700 billion rate -- in fact it is likely to accelerate -- the government will borrow the equivalent of the entire equity capital base of the country, which has taken more than 200 years to accumulate, in only 29 years.
You should keep all this in the context of the nature of debt; it can be insidious.
The only way a society (or an individual) can grow in wealth is by producing more than it consumes; the difference is called “saving.” It creates capital, making possible future investments or future consumption. Conversely, “borrowing” involves consuming more than is produced; it’s the process of living out of capital or mortgaging future production. Saving increases one’s future standard of living; debt reduces it.
If you were to borrow a million dollars today, you could artificially enhance your standard of living for the next decade. But, when you have to repay that money, you will sustain a very real decline in your standard of living. Even worse, since the interest clock continues ticking, the decline will be greater than the earlier gain. If you don’t repay your debt, your creditor (and possibly his creditors, and theirs in turn) will suffer a similar drop. Until that moment comes, debt can look like the key to prosperity, even though it’s more commonly the forerunner of disaster.
Of course, debt is not in itself necessarily a bad thing. Not all debt is for consumption; it can be used to finance capital goods intended to produce further wealth. But most U.S. debt today finances consumption -- home mortgages, car loans, student loans, and credit card debt, among other things.
Government Debt
It took the U.S. government from 1791 to 1916 (125 years) to accumulate $1 billion in debt. World War I took it to $24 billion in 1920; World War II raised it to $270 billion in 1946. Another 24 years were needed to add another $100 billion, for a total of $370 billion in 1970. The debt almost tripled in the following decade, with debt crossing the trillion-dollar mark in October 1981. Only four and half years later, the debt had doubled to $2 trillion in April 1986. Four more years added another trillion by 1990, and then, in only 34 months, it reached $4.2 trillion in February 1993. The exponential growth continued unabated. U.S. government debt stood at $18 trillion in 2015. Off-balance sheet borrowing and the buildup of massive contingent liabilities aren’t included. That may add another $50 trillion or so.
When interest rates rise again, even to their historical average, the U.S. government will find most of its tax revenue is going just to pay interest. There will be little left over for the military and domestic transfer payments.
When the government borrows just to pay interest, a tipping point will be reached. It will have no flexibility at all, and that will be the end of the game.
In principle, an unsustainable amount of government debt should be a matter of concern only to the government (which is not at all the same thing as society at large) and to those who foolishly lent them money. But the government is in a position to extract tax revenues from its subjects, or to inflate the currency to keep the ball rolling. Its debt indirectly, therefore, becomes everyone’s burden.
As I've said before, I think the U.S. government should default on not just some, but all of its debt.
There are at least three reasons for that. First is to avoid turning future generations into serfs. Second is to punish those who have enabled the State by lending it money. Third is to make it impossible for the State to borrow in the future, at least for a while.
The consequences of all this are grim, but the timing is hard to predict. Perhaps the government can somehow borrow amounts that no one previously thought possible. But its creditors will look for repayment. Either the creditors are going to walk away unhappy (in the case of default), or the holders of all dollars are going to be stuck with worthless paper (in the case of hyperinflation), or the taxpayers’ pockets will be looted (the longer things muddle along), or most likely a combination of all three will happen. This will not be a happy story for all but a few of us.
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I think if they can figure out how to do it without instantly provoking a (shooting) War they would have done it already. Everyone wants to do it, but nobody wants to be first.
You would be condemning a generation to death, namely the retirees.
The debt is unpayable and becoming more so every day but the reason debt can not be looked at as a zero sum game as Krugman would have you think is because for every entity that takes on debt, no matter how much of a fool, there is another that is dependent on those debt payments, often when they are most vulnerable in retirement.
Soylent Green Is People!!!
https://www.youtube.com/watch?v=9IKVj4l5GU4
This is ALREADY condoning a generation to death, or a hugely reduced standard of living. Not to beat on the boomers again, but why the fuck should I see an ever increasing amount of my increasingly worthless money go to sustain entitlements that won't exist when I am older? I'm 30, I'll pay for this shit my entire working life, with a gun pointed at my head, and get nothing. If a generation is going to be paying a very steep pore for government defaults, it should be the generations that fucking forced all of this down our throats. I had no say in any of this. This inthe evil of deficit spending. It is the pinnacle of taxation without representation. The unborn cannot vote, but are having all this shit put on their tab anyway.
You wouldn't take out a credit card in your child's name and run up 50k in debt and hand them the bill when they turn 18, yet that's exactly what every generation in this country does.
Reason #4.
It would help re-establish some equity between productive workers and kleptocrats.
Cut the government in half, and keep cutting.
"When interest rates rise again, even to their historical average, the U.S. government will find most of its tax revenue is going just to pay interest."
Your assumption is fatally flawed: Interest rates cannot and will not rise to 'historical average' levels.
That's what I said 20 years ago. ....deal with it
This is one of the STUPIDEST articles I have EVER seen on ZH.
And that is really saying something.....
Just keep stacking.
Phyzz wins in all three scenarios, especially once the many other factors (e.g. ETF bullshit and naked short-selling) have been factored in.
Reason #5 Because we are borrowing against debt repackaged as an asset, that was originally borrowed against debt repackaged as an asset, that was originally borrowed against debt repackaged as an asset, that was originally borrowed against debt repackaged as an asset, and so on until the banksters "virtually" have a quadrillion dollars to sit back and gain interest on and to use to manipulate ALL markets toward their gain. Your currency, stock, bond, whatever is ALREADY worthless standing next to their unwindable derivatives hairball. They have limitless wealth this way, and therefore, you are their slave.
Never say never, but cycles can be extraordinarily long.
Government cannot default because our government is comprised of people who's very survival depends upon our confidence in them. To monetarily default is a default of character for them and would mean the end of those administrators due to our loss of confidence and many lower tier people simply because the money and benefits will disappear.
Ain't happening by their choice, that's for damned sure.
A Fucking Men, the boomers may not of made this mess, but did NOTHING to try and fix it and do something good for their kids, Fuck 'em
What would you have suggested we do? Why don't you start the next American revolution yourself since you're so gutsy and self-righteous.
Oh, you say you can't do it alone? Neither could I dumbass.
