patrick.net

I admire the sentiment of saying "screw 'em let's pull the ripcord YEEHAAA!"

However has a country ever defaulted while it was the global reserve currency?

Preach on, Fisk.

Major Powers have defaulted before, and emerged quickly from it, stronger than ever.

France was the #2 power, neck and neck with Britain, in the 18th and 19th Centuries. She defaulted several times in that period.

The livre, the assignat, etc.

As you mentioned, Russia also defaulted, and emerged much stronger and better organized, with less crime and more opportunities for all, after Yeltsin.

Argentina also emerged from default in great shape and has been growing by leaps and bounds over the past few years.

Countries that don't default when they unmanageable debt simply stagnate, and decline slowly rather than have a short period of hardship followed by a massive debt relief boom.

Defaulting is the best way, bar none, to shake off Banksters and redistribute the wealth to the productive. Needless to say, those who can afford the most microphones are also the ones who hate default the most. They would rather but the country in a sleeper hold, than relax their grip and think about the long term prospects of the nation.

Nobody has answered my question.

Has a country defaulted that was the global reserve currency?

Vicente says

Has a country defaulted that was the global reserve currency?

Well, France was the #2 Power and the Livre was used globally at the end of the 18th Century. The Livre defaulted under John Law, was revived again, and then was replaced by the Assignat in the late 18th. It was issued in both paper (the vast majority) and metal (much small quantities). The paper ended up worthless.

Then, the Assignat inflated to worthlessness and was replaced by Napoleon.

At the time, the Assignat was used all over Continental Europe, which back then was a huge chunk of the world's productive power.

Both times, given the size and scope of the French Colonies, European Trade, and the Conquests of Revolutionary France (Italy, etc.), both currencies were certainly "Global".

The Euro is available. The Euro represents a much larger economy. Oil remains in dollars, but over the past decade Oil Producers have been steadily and substantially increasing their Euro holdings, as has China. It's not like there is absolutely no alternative to the USD.

Everybody from Indian drivers to Parisian Antique Dealers prefer Euros. And of course there's the Yuan, which has a long way to go, as well as the SDR, which could be expanded in the face of a US default.
http://www.time.com/time/magazine/article/0,9171,1890380,00.html

In the event of a US default, there is a global reserve currency waiting in the wings.

thunderlips11 says

In the event of a US default, there is a global reserve currency waiting in the wings.

And what if it's not the US Dollar? We derive major benefits from that.

Vicente says

And what if it's not the US Dollar? We derive major benefits from that.

Granted, having oil in USD is a big help, but so far our attempts to devalue it seems to have done little for manufacturing or unemployment in general.

I think the US would benefit in the long term, by having dirt cheap exports, paying off the debt with cheap money (Public and Private), etc.

If we could slash discretionary spending (read: Military) substantially over the next decade, we could get the public debt under control.

But I'm actually more worried about private debt and how somebody who makes the median salary barely has any disposable income after paying all their student loans, mortgage, credit cards, etc. The impact that has on the growth of the economy - and how it is distributed among segments of the population - is my main concern. Combine a high level of private debt with little inflation, and it's rough out there for working adults.

We need some long term, substantial inflation, or a default.

Vicente says

Has a country defaulted that was the global reserve currency?

Probably not. And my gues is that's probably because the concept of both bankruptcy and a global reserve currency hasn't been around long enough. Either that or it did happen in antiquity and nobody remembers it.

Bankruptcy wouldn't help our current government overspending problem since our debt servicing isn't really what's causing our deficits, it's our welfare payments.

zzyzzx says

debt servicing isn't really what's causing our deficits, it's our welfare payments.

Yes, all that pesky Social Security, Defense, Medicare in the "welfare" category:

I'm not sure why everyone wusses out.

Just cut ALL those budgets across the board by the percentage you need.

No, everyone thinks their sector doesn't deserve to share the sacrifice.

zzyzzx says

Bankruptcy wouldn't help our current government overspending problem since our debt servicing isn't really what's causing our deficits, it's our welfare payments.

There's a separate tax for SS, Medicare, and Medicaid, paid directly from payrolls. It is not paid on profits at all, and only the first $100k of wages pay into these programs. In other words, it's regressive taxation. This is in addition to income taxes.

I note there is no separate Military Adventure Tax to pay for Iraq and Afghanistan. There ought to be, it's fiscally responsible and reminds people that warfare costs money.

What if they are right ?

What if the 3 branches no longer hold the power to make our country work. What if it is too corrupt and too big. What if we are now too big too fail, with powerful sub entities also too big to fail, entities that drive our country in the wrong direction.

Even if the politicians disagree with who or what those entities or interests are, what if our only hope of taking them out of the drivers seat is for our entire country to fail ?

Once the entire middle class gets downgraded to dirt poor, just think of the productive work that will get done.

