Default: The Two Sweetest Words in the English Language
Although I don’t think any of the so-called “serious” politicians will allow the federal government to default on its debts at this juncture, our current fiscal policy is unsustainable. At some point, the government will have to stick it to one or more of the major interest groups in play: bondholders, seniors and others who depend on entitlements, and taxpayers. I believe bondholders will bear the brunt of the government’s nearly inevitable fiscal collapse, and that is exactly as it should be.
The politics of the situation are relatively simple. More senior citizens vote than any other demographic, and with Baby Boomers on the cusp of retirement, their numbers will swell, so large cuts to Social Security and Medicare will remain next to impossible. Tax rates will rise, but American taxpayers (and the American economy) simply will not stand for the level of taxation necessary to maintain our foreign empire, pay entitlements, and service the debt.
Something must give, and it will be the debt, specifically the 47% of our public debt held by foreigners and foreign governments. These groups have little direct impact on American politics, and although it will create international outrage, our domestic politics don’t allow any other way out.
And bondholders–both foreign and domestic–should lose out. They act as the government’s enabler, ready to supply the junkie with his next hit whenever his cash runs low. This is an institution that launches wars on whims and imprisons more of its own citizens than any other country on Earth. Anyone who voluntarily gives his own money to it either lacks even a passing familiarity with its stunning immorality and incompetence or is so blinded by status quo bias that he can’t see the very clear writing on the wall. Buying debt carries risks, and when you give your money to the governmental equivalent of a magic bean salesman, you have no right to complain when you don’t get it back.
Headline reference here.
Like people who invest in the stock market, people who buy Treasury bonds are reckless gamblers. They have known for years that the American government has been running spending much more than it takes in.
If you lend money to a “great guy” who always always spends more than he makes, don’t be surprised if you lose everything you lend him.
Don’t raise the debt ceiling.
The cynical “investors” who thought they could always force taxpayers to make good on the government’s irresponsible deficits must be punished.
De-fault! De-fault! Love the reference. And the post.
Poor would-be astronaut Barney.
John Payne wrote:
“At some point, the government will have to stick it to one or more of the major interest groups in play: bondholders, seniors and others who depend on entitlements, and taxpayers. I believe bondholders will bear the brunt of the government’s nearly inevitable fiscal collapse, and that is exactly as it should be.”
I strongly suspect this is wrong. The government will stick it to *future* “seniors and others who depend on entitlements and taxpayers.”
Way politically easier than a “true” (i.e. total) default even on foreign bondholders. (“True” as opposed to a mere temporary “technical” default on some interest payments on the bonds).
Here’ll be the politico’s situation: They’ll be told that if they indeed default, even just on foreign institutions, one—just one!—very possible if not indeed almost certain result will be a run on those foreign institutions. Big foreign banks, foreign money-market and hedge funds, and even on big foreign countries who hold our bonds.
That means, in addition to all the other unforeseeable chaos that would take place, all the chain defaults that this would set off. Just like you saw with runs on the banks in the Great Depression. After all, investors and claimants on those big foreign banks and funds and governments include—big big time—U.S. banks and institutions and funds. So there’d be runs on them, and then…
And indeed you’d probably see the same kind of results as were seen in the Great Depression: Panic. Massive massive deflation across the board making the deflation we’ve just seen in the housing market look like child’s play I suspect.
In short, paralleling what was seen in Great Depression, it would essentially be the absolute dynamiting of faith in the value of … everything, for a long long and utterly unpredictable period of time.
So the politicos would be sitting there thinking “If we default, in a very very short period of time—maybe even just a couple of weeks—I wouldn’t just have angry constituents, I’d have the whole country coming with pickaxes after me for essentially turning their assets and life savings and pensions and etc. into dust. And that would be clear as bell caused by my vote allowing default. So no thanks, I’ll screw the taxpayer and future entitlement beneficiaries.”
Nobody but nobody can even begin to get a good feel for all of what would happen in the event of a true default. See:
http://www.boston.com/business/markets/articles/2011/07/17/what_happens_to_markets_if_the_us_defaults/
And because it’s so unthinkable, you’re still seeing people long on bonds. (Even if the Fed has to have made all these phoney “QE” purchases of same lately.) See:
http://online.wsj.com/article/SB10001424052748703864204576317612323790964.html
In the most … “invested” way bond buyers are still saying that if push actually ever came to shove everyone knows that a true default by the U.S. would be the equivalent of leaping into an absolute abyss whose bottom is at the very least a catastrophic way down.
This isn’t to dispute much of Mr. Payne’s sentiments about who *should* get it in the rear, but however much the bondholders “deserve” it relatively, they are in as fireproof a position as possible compared to taxpayers and entitlement people.
The full faith and credit of the United States is sacred, and it’s a shame our government will stain it. Regardless of what the government is spending on which I don’t agree with (empire, entitlements, drug war…), it really makes me ashamed our government is ruining our nation’s reputation.
The Founder’s would be ashamed.
National “greatness” my a__.
The neocons and neolibs have wrecked this country with their welfare programs and their wars. Now they’re trying to blame taxpayers for refusing to pay for them anymore.