If us boomers had started the revolution most of the younger generations and especially babies would have died in the carnage. Governments do not go away easily when they are as powerful as the US. The boomers wanted to at least give the next generation a chance at life. If you feel like you are in charge now, then do what you will. I haven't heard of any gen x or y types overthrowing the US gov. It will be too late to do anything soon enough. It will all fall apart eventually. You should prepare to protect yourself and your family.
This has been a cascading of years and years of bad choices, of failure to resist the little things. Free this and free that, things made "easier" with small sacrifices of liberty and self reliance. Liars have been with us since first speech appeared, and it has always been up to us to know lies from truths. Surprisingly it has never been a hard thing to do as the lies are obvious in that they always tell us what we want to hear. The hard part is resisting the lies, avoiding the rationalizations that allow us to believe them because we want to. Only 1% from our pay for retirement security. Only a few military advisers in foreign lands to ensure our safety. Hand our hard earned money over to investment "professionals" who will care for it and make it grow...money for nothing. More and more "protections" from the hard cruel world that cost us more and more till it costs us everything we had to protect.
We have always known better, but it was easy. Besides, everyone else was doing it.
Bahhh
Many people will be hurt while many others would then have a chance at a future free from the debt slavery of previous generations. Sorry old guys, I'm in favor of lifting the chains from those who haven't even entered the workforce yet.
C'mon guys...shoulda, woulda, coulda is just a waste of time. We are where we are, and can argue over fault afterwards. Another thing that doesn't help is the whining about "But what do I get?". The reason TPTB allowed all this debt to be so interconnected is precisely to get people to do that!
Time to ditch the squabbling over the crumbs they let fall from the table...We all have a right to a proper seat and a decent meal. Pining over 'lost wealth' in a dying system is like Lot's wife looking back at what she left behind instead of moving forward to a better place.
Sounds like your parents are selfish. Most parents are still subsidizing their early middle aged kids. Oh wait, that's why you have a hard on for boomers, your folks aren't subsidizing you. Sorry.
I would go and eat their selfish asses out. I'll bet they even have one of those cutesy bumper stickers on their big RV that says....
"WE'RE SPENDING OUR KIDS INHERITANCE"
You will have an opportunity to repay them when they are in their final glide path. Put them in a nursing home and don't visit them. After all, you were shovel ready when you popped out of the womb. Why you even changed your shitty diapers on yourself. They did nothing.
Carl, this is just one of the reasons they're flooding us with third-world'ers. They need 8-10 unskilled workers to pay for each Social Security recipient.
It seems that in nearly every western country, the native population isn't reproducing at a rate commensurate to support politicians' promises.
They are not reproducing out of intelligence.
Good Governance demands Simplify, Streamline, and Standardize Rules, Regulations, laws, tax codes. Even financial instruments need to be simple, so that everyone can understand them.
- We have a prime founding document that make it clear how the federal government and good governance should be.
We have a 50% chance of going bankrupt in the USA if we live to 65 years of age. This likely is because we take risks within complicated systems where we are not meant to understand what we are involved in.
- FED Banking System, Financial Rating System, Financial Instruments, Shadow Banking, Wealthy Control over the Court Systems, Non-Functional Congress, Laws Destroyed by Bankers, Politicians, Lobbyist, and Lawyers looking to make a career of it... they are designed by people that think they are special and you are not
IRS, Payment where earned income credit exceeds liability for tax Outlays 2014 = $60.09 Billion
IRS, Payment where earned income credit exceeds liability for tax Outlays 2013 = $57.5 Billion (?What?)
IRS, Payment where earned income credit exceeds liability for tax Outlays 2000 = $26 Billion
IRS, Payment where earned income credit exceeds liability for tax Outlays 1998 = $23.2 Billion
---
IRS, Payment Where Child Tax Credit Exceeds Liability for Tax Outlays 2014 = $21,49 Billion
IRS, Payment Where Child Tax Credit Exceeds Liability for Tax Outlays 2013 = $21.6 Billion (?What?)
IRS, Payment Where Child Tax Credit Exceeds Liability for Tax Outlays 2000 = $806 Million (Million)
IRS, Payment Where Child Tax Credit Exceeds Liability for Tax Outlays 1998 = Zero.....
I was just stating this as a matter of fact. Apparently, I touched a nerve.
Married citizen couples in the US who have children are responsible for all costs. Illegals and single women get a FREE ride, AND are subsidized. I get it.
Where are those illiterate third world'ers going to work when the use of automated robotics and artificial intelligence is increasing at a rapid rate?
Robot economy could cause up to 75 percent unemployment:http://www.businessinsider.com/50-percent-unemployment-robot-economy-2013-1
http://www.nbcnews.com/business/economy/robots-replacing-human-factory-w...
Military?
Police?
Government employment?
Another progressive path to citizenship.
The push is on to get another 8 million on the voter roles for 2016. There is no better voter than an illiterate one, especially one that can hold a gun on its former oppressor.
You should read this: https://en.wikipedia.org/wiki/Player_Piano_(novel)
It's the best story of what I think the future will be. Everyone who is a general worker is forced into a work program or the military. Only PHD's have real jobs, as do the GOVT sector. Great read.
EF
And natives know the score and sooner or later will want to "even" up the score, see Karl above. Immigrants can be sold any bill of goods the TV they are just being exposed too tells them, instant sheeple just add TV and education indoctrination system..
Fuck you dumbass.
Whites don't reproduce because Chosens bash them with propaganda 500 times a fucking day.
Go back to sleep you fucking retard.
Whoa! Mr. CUNT. Are you coming after me? Let's GO! Fight Club is ON!
Are you an announcer or a fighter?
I'm going with queer.
LOL. I've eaten more FINE pussy than you will ever see...
It's funny that you call me a 'retard' yet your reading comprehension is POOR. I suspect you attended low grade public schools?
Its tough to raise a family without aid if you are a dedicate indoctrinated "consumer". We got a job to do.
Where ya at cockbreath? It appears that you ran away like a little bitch... LOL
Welcome to the club. I had the f*cking government sucking 15% from my paychecks for 40 years, and now that I'm finally retired they're either going to default on what was supposed to be repaid to me during retirement or "repay" my hard earned cash with worthless paper that buys only a fraction of what it did when they confiscated it from me.
Or they will simply vilify us until the over taxed youth and free shit army come take us away because we are eating too much.