No, that can't be what they are thinking,....can it ?

marcus says

What if the 3 branches no longer hold the power to make our country work. What if it is too corrupt and too big.

I think you are looking into the wrong direction. It's not that it's too corrupt and big. It that's it's ineffectual and captured by Richy Rich.

If the hedge fund manager wants to continue distorting the economy to service the needs of the financial sector, there is no question they will get what they want.

When Hank Paulson went into Congress and said "give me 700 billion as a blank check or else" well by God he got it and quick. THere was no meaningful debate and no oversight of that.

It's clear who runs this country and it's not "big gubmint".

People act like we are careening around like a damaged freighter in a storm because the captain is incompetent or has too many officers. The captain does not even have working controls, he's making frantic phone calls to Engineering which is staffed by a bunch of sociopaths who would rather shoot craps and rifle through all the cabins for valuables than actually get the ship to safe harbour. If the "engineers" are threatened in any way, they icily threaten to take all the lifeboats and sink the ship behind them.

thunderlips11 says

I note there is no separate Military Adventure Tax to pay for Iraq and Afghanistan. There ought to be, it's fiscally responsible and reminds people that warfare costs money.

YEs. Add conscription (the draft too). That really reminds people about the other costs of war.

The original posters scenario ignores the immediate fallout of a US default: tariffs on American exports. Protectionism will rise as nations defend against the US economic "attack".

The only outcome of a US bankruptcy will be a massive socialist takeover combined with massive resurgent isolationism. Trade wars will erupt over night.

Russia and Argentina are poor analogues as neither had significant economies at the time of default.

shrekgrinch says

Uh, Defense SHOULD be the top item in the budget anyway. It is expressly enumerated in the US Constitution for the federal government to provide it so in order to promote the General Welfare.

Social Security? Not mentioned. Not a peep.

Social Security is fully funded by payroll taxes.

Defense? Haven't seen Iraq and Afghanistan line items on my payroll stub.

SoCal Renter says

Russia and Argentina are poor analogues as neither had significant economies at the time of default.

I agree.

thunderlips11 says

I think the US would benefit in the long term, by having dirt cheap exports, paying off the debt with cheap money (Public and Private), etc.

Given the magnitude of debt out there, both public and private, it just seems illogical to me that suddenly everyone who has significant mortgage debt, or any other debt that is offset by assets, should suddenly receive a huge amount of free equity. For debt that weren't so offset, essentially the same happens, it's as if a portion of it was magically paid off.

If that were to happen, it would have to essentially be "stolen" from somewhere ( idk, foriegn investors, or ourselves -ie overall standard of living)).

Fisk says

Some say dishonoring debts is morally wrong when one can pay (aka "strategic default"). But curiously many here who see no problem with individual US homeowners defaulting and stiffing the US banks (and thus our govt. and investors) even when they could pay are aghast at us doing the same collectively to foreign bondholders.

It is quite different. It's not like we borrowed the money from the 1st National bank of the Federation of Planets. We borrowed the money from ourselves, and from a small community of countries, and from international investors. We are supposedly a responsible leader in the world, not a country that uses its power to pillage the rest of the world.

I'm not convinced it would work as Fisk suggests, in fact I'm sure it would be different. The question is how ? What if it caused the fed to go under, and interest rates go so high that the dollar wasn't really worth less, except to us ? But then all of our markets, especially housing would really be a mess (even if existing mortgage holders got relief).

I think Vicente's question is good. The one thing that could be counted on is that the entire international monetary system as we know it would be destroyed.

shrekgrinch says

It does prove that all those assholes who don't pay income taxes are getting a free ride for our nation's defense, though. Thanks for pointing that out.

wtf ? We are all getting a free ride on our wars. That was his point.

shrekgrinch says

As for why it was mentioned that it will be entitlements that will kills us, that is because the payroll taxes won't be enough and so the government will have to make up the difference with other revenue (income taxes) to pay the bogus intergovernmental debentures that are in the SS 'trust' fund. THAT is what will kills us.

That's basically a lie. SS is funded for something like 30 years out. Medicare is way worse. What has to give ? Defense. Taxes. And other
smaller less significant cuts.

Indeed there's no more obvious example of an unfunded liability than our wars. Let's wage a decade or two then default. No different than the alleged CRA helping brown people get mansions they can't afford

shrekgrinch says

It does prove that all those assholes who don't pay income taxes

So you're saying that a couple with two children and an income of under 51K are assholes ?

IF you look at the history, it seems fairly obvious that the whole reason that Bush increased the tax credit for children as much as he did, was to make way for the massive tax cuts he wanted to give the rich.

(I'm not saying that I think the credit for kids is bad, I just question the cuts that went to those who didn't need them nearly as much. I know, the rich pay a disproportionate amount of taxes. They also make a disproportionate amount of personal after tax savings - that's on top of much higher standard of living than the average Joe that pays low or zero federal income taxes)

Fascinating that Shirk and his ilk, want to talk about federal income taxes, because if they said federal taxes (including FICA and Medicare) it would only be 10% that don't pay. But when it comes to discussing our debt and deficit problems, SS and Medicare are "the big problem."