I agree that the system needs an overhaul but how the “American Pie” is cut up is my concern. I want to see the average working class American (the backbone of the Middle Class) recieve a fair share of the pie and not to see his slice going to the monsterous international corporations. I don’t want to see the privatization of public transportation or public safety or social security or medicare which would eventually lead to the privatization of entire municipalities and the return of the people to serfdom. I am rather socially conservative but I’m not a pure free marketeer and I want to see a return to the days where the government trembled at the power of American labor. That’s the only chance working class Americans have at remaining free born citizens of the USA. Otherwise we will be born into a form of slavery where we work and work and work but will never again see the fruits of our labor while the corporate fat cats grow fatter and richer. I’m not a trickle down economist. I don’t believe in the benevolence of the corporate class, neither do I believe in becoming a professional victim and complainer. I believe that our slice of the pie is out there and we have to lay claim to it and take it by force while protecting what we got by an equal or greater force. It takes numbers and it takes vigilance but it can be done and should be done.
I think that the idea that Default is “unthinkable” and the Gov’t will instead push the debt on the younger demographic is what got us to this point in the first place.
The longer we wait to inevitably Default on bills we can never pay , and restructure to a sane level of spending, the worse the crash will be. There SHOULD be a run on the banks, we SHOULD be telling people not to invest in Ponzi Schemes… unfortunately, there is no good outcome here.
Wow, check out ROn Paul on this topic
http://www.youtube.com/user/ronpaul
People must overcome their staus quo bias. Because the status… is not quo.
The funny thing about this whole mess is that Ron Paul, as shown by that clip Doug linked to, is exactly right: The fault lies in us really. One huge chunk of us loves entitlements, the other loves war. So Doug’s sensibility of “let it all come crashing down so people learn some lessons” is understandable.
But look, if you see that run on the banks like Doug wishes, well, think about it: *Most* companies, I suspect, operate—even on a day-to-day basis—on lines of credit from banks. So a bank has a run on it and it calls those loans. “Immediate payment demanded.” And the companies then quickly have no choice but to immediately start “laying off” people. You can’t meet payroll with rubber checks. Or in other words, firing them. And on the immense scale that would take place I have no doubt you’d also start to see massive civil disturbances very quickly. Asking for what, however? To reform entitlements and stop the wars? I doubt it. More likely to … return to the status quo.
As I said before what’s gonna happen is that the situation is going to be put off for awhile by some screwing of the taxpayer and some screwing of future entitlement people, and then some screwing of all the rest of us via inflation. There’s just no other way.
So THE day of Ultimate Judgment will be averted, but another break point will be reached, another ratchet of similar screwing will inevitably attend same, and then another, with the only real limit and hard crash coming if the American people don’t wake up from their fantasies in time before people ultimately refuse to even *buy* American debt anymore.
The question then is whether that waking will come before that apocalypse or not.
On the optimistic side, that ratcheted screwing and attendant invitations to think differently about entitlements and war is gonna get ever more intense.
On the pessimistic side, history is replete with examples of the idea that changes in a populace’s fundamental political outlook really only occurs after they have experienced some fundamental cataclysm.
The only thing to do really is sit back and enjoy the show. For my money the best right now is all the grim-faced supposed financial righteousness of people like Boehner or Paul Ryan and etc. Didn’t bat an eye when Bush passed the prescription drug entitlement. Loved it when we started loading trillions on planes to Iraq and Afghanistan and indeed love it still. And loved it when he loaded more trillions to banks for bailouts. But now…!
And, speaking of Shrubs, anyone notice Jeb Bush starting to take back his promise not to run? Wouldn’t *his* election just be a kind of crowning glory? Another Bush as Prez. would be just about right: The absolute apotheosis of our national insanity.
Let it default. There HAS to be a change. Let it be sooner than later. Why are we so adamant about putting it off? We have let the people in D.C. put our next generations into slavery, and we are quickly sliding into a third world toilet of a country. It’s only going to take one small spark to set off an explosion of something in this country that will end in something maybe we won’t want. Believe me, friends, most of the people are totally fed up and willing to take the chance on doing whatever it takes to make a change…… now.
Remember, THE MOST DANGEROUS MAN IN THE WORLD IS THE MAN WHO HAS NOTHING TO LOSE, BECAUSE…….. HE HAS NOTHING TO LOSE. Are you ready???
I’ve been there…… in the fire-fights in ‘bodia, in the streets of the riots in L.A., in the slums and ghettos of this country and others. I know what the people are thinking. I know what’s brewing and what the ‘limit’ of the common person is. We are getting close. There needs to be a change. Let’s do it peacefully. If it takes a default… do it! We cannot go on with the BS coming out of D.C.
The inherent problem with default, or even stiffing just the “foreign” investors is the havoc it would ultimately wreck on the value of the dollar and the subseqent inflation. Thus, such an appraoch would result in only a hidden tax on all Americans in that their savings would eroe, their jobs would be threatened, and their financial security would be seriously put in play.
Ultimately, the real answer is to make some very painful choices regarding empire and entitlement. We either seriously cut back on those major entitlements, get back to having families care for their old, and drastically scale back the military and military occupations and operations, or will jack up taxes to pay for it. Either way we need to take the steps to balance the budget and begin paying off the bond debt, while no longer issuing new debt.
lol, Homer in space.