Sucking 15% from your paychecks ..... cry me a river. So you paid around $150,000 in taxes and out of it you paid for roads, ports, military, supported the poor and built the infrastructure that runs it all. You will find that due to inflation you never paid enough and the cupboard is bare. The Government should have screwed you for 50% and taxed you 50% of whats left when you die.
WE are all Fucked Bozo
Let's ask Warren Buffet if he's one of the "WE are all fucked..."
"I'll pay for this shit my entire working life, with a gun pointed at my head, and get nothing....."
"You wouldn't take out a credit card in your child's name and run up 50k in debt and hand them the bill when they turn 18......."
You will if you have a gun pointed at your head.
Carl, you got it wrong!
They stole our credit cards, ran up the debt and then told us not to worry because we would get it back eventually. We then find out that they have tranfered the debt to our children in amounts far in excess of even that of which they stole in our names, and then tell us we should now consider it as welfare to receive it. For anyone with a conscience, we are fucked....damned if we do and damned if we don't. I personally have put in well over $200k into this involuntary theft of identity, and if I am lucky enough to ever retire with any net worth whatsoever, I am expected to voluntarily surrender my claim to my "entitlement". As has become the template of our times, those who fail to save, fail to anticipate any potential future liabilities are held harmless and fully "entitled" to any and all resources, while those who do live responsibly, who save and pay off or resist debts, they are told to take a walk, to surrender their claim to anything, to be more "generous" to their fellow mooch.
There is no doubt we are broke, that promises will not be kept. It is also obvious that any who intend to make claim on these promises will be vilified and punished where possible. To demand what should be rightfully your will be deemed a crime against society, while government employees will continue to retire after 20 years service with generous benefits provided for another twenty to forty years at taxpayer expense.
No sir, it will be the evil citizen taxpayer who will be the criminal here...just as you imply.
What's mine is yours.
What's yours used to be mine.
Fuck. If you're only 30, I don't want you as my wingman. And yes, I'm dangerous.
I'm turning 40 in december and I just recieved my social security statement in the mail. It mentions that if I was to retire or become disabled now, my monthly payment would be around $1,450. Then I continute reading about social security payouts at retirement age and there was a paragraph that said something to the tune of "Social Security payments are not guaranteed at the age of retirement, by 2030 only 77% of retirees will be eligible for payment."
So this is the point where I completely stop working, trim down my living expenses (which I have already done drastically) and figure out how to milk disability payments for every cent I can. If they are going to steal my money for the SS ponzi and not guarantee I will see any of it when it is actually needed, I am scamming this rigged goddamn system.
Fuck this clown show, let it all burn.
Social Security Disability Insurance and the Social Security retirement program are separate funds. SSDI goes broke next year. You may not want to make plans for SSDI.
"Fuck this clown show, let it all burn."
+1^n
...and the sooner it all burns down, the less we are fucked.......
@ Carl.
Logged in just to upvote you. To the currently THREE downvotes out there GO FUCK YOURSELVES.
Sure the folks that laid the groundwork for this are all dead and gone. May thet burn in hell.But there are planty of so-called "greatest generation" still sucking the teat and the boomers blre up the whole thing with their demands and manipulation of the state. And like the generations before them they will walk away scot free and leave guys like Carl and I with the bill.
You are all a bunch of fucking parasites. It is time for the host to kill what is sucking the lifeblood out of it. You are no better than the common criminal perhaps worse in that you get a third paty to do your dirty work and then tell yourself you are virtuous.
You are lucky that guys in Carl's position do not shoot you all in the face. He has a great case for self defense, ATMO.
We're not even going to talk about what Soylent Brown is made of.
Absolutely not, you'd be ensuring they would be able to survive. The backside of a debt default would include a .gov restructuring: means-tested safety net and transition plan for those in the retiree bracket, and a stair-stepped transition plan for those not yet in those age brackets, kinda like the Ron Paul plan. It could be done. The military would have to be chopped to 1/5th the size, but that's a good thing. Many federal departments would cease to exist overnight: DHS, Commerce, Ed, Ag, IRS, Ex-Im bank, FED, FBI, CIA, EPA, FDA, and any other ones that aren't necessary. All law enforcement would be delegated to the states and municipalities.
If I were king, that's what I'd do.
Continuing the current trajectory will guarantee mass starvation and violent revolution. The holders of debt are the investment banks and pension funds. Pensioners are easy to calculate a means tested safety net for. Fuck the banks.
So you're saying that the assets and income that retirees have in the form of bonds in retirement funds and the SS trust fund will be made up for by a "means-tested safety net". Think about that for a second...so the government would pull forward the payments in the form of welfare checks to the biggest baby boom in history. Do you know what kind of deficit that would cause now consider that the government would not be able to borrow...anything. The social fabric would be ripped to shreds. The debts that can't be paid won't be, but there is no way that the govt defaulting on the whole debt is possible politically, practically, or economically. It is nonsense and though there are solutions, a 100% default on govt debt is not one of them.
balanced budget, pay as you go. No debt. Eisenhower did it. It can be done again.
I didn't say a 100% default on govt. debt. I said 100% default on all debt. The great reset.
The alternative is mass starvation, civil war, world war, full-blown boot-on-your-face totalitarianism and revolution. If you don't think the social fabric will be ripped to shreds far worse the way we're going, you're smoking something bad.
I apologize you are right and yes a full debt jubilee would be workable, but you would have to completely overhaul the debt based monetary system. This is the first step I would make to move back toward sound money without upsetting the fiat apple cart.
agreed, sound money would be required after spinning down the fiat system, but that will be required no matter what happens after confidence is lost.
First of all your plan would require a voluntary relinquishment of power by government...which will never happen. And if all debt is wiped out, what happens to savings? Are all those who actually did save put into the same basket as the dope smoking 60 year old hippie who never saved anything bigger than a roach? Who in the world is going to decide? Do you really think this is in anyway survivable? I can promise you that if I feel any group is responsible for stripping me of a lifetime of austerity and savings for some "greater good", the same excuse by the way that has enabled governmental theft for the last hundred years at least, I will NOT go PEACEFULLY.
As always, it seems those with nothing are the first to see justice in the relief of others assets.
CD, welcome to fightclub, classy, both of you.
You are forgetting the fact that the debt is causing the destruction of our currency's value, so Grandma is gonna take it on the chin either way. What good will that pension be after a hyperinflation, or outright collapse of the dollar?
