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Some Further Sobering Thoughts On The Coming US Government Default
2013 Oct 12, 4:03am 3,581 views 10 comments
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Shaman
2013 Oct 12, 4:23am
All that sounds very possible. The central question of course, is who benefits fr such a situation? If the answer is NOT the uber wealthy and powerful, then it's unlikely to happen. Our government is pretty sewn up by the wealthy. I suspect the "chaos" is mere political theater.
There will not be a default.
The death of Argentina was a social welfare state that required debt financing. The result of the mismanagement of Argentina's vast resources was the place went from being richer per capita than USA to a basket case.
The whole thing was caused by lefty politics.
What is fragile is an economy. Too much regulation, meddling, and confiscation of wealth (via taxes or other means) can destroy it.
This "crisis" is simply the result of some people who have brains trying to slow or stop the growth of government borrowing/spending to grow the welfare state. We have probably reached "peak entitlements".
ohomen171
2013 Oct 12, 6:57am
My readers the super rich will benefit from such a collapse. When assets crash to pennies on the dollar the super rich will be in there "buying like crazy."
My readers the super rich will benefit from such a collapse. When assets crash to pennies on the dollar the super rich will be in there "buying like crazy."
If the super rich benefited from the 2008 collapse they would not have pulled all their levers and connections to get the crony bailouts and Fed money-printing going. It certainly weren't the American people who called for the bailouts.
PeopleUnited
2013 Oct 12, 7:42am
If this happens the human suffering will still be neglible compared to destruction the US military has rained down on Iraq and other places in the war on terror to forcibly spread "democracy"
Shaman
2013 Oct 12, 7:47am
My readers the super rich will benefit from such a collapse. When assets crash to pennies on the dollar the super rich will be in there "buying like crazy."
If the super rich benefited from the 2008 collapse they would not have pulled all their levers and connections to get the crony bailouts and Fed money-printing going. It certainly weren't the American people who called for the bailouts.
Oh they really did benefit, though! Firstly, due to the bailouts, they lost no money. My dad has a friend with wealth in the several hundred million range and he related this story. The banks called him up one at a time and told him they were very sorry but the value of his assets/stocks had plummeted due to the stock market plunge. But! They were going to make him whole on those losses because of his status as a super-investor. So his accounts were credited back to original balances and he was free to make new investments. Which, if you started investing in stocks after the market bottomed out, you know it was a great time to be an investor. Also, property in most areas of the nation was on a fire sale. The uber wealthy literally could not find deals to invest in fast enough. Goldman Sachs, for instance, got their bailout by proxy when AIG was given over $100 billion, and promptly gave $50 billion to them. So they turned around and bought whatever industry they could lay hands on. My company was one of these, and they bought nearly half of it. Which means I now work for the great vampire squid.
John Bailo
2013 Oct 12, 8:39am
It certainly weren't the American people who called for the bailouts.
Didn't John McCain in fact halt his 2008 campaign during a critical moment to go back to Washington and vote in the bailout (because he personally was invested in AIG and that would have wiped him out should they have failed). This after running the typical "get Washington off our backs" campaign?
freak80
2013 Oct 13, 11:54am
Didn't John McCain in fact halt his 2008 campaign during a critical moment to go back to Washington and vote in the bailout (because he personally was invested in AIG and that would have wiped him out should they have failed). This after running the typical "get Washington off our backs" campaign?
Wouldn't surprise me.
Didn't John McCain in fact halt his 2008 campaign during a critical moment to go back to Washington and vote in the bailout (because he personally was invested in AIG and that would have wiped him out should they have failed). This after running the typical "get Washington off our backs" campaign?
Wouldn't surprise me.
Yep.
If this happens the human suffering will still be neglible compared to destruction the US military has rained down on Iraq and other places in the war on terror to forcibly spread "democracy"
Agreed.
My readers I am sadly watching the debt ceiling drama unfold. I am very pessimistic that an agreement will be reached to increase the US debt limit. Some very hard times are going to follow.
In my last blog post on this subject I talked a lot about the financial collapse in Argentina in late 2001. Some readers were incredulous. Please allow me to give you a link to read about the collapse in more detail if you're curious.
http://en.wikipedia.org/wiki/Argentine_economic_crisis_(1999%E2%80%932002)
What happens to each of you after a default event is tied to the banking system. Let us focus of that a little more. In 1971 I was a university student at Tulane University. I took a fascinating economics course called Money and Banking. It was taught by a great instructor named Dr. Hans Flickensheld. He went on to be a super star in academics and finance.
The course itself was boring and tedious in parts. But it left a profound impression with me. "To make a long story short," I came away with the profound impression of how weak and fragile the banking system is under the best of circumstances. When circumstances get worse, the banking system can quickly collapse. The key here is that banks are constantly second by second exchanging money with each other. In a simplistic explanation this is done with "repo windows." When these windows shut the whole banking system locks up.
After a major default event here, the "repo windows" will lock up as they did temporarily when Lehman Brothers collapsed. President Bush II, Hank Paulsen, and Ben Bernanke, regardless of what you think about them, took decisive actions that saved the day with a massive $750 billion dollar bail out. Sadly we will have no money left for such a bailout this time.
What happens when the "repo windows" close will be a panic and a run on the banks with long lines of people trying to withdraw their funds. Of course these frightened depositors will get nothing and some violence will ensue. Law enforcement and the military will be called in to restore order. Those of you who are more calm and rational will take comfort in the fact that you can go online to pay your bills and maintain some normalcy in life. This ,most likely, will not work. I envision a scenario where salary and pension checks come into the banks and nothing can go out.
This crisis would be manageable if congress and the president were able to work together. It will not be the case this time. I have no idea what President Obama and Jack Lew can come up with the unfreeze the banks. Most likely they will come up with a solution like Angela Merkel and the European Union used when there was a banking crisis on the island of Cypress. There will be what is called "a bail in" In other words depositor's funds will be seized to provide funds for the banks. In the case of Cypress the argument that most of the big depositors at the banks there were criminals and tax evaders who deserved to lose their ill-gotten gains. That argument will not work in US banks. I envisage a seizure of depositor funds in excess of $100,000 US.. Large corporations will be exempted in the hopes that they can continue to pay salaries, etc.
Now let us look at your retirement funds including 401(k)'s, IRA's , etc. In the Argentina nightmare, people with private retirement funds like my wife found these funds seized and integrated into the Argentine Social Security system. This could happen here!
This situation is going to be very ugly with human suffering beyond comprehension.
#politics