Granny would be far better off in an economy of much smaller size, with a stable currency. The only way to get there is to clear out this shitpile first.
Universal default would ultimately benefit everyone, as the obligations THEY owed would be as wiped out as the obligations owed to them. I think people would be shocked at how all this interconnected debt drives up the costs of EVERYTHING, even things not obviously debt-related.
After default, Granny has no pension. But she also has no mortgage, loan payments, medical debts, etc. And after the clearing-out phase, she can use her home, now owned free and clear, as collateral to fund her probably modest lifestyle in lieu of that pension. Without all the debt overhang, her actual expenses are going to go down significantly, as everything will be more realistically and reasonably priced.
And for those without assets, they can be taken care of much more easily in a cheaper debt-free world.
It's not a perfect solution, but the failure to propose a perfect solution is no reason to choose to live with an intolerable, unsustainable situation.
Well this "grandpa" has worked his whole life to NOT have debt, to have savings to retire on. While I know all of the socialists see a grand reset as the solution to the moral hazards of capitalism, there is a even greater moral hazard in effectively rewarding massive numbers of people who have done NOTHING to ensure their future. Either a complete indifference to their future security or a complete dependency upon a big brother government to cover their asses. The exact SAME government that has their fist fully up our ass trying to move our lips now. While I will concede that we have passed the tipping point of government dependency or loss of self sufficiency, there will still be untold numbers of vengeful people in the streets with everything they held of value TAKEN. If you want to see a shit storm, then just keep pulling on this thread. And after we have seen universal contempt for European "bail-in" talk, where the undeserving "savers" will be robbed to pay for the public worker's salaries.
Get your fucking eyes off of my savings. Its just a warning but not all my savings are in cash. Quiet a bit of it is in lead.
Wait a second. You suggest that Granny would become debt-free and better off for that. However, the next thing you suggest is that Granny should use her house as collateral.
Stand back. My head may explode.
Well then, Granny better grab her walker and find a job, then.
If Granny is living in her own house and she is retired, chances are that she has no mortgage or is close to paid off. The idea that she should (reverse?) mortgage her house assumes that after the lenders have been nuked, they will be standing in line to lend to Granny again.
When you are considering a game changing scenario, you have to think a few steps farther out.
Obviously for those folks like Granny who have no time to prepare, and have immediate needs, we will have to do something to enable them to survive. Allowing Granny to use her home's value makes perfect sense. It does NOT mean the whole debt-Ponzi should get rolling again. We aren't going to let Granny take out a mortgage for a second home...just let her get through this bad situation somewhat intact.
That still assumes a willing lender. What kind of LTV would you expect for a collateralized home loan? The residential real estate market would fall flat on its face because credit would dry up. Prices would have to slide down to where people could buy for cash (or cash and a trade-in).
Lots to consider.
Jubilee as put forth in the Bible is a system of justice and mercy that most of us would gladly support. It was understood and accepted in the culture prior to the sale of property (except for houses built on a city wall). The seller or a kinsman redeemer could return the money and recover the property ahead of the jubliee year. This also applied to a child or other dependent sold into servitude by a destitute family. A jubilee provided hope for a family to be able to restore productivity and not be doomed to extinction because of unfortunate circumstances.
All generations alive today are condemned to death because of the debt.
You're an idiot if you think sacrificing one generation to prevent the collapse of human civilization is wrong.
A default will come, but it will be an unintended result, not a choice. Too many have too much to lose to NOT keep extending and pretending. Nobody cares about pensioners or retirees. The Military Industrial Complex will NEVER voluntarily give up their con without a fight. There is ZERO chance of a calculated default, unless it is part of some evil end game final takeover of Earth scheme.
So, if there IS a calculated default, who benefits?
The people who own all the shit paid for with debt? Who is that?
Who gets screwed? Those who own the debt? Who is that?
Which group has all the guns?
The people have all the guns. The number of government forces are a rounding error in comparison. Due to the serial imperial wars of agression, the US has a sizable civilian population with modern military training and experience. I've never seen pictures of Jamie Dimon running battle drills with a rifle covered in mud, but maybe that's for next year's christmas card.
A great bit of debt is in the form of muni bonds. Muni bonds for infrastructure such as water and sewer and for transportation such as airports are financed as revenue bonds. Public school construction is usually financed using general obligation muni bonds. Municipalities can be thrown into bankruptcy, but the public schools cannot (at least not in Texas).
Pondering possible scenarios requires the right form of carbs. Popcorn, please.
More likely nobody wants to be the one to push over the first domino.
why bother defaulting on its debt when its defaulted on its moral authority decades ago!!!
Doug thinks the government should tell old people to just hurry up and die already? Yeah, good luck with that. The pension bomb isn't going away any time soon.
see my comment above. If you don't want grandma to starve in 5 years, a debt default / jubilee is the only way to go because the current system will absolutely cause her to starve. A restructured, needs-based safety net can be affordably put together, funded by a consumption based tax. The country would be back on track in 5-7 years. It will never happen, but when the idiots claim there was no other way, we can all rest in knowing there was and hang the fuckers.
Can I get some kind of Status, Class, Title, or Citizenship if I live in a small cheap place and have little debt??
I'm sure people will groan about the Debt Jubilee in my part of the country.
Is there anything that can be given to those with little debt, or a protection of some kind from Lawsuits by wealthy power brokers, eminent domain, tax increases from some level of government, new bank fees of some kind, taxes to pay for welfare of some kind, education taxes, immigrant and refugee taxes which now stand at over $3 Billion in Federal Funding.
Department of Health and Human Services:
Administration for Children and Families:
2014 Total Outlays - Payments to States for Child Support Enforcement and Family Support Programs = $4.11 Billion
2014 Total Outlays - Refugee and Entrant Assistance = $1.28 Billion
2014 Total Outlays - Child Care Entitlement to States = $2.8 Billion
2014 Total Outlays - Payments to States for the Child Care
and Development Block Grant = $2.2 Billion
2014 Total Outlays - Social Services Block Grant = $1.75 Billion
2014 Total Outlays - Children and Families Services Programs = $9.4 Billion
-
Department of Education:
2014 Total Outlays - Office of English Language Acquisition = $736 Million
Problem with a debt jubillee is that those who avoided debt and lived prudently would basically be punished.
But then that's been going on for a while now.
Those with no debt should receive a bonus based on the average!
Plus, a jubilee would pretty much let the banksters walk away intact. That's not how it should go.
How many human lives have these fuckers destroyed with their greed?
I am troubled by violence, but I can conceive of making an exception in certain cases.
There are ways to reward the savers with no debts in a jubilee. Those with no debt could be given a set amount of gold from government stores at Fort Knox. Oh wait ...
How will the majority know who to hang and why? They all love love football. They will end up in FEMA camps without a fight.
A debt jubilee would be the honest thing to do. Because it's the honest option, it will never happen. These fuckers in our government and banks can't get out of bed in the morning without lying.
Since nearly EVERY country is dead ass broke, the debt jubilee concept actually makes a whole lot of sense (I used to be a skeptic.).
A debt jubilee would help the common man. Considering it was done historically on a regular basis, lenders would be cautious to whom they lent. Obviously, there is no exorbitant wealth to be made as with a fractional reserve banking system, therefore, it will never happen.
So, we are left with a French Revolution style reset. Oh well, sucks to be them.
Miffed;-)
exactly (this ^)
Love your posts, Miffed.
Miffed, it would help those in debt.
What about those who have worked their whole lives to be out of debt, to owe no one, to have savings in the bank for their security and retirement?
Or is this more collectivist hogwash where we are supposed to sacrifice our labors for the collective good? For people who refused to save? For people who would piss away any wealth given them for another day of a good time?
Do not kid yourself. There is NO difference between your reset and the French revolution. Once their revolution got started, their need for wealth redistribution and revenge only grew. You are kidding yourself if you think you can TAKE a significant number of people's assets and NOT have a violent reaction.
But likely violence will be inevitable.
I am one of those people Oldwood. I have very little debt, only my mortgage which is very manageable at this point( it is one qtr of what the average home compared to mine would be today) it will be gone in 8 years. All my other debts have been paid off long ago. I have lived a responsible life and have watch the fruits of my labor taxed away, my savings gutted by inflation and my freedoms removed. These facts will never change and I will get no reparations. It is foolish to hope for otherwise.
My aim in suggesting a jubilee is the hope my children are not saddled with this debt though it is also no fault of their own. They carry little as well as we have instructed them. My eldest has paid off her student loans. Why should she be taxed to fund others who can't? Yes, in a perfect world, all would be expected to shoulder their own burdens. If this were true in our country today I would feel differently.
Robespierre who was instrumental in the guillotining of so many despotic figures, ran out of victims and moved to the innocent. Cartoons were made of him guillotining the executioner as a farce because there was no one left to kill. His evil caught up to him and he was shot and guillotined himself.
Robespierre envisioned a republic of virtue but what resulted was the Reign of Terror.This is the reality of Revolutions. I truly do not romanticize them.
Miffed
HOW does forgoing others debts take your savings out of the bank? Get thee some Au/Ag/Pd/Pt/Rh and Pb/Cu!
A debt jubilee would be the honest thing to do if it had been written into the contracts and had been a cultural norm prior to the creation of the debt.
Missing cruise missile warhead from the "Minot to Barksdale" scandal ready for detination somewhere in Germany or Hungary to be blamed on ISIS funded and trained terrorists from Russia in 5... 4... 3... 2... 1...
Those poor victimized Russians.
Thank God they finally broke free of the rapacious domination inflicted on them by Bulgaria, Hungary, Poland, Czechoslovakia, and East Germany.
Yes indeed.
And if those Countries don't get there act together soon they will be punsihed by their Zionist Master(s)...
After all a deals a "deal"!
The US should have defaulted immediately after the Cold War ended. It is far too late now.
The US should have defaulted immediately after the Cold War ended, and honored it's treaty committment(s) not to expand NATO which it violated from the get go with the intervention in the Balkans in the 1990s and now Ukraine and the entire Middle East for it's oil! But it is far too late now!
Fixed it!
Pretty funny to hear someone couple the concept of honoring one's treaty commitments and dishonoring its financial ones in the very same sentence.
Situational ethics rolls on.
On keeping score with those two Tarawhore I couldn't be more in agreement.
It's no small wonder the Zionist shylock money lenders are getting there asses kicked out of everyplace they go and the only arms that they can run to anymore is the U.S. and England -because of course it's all they have left after shitting everywhere else "they eat"!
Guess that only means one thing... The U.S. and U.K. can't geet enough of the "Dirty Sanchez" from their money lending mentor that only makes them hated everywhere else they go as well!
Now you've done it. I'm going to have to call you names too.
How about...
Nah, you go ahead and rock on without me. Long may you reign, Son of Captain Nemo. Cool handle, I've always thought it was inventive and colorful.
There was actually a plan to be activated around '93. Then someone who was to meet Vince Foster in Geneva, got put in a Swiss dungeon. He got released after about 134 days when Rabin vouched for him. That same year Foster was murdered. About 2 years later it would be Rabin. After enough time in multiple prisons, on false charges, a similar plan was presented in 2006. It would have prevented the 2008 meltdown. Again it was presented to the G7/G20 in 2010. We are going to suffer another meltdown before it is all over.
Had we accepted and the plan in '93, probably there would have been no 9/11. No 2000 meltdown before it. Ongoing efforts to bring down the USSR probably would not have prevented the comparable "blip," '87. But, what the "consent of the governed" wants, the governed -- gets ..
CATHARSIS
https://app.box.com/s/hfgvcqg7gqh7i27at6sv53ywu87lwarp
I can't tell if this is satire or if you're serious, which makes it brilliant satire. If you're serious, you need to see a doctor immediately! Also, the two up voters also need to see their doctors immediately. Don't wait you need serious psychological help.
Great piece, like to see this sort of thing - but what will happen is the .gov will sell all that "federal land" for pennies on the dollar to a bunch of rich cunts.
land and oil/gas/water rights....
I still think the us government, after a vote of no confidence in the wall street/MIC/Zionist-controlled Congress, could issue its own money as "legal tender" and give it to the fed as such.
Doing so, and this wasnt my idea, but in theory this extinguishes the equivalent sum of "checkbook" FRNs.
So, the trillion dollar coin, WERE IT A FRN - would be crazy pointless...
BUT- making the Fed take "legal tender" issued by the government, it would destroy 3 trillion in freshly printed FRNS, and the Fed would have 3 trillion in a *different* currency they'd have to try to spend but good luck.
legal fictions to repudiate without 'repudiating'.
I dunno, surely maybe this is in fact dumb, but clearly the extant debt will never be paid, and is argualby odious debt, lots of it, anyway.
It really doesn't matter does it? The Roman empire - what was it like in it's final days?
Like the West today. In fact the similarities are stunning.
For the fat and lazy, it will be hard.
For the strong and brave, it will be an opportunity to advance.
Fiduciary responsibily shall be held with the three branches of our Goverment. This includes the monkey in White House. They keep passing laws and collecting taxes without the consent of the public. They should hold the debt bag.
If they resist, place a asset hold on everything they own. Try them for treason and breaking the Consitutional law.
Mr. Casey,
The problem is not that US debt has become an abstraction. The problem is that people do not understand the abstraction from which the action of debt comes.
There is good debt. Debt that is underwritten by already existing money is good. It is how investment is made possible and is the cause of the greatest economy ever from the the time the anti-usury laws were relaxed to the time governments usurped their monopolies on the counterfeiting systems.
There is bad debt. Debt that is underwrirtten by non-existent money is bad. It is how theft is made possible, immediately. The fallacy of "we owe it to ourselves" is the fact that the theft has already occurred. The subsequent action is simply a slaves bondage.
Again and as always, counterfeiting is not the imitation of the currency. Counterfeiting is the imitation of the productive work required to make the existence of any currency necessary at all.
The number one reason why the government should default on its debt is for the sole purpose of eliminating its counterfeiting mechanisms and allowing the Economy of Productive Work to sustain itself for itself instead of for those who choose to steal value and not exchange value.
[quote]Again and as always, counterfeiting is not the imitation of the currency. Counterfeiting is the imitation of the productive work required to make the existence of any currency necessary at all. [/quote]
Precisely WHY "'Tis death to counterfeit." Mother Nature is not gonna take any wooden nickels!
The author thinks we are borrowing money. How quaint. We are not. We are printing it. How it washes around via the Fed to primary dealers who MUST "loan" to the gov is just an institutionalized shell game. What we should be more concerned about is this shell game far and away benefits the crony rich class. It can go on for far longer than the author thinks because we are leveraging reserve currency status to the hilt while throwing enough money down in entitlements to squeeze the middle class from both directions.
It ends on a battlefield, or a mushroom cloud, or gallows lining the Mall. Maybe all three....
"Those who make peaceful revolution impossible make violent revolution inevitable." JFK 1961
Thank you for clearly defining the nature of the problem. I am so sick of all of these pundints inderectly giving credibility to a completely fraudulent system by omitting the very reason we're in the situation we're in. The collapse needs to happen. I'm not for starvation, death, hunger and violence but I'm also not for fiat, chemtrails, fascism and corrupt governments.
When you can print currency into existence then you can champion any cause and destroy any adversary at will. In fact, every ill in the world can be traced back to central banking and more importantly, fiat currency. Only a complete implosion will wake the sheep from their slumber and force them to deal with their impending new reality. This battle is about good and evil and whether a "one world government" or the "sovereign individual" will prevail. But it will be brutal as they won't go easily.
"They have the guns but we have the numbers, gonna win yeah we're taken over!" JM
I'm buying a couple of robots in a few years, people have been trained to not want to work.
exactly.
It's Scooby time! Don't default on your obligation to singalong.
The money is not being borrowed it's being created out of thin air by a few keystrokes. Basic error in the report.
Awhile back I read somewhere the federal government is planning on selling off national parks and preserves lands to the individual states. Has anyone here heard anything along those lines. Does that land not belong to us ? At least the legal U.S. Citizens ?
The opposite is happening in reality. State owned lands that were put in guardianship of the BLM are being effectively seized by the feds. They revoke the permanant rights of people who owned them (grazing). That's what that whole Bundy ranch thing was about.
The federal lands that are out there are having roads closed all over the damn place, blocking use and access of citizens to millions of acres.
I have been saying that for years. The US will sell assets. Pasports will be required for US national parks since currency devaluers will buy them.
Alternately maybe a debt jubilee associated with the migration to the SDR.
Start clean with a new fiat.
The following information comes from the website http://www.usgoernmentstpending.com. It uses OMB numbers, so the accuracy is, of course, suspect. However, it would seem to indicate that if the gross public debt that the Federal government has was, in fact, defaulted, the budget situation isn't as draconian as I thought it would be. The FY 2016 budget deficit is guesstimated to be $474 billion and the interest expense is $283 billion, meaning the operating deficit is "only" $191 billion, or about 5% of the total budget. As I said, these are OMB numbers, which are probably laughable on the face, but I wouldn't think reality is off by an order of magnitude.
The problem with a debt jubilee, as a number of people have noted, is that so much of the debt is held by foreign countries and I doubt they would take too kindly to the US simply saying "Oops, our bad. We ain't paying you".
I would also be interested in how much debt of other counties the US, US companies and the people who live here hold, particularly the banks. Because as sure as the sun rises in the east, if the US defaults on its debt the rest of the world will default in no short order. That would be a time to have the popcorn ready.
It is important to understand the concept of Odious Debt when thinking about this.
Odious Debt.....
In international law, odious debt, also known as illegitimate debt, is a legal theory that holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation, should not be enforceable. Such debts are, thus, considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state. In some respects, the concept is analogous to the invalidity of contracts signed under coercion.
How much US debt did you sign up for?
."How much US debt did you sign up for?"
That's a tricky one because if you voted then you're indirectly part of the problem by going along with the whole farcical system.
Though if you voted for someone like Ron Paul it was to try and change the system. I guess my point is anyone who's voted for either red or blue once the final candidates were known well and truly deserves that debt.
remember, the French government is still squeezing Haiti for debt payments they incurred from the House of R in order to compensate the plantation owners for loss of investment...following the slave revolt. That was 1804. I sometimes think it is the model for all "international development."
Let's at least go on an infrastructure shopping spree first. We will need new infrastructure in place for the reset when nobody will lend to us for a long time.
This is where China has us beat. People joke about ghost cities and such...but regardless of how this shitstorm ends for them, they have a good 50 years of new infrastructure in place...
In UK Victorian Engineering would have lasted another 100 years if it had been properly maintained.
Trouble was that politicians ignored it for so long, due to its reliability that the maintenance didn't happen.
Now it's likely to bit back in an expensive way.
Like the mechanic says, best pay me today, it'll cost you twice as much tomorrow.
Reason # 2 "to punish those who have enabled the State by lending it money" is the most compelling. Additionally, the cabal of globalist, crony-capitalist banking oligarchy are criminals along with the large majority of the world government leaders, and most all of them should be in jail (at a minimum).
What are the National Security Implications.
Debt like we have in the Federal Government is front and center. But I would guess that we would keep Liabilities for the Federal Government, Social Security, Medicare, Pensions, Salaries... the reason being to keep Capital flow or money flowing in the economy.
- Then the Jubilee would repeat in 25 years or some threshold point
- Assume the Military and DoD would continue to function like the rest of the Federal & State Governments
- Not going back to stone age, but maybe going to Iceland Scenario
- Have no clue how businesses would deal with this, probably okay since much is paid on a monthly basis
"There are at least three reasons for that. First is to avoid turning future generations into serfs. Second is to punish those who have enabled the State by lending it money. Third is to make it impossible for the State to borrow in the future, at least for a while."
State and local governments, excluding employee retirement funds; debt securities; asset, Level
2015:Q2: 1,338,507 Millions of Dollars (+ see more)
Quarterly, Not Seasonally Adjusted, SLGDASQ027S
State and Local Governments, Excluding Employee Retirement Funds; Credit Market Instruments; Liability, Level
2015:Q1: 2,962.52 Billions of Dollars (+ see more)
Quarterly, End of Period, Seasonally Adjusted, SLGSDODNS,
$18 Trillion Federal Debt
2014 Total--Interest on the Public Debt = $429.568 Billion
2013 Total--Interest on the Public Debt = $415.670 Billion
2003 Total--Interest on the Public Debt = $318.149 Billion
2002 Total--Interest on the Public Debt = $332.537 Billion
2001 Total--Interest on the Public Debt = $359.508 Billion
2000 Total--Interest on the Public Debt = $362.118 Billion
1999 Total--Interest on the Public Debt = $353.511 Billion
1998 Total--Interest on the Public Debt = $363.824 Billion
- Assume Separate Reform would focus on bringing down Court Costs, Legal Fees, Medical Fees, Drug Costs, Mal-Practice Insurance Costs, MEICARE-MEDICAID Costs,... and State, Local Government Retirement and Federal Retirement and Salaries Costs/Overhead.
Of course, the current interest on the debt is, despite its gigantic size, still artificially repressed with fake interest rates. When it snaps back to a rational risk premium, the number will be literally unbearable all by itself.
But there is definitely something to say in favor of a managed process rather than an abrupt and total one.
I'm of two minds about this subject:
On the one hand, default is inevitable so why not get it over with and start rebuilding? Of course, I get no checks from the government now, and do not anticipate receiving any in the future apart from lottery winnings. So it's easy for me to be in favor of this option. Yet I remain troubled by the havoc it would wreak on so many others who have, justified or not, gotten ensnared in the system of depedency and have little or no hope of survival if it ends. It's easy for millionaire financial gurus and lovers of chaos to be for default since it offers many benefits personally.
On the other hand, if we keep on keeping on until nobody will loan us any more money, we are likely to end up with more physical goods to rebuild with while everyone else is stuck with useless paper promises from a defunct entity. Considering how vile everyone in the world treats America, it would serve them right if we cleaned out their bank accounts completely and THEN told them to go fuck off and die. Merely confirming the bad opinion they already hold about us.
Virtue says take the medicine now.
Practicality coupled with a healthy dash of sly vindictiveness says run this sucker into the ground.
Reality says that virtue is a largely obsolete concept that will not regain its true merit until all other avenues have been exhausted.
Nice post TB. Every day I read through ZH and occasionally in the articles or comments I get a new perspective to cogitate on.
TB, you don't live in Illinois, that much I can tell..
" ... until nobody will loan us any more money ... ."
Several times above, people have said this, but it really isn't true. What others are doing (at least on an institutional basis) is 'buying our paper'.
The difference might be dismissed as semantics, but the difference is very important; to wit: Japan, China, and all the rest really aren't buying our paper in order to be repaid and/or earn interest, as might be the case of one of us buying a bond for our grandchildren.
They are doing it primarily to prop up a system (theirs and ours) that benefits them, and, of course, us; even perhaps primarily us, but that, too, is obviously not why they're doing it. They, too, are trapped by the system because that's the way the system works. Even if we, the U.S., flat out said, we're going to default, the others have to continue buying our paper or the system (theirs and ours) - the system that benefits 'them' (the powers that be, corporately and individually) will collapse.
Therefore, they will continue to buy our paper.
and do not anticipate receiving any in the future apart from lottery winnings
A fools game as 1/2 is taken by the house up front and taxes are taken from the other half you hope to win. And then, if you live in California, you don't get that other half either! They claim the law won't let them pay you.
Can our school systems really make us this dumb by themselves?
W. Banzai needs to photoshop the b & w photo of Mussolini and his girl hanging from meat hooks and superimpose Jamie D's picture on it.
That's how I suspect this show is going to end. Smoke rising from the Bastille, too.
Default? But why, just because we take in half as much as we spend and the FED will never get audited. Come on man, that's no reason to default is it? I mean as long as the baby boomers get their ss checks we're solvent right? We're ten years from trouble, especially the way those in govt. cook the books, maybe 20 years til trouble! Drink the fucking coolaid will ya already!!!
We won't default on our debt. There is still too much room for extra zeroes on our banknotes.
Satan invented usury. His demons use it to destroy the world in exchange for feeling the superiority of a financial pervert.
The psychopaths of the world invented Satan and god to use against the rest of humanity as a way of feeling the superiority of control over others is how I would have put it. The 'money/financial' system we suffer under was invented by said psychopaths as a tool to enable their endeavours.
I prefer to term 'them' as sociopaths, as they operate in a manner that show that they are knowing of their deeds, they do know right from wrong, but willfully choose wrong, whereas psychopaths are not knowing that the bad deeds they do are wrong. Both like to show their work as apposed to the truly demented.
That's just silly. It's a game of musical chairs, and as long as the music never stops then nobody loses the game. You're talking about taking all the chairs, then stopping the music. What fun is that?
Don't look now but there are no chairs (probably never have been!)
They had never intended to pay the debt back,
What Kissinger said before.You know the economic situation today:
https://www.youtube.com/watch?v=j78l9Q6MYfw
https://www.youtube.com/watch?v=easuUdhW4X0
Doug Casey, bearish on stocks and the dollar since the Carter administration.
Default? how about debt forgiveness? doesn't that have a nice ring to it . . . when the central banks own all the debt (like Japan) they can just wipe it off their books. Normally, (that's a funny term) the currency of that country would get crushed but not if every country is doing the same thing. Gold should be on fire . . . .
Any of the "US Government debt" that is owed to tentacles should immediately be removed from the ledger as if it never existed.
Three Reasons Why The U.S. Government Should Default On Its Debt Today
The US government (and all governments) have "already" defaulted on their debt. They make trading promises and get them certified, thereby creating money. But they never deliver on those trading promises ... they just roll them over, and that is default. Further, they charge themselves the lowest interest of any trader. Thus, they finance themselves with INFLATION.
The operative relation is: INFLATION = DEFAULT - INTEREST.
In a properly managed MOE process, DEFAULTs are immediately recovered by INTEREST collections, thus guaranteeing zero INFLATION.
We can't have a properly managed MOE without first declaring government a chronically and permanent deadbeat trader and ostracizing them from the marketplace.
This can easily be done by one or more privately purveyed MOEs which are properly managed. The government/Fed managed MOE could not compete and would wilt on the vine.
We have private mutual insurance companies. We can have private mutual Mediums of Exchange.
According to Bank of America Merrill Lynch:
https://app.box.com/s/2x1jqc1901tv8v00mbqnqjfbu8rrqzzp
The HY Note
Global growth concerns spread from us to Fed
A slow moving train wreck
Today’s Fed decision was the second worst outcome for risk markets, in our view. We have written on numerous occasions that if the Fed didn’t hike rates today initially markets would rally modestly before selling off. The realization that global growth concerns are not only real, but very dangerous right now should cause a risk off environment. And with no room to cut rates, we question the Fed’s ability to manage any further slowdown through what would have to be QE4. However, we can’t see how additional quantitative easing will help, as the goals of QE have already played out: the banking system has recovered, rates are low, investors have driven debt issuance and asset prices to uncomfortable levels, and the housing market has recovered enough to not be a concern.
Furthermore, lower rates don’t help high yield at this point. Whether the 10y is at 2.20% or 2.0%, does the asset class really look all that more compelling? Not in the slightest. In fact, outside of hiking while sounding very hawkish, not hiking and sounding very dovish while expressing concern about the global economy may be the worst thing that could have happened today.
We have been saying for months that the global economy is weak and the Fed’s dovish disposition today only bolsters our view. Europe is about to enter QE2 as inflation and growth remains poor. Japan and Brazil were just downgraded. Commodities remain under pressure and we think, at some point, the narrative could turn from a supply driven story to a demand driven one. Domestically it becomes harder to argue that a strong dollar and the lack of inflation can be viewed as transitory and this headwind is continuing to hurt high yield corporates. Manufacturing is uneven, consumer spending hasn’t improved in a year, and 2014 real median income was down 6.5% versus 8 years ago (and down 7.2% from the 1999 level). Although auto sales remain strong, we would expect as much given low gas prices, an aging fleet and the fact that auto loans are one of the few places in the economy where it’s easy to obtain credit.
Additionally, high yield corporate earnings remain incredibly weak, with yoy earnings growth negative for the first time since the recession (even ex: commodities EBITDA growth is only slightly positive). Leverage is at all-time highs (again, even ex- commodities) and the High Yield index is more globally exposed than it has ever been (35% of the market generates 45% of its revenue from outside of the United States, and that doesn’t include Energy, which is globally exposed despite not realizing significant direct sales abroad).
Not only are earnings weak, but there has been next to no capex investment, debt issuance has been massive, and buybacks and dividends have driven equity valuations as CEOs and CFOs, afraid to invest in organic growth, have chosen to buy growth instead. And as a result, recovery rates are 10-15ppt below historical norms and defaults and downgrades are creeping into the market. Although we understand many will say its just commodities, is it really? What started as coal weakness 18 months ago became coal and energy weakness. But it wasn’t really just the commodity sectors, as retail was also already weak. Now it’s the commodity sectors, retail and wireline (but definitely not all of telecom). The situation almost seems unbelieveable, as everything that seems to go wrong is explained as being isolated (AMD, well, of course semiconductors are in a secular decline) and treated as a surprise (Sprint).
In our view, the makings are there for a risk off environment for some time to come. For non-commodity spreads to be 400bp tighter than in 2011 makes little sense to us. Replace Greece for a much bigger problem: China. Replace Washington dysfunction and debt downgrade with uncertainty about monetary policy and EM weakness (though we may see Washington dysfunction very soon between this fall’s budget talks and the presidential race looming). Replace US QE with European QE. Additionally, replace strong earnings growth and margin expansion in 2011 with no earnings growth, a stronger dollar, and higher leverage today. Replace decent liquidity back then with poor liquidity now. And replace the fears of a double dip recession with the potential for fears of a global recession. Though this last point has yet to play out, we think it’s only a matter of time before investors begin to feel as bearish as we do.
The Fed had an opportunity today to hike rates and begin to build a cushion should the global slowdown be so severe it can’t be ignored. Instead, they chose to wait. In our view, this has left them in a predicament as now the rumbles of never being able to increase rates will become even more exaggerated, and when they ultimately do, we think it will be more painful than if they had gone today. We expect as a consequence for there to be more market volatility, more uncertainty around the Fed’s motives and belief in the economy, and therefore more downside risk. Most importantly, however, the acknowledgment of weakness only bolsters our view that we are in the midst of the beginning of the end of this credit cycle, and we warn investors to tread carefully not try to be a hero into year end.
Now is the time that investors need to be managing risk rather than looking for alpha. 1 or 2 names will destroy the performance for what has otherwise been a good set of holdings. Remember what many have forgotten over the last 7 years, credit returns are skewed to the downside. The best case scenario is to earn coupon and the ultimate payment of principle. The worst case scenario is 40, 50, 60 or more points of loss.
We’re in the midst of watching a slow-moving train wreck, and in our view the Fed confirmed as much today.