This guy put together informative history.
http://keithhennessey.com/2010/04/15/off-the-rolls/

shrekgrinch says

Uh, Defense SHOULD be the top item in the budget anyway. It is expressly enumerated in the US Constitution for the federal government to provide it so in order to promote the General Welfare.

Really, is that how it works? If it's mentioned in the Constitution then you have to make it the #1 expenditure?

Was that little tidbit of wisdom in the Bill of Rights? I seemed to have missed it.

Excellent blog post:

Economist Dean Banker notes:

Wall Street will suffer more than anyone from a default and it will not let it happen. The public should know this, certainly Wall Street does.

No wonder the fatcats running the giant banks which received tens of trillions in bailouts, loans and guarantees from the American public are screaming loudly that the debt ceiling must be raised.

Robert Reich points out:

Why has Standard & Poor's decided now's the time to crack down on the federal budget -- when it gave free passes to Wall Street's risky securities and George W. Bush's giant tax cuts for the wealthy, thereby contributing to the very crisis its now demanding be addressed?

Could it have anything to do with the fact that the Street pays Standard & Poor's bills?

Remember, the big 3 government-sponsored rating agencies routinely took bribes as their normal business model, committed massive fraud which greatly contributed to the financial crisis, covered up improper ratings after the fact, and otherwise sold their soul (in their own words). And see this and this.

Some complain about the poor sucking on the government teat.

But the fact that Wall Street controls the rating agencies, and the rating agencies are now creating an artificial emergency sounds like the powers-that-be - the giant banks which run this country - are trying to protect their government teat of perpetual bailouts from the public coffers.

And of course, they are the ones calling for slashing of spending which helps the public. Even though - as conservative writer Michael Rivero points out:

Social Security is not "unfunded" nor is it an "entitlement." That is YOUR money in that trust fund. You worked for it, and it was taken out of all your paychecks your entire working life.

The Social Security Trust fund invested your money by loaning it to the US Government, which is the largest single holder of US Government debt. But the US Government is already in default in fact, as the actual tax revenues have not even come close to the projections on which the budgets were drawn up.

So the US Government has looked at all the entities they owe money to and decided that stiffing the American people is the least likely to cause them harm. They will pay the bankers and they will pay foreign nations and they will continue to bail out Wall Street for the mortgage-backed securities fraud by embezzling your retirement money you gave them in trust. The US Government is robbing you to save the private central bank! [i.e. the big banks. See this and this.]

post is chock full of links, and there's more at:
http://www.washingtonsblog.com/2011/07/giant-banks-lobby-to-raise-debt-ceiling.html

Why shouldn't we default?

I can think of more than a few reasons. But it looks like we are headed for national bankruptcy. At least it won't be the first time.

The hard decision that will need to be made will be "Who gets unpaid first?" In any debt restructuring, the general rule is to default first upon who can do you the least damage. Defaulting on foreign debt repayments would NOT be the preferred first creditor. OTOH, would leaving Social Security payments unpaid or weeks late be damaging? Granny gets kicked out of her rented apartment because Uncle Sam can't pay her pension? That's riot in the streets stuff; it may yet come to that....

Bluedistantstar says

In any debt restructuring, the general rule is to default first upon who can do you the least damage.

History of other countries in similar situations shows that the preferred course is to stiff the elderly, who are the largest expense per capita yet the smallest blowback and negative future consequences. Heartless as it may be, seniors in hospitals with serious conditions covered by Medicare cannot really riot and therefore make appealing targets.

Vicente says

And what if it's not the US Dollar? We derive major benefits from that.

“Eagles are dandified vultures” - Teddy Roosevelt

That's like having a CC with high limit and low APR. It's a "major benefit" if you use it responsibly for short-term financial flexibility
and true emergencies. It becomes a major problem instead if you
use it irresponsibly, in which case taking that CC away would actually be to your major long-term benefit.

"History of other countries in similar situations shows that the preferred course is to stiff the elderly, who are the largest expense per capita yet the smallest blowback and negative future consequences. Heartless as it may be, seniors in hospitals with serious conditions covered by Medicare cannot really riot and therefore make appealing targets."

It will be a best-of-worst choices, if it happens.

my whole take is if we don't put a stop to the corruption now, where will we be later? I also think that they're all F-ing bastards. Funny how everyone targets the seniors first. No morals and nobody plays fair. F--ing Right wants to cut entitlements and the Left is throwing everyone under the bus.

TWO WRONGS DON'T MAKE A RIGHT.

As far as i'm concerned seniors can no longer contribute to what they once did and they deserve to be taken care of. Maybe if they tightened the belt on the welfare programs... they could leave social security alone. Really pisses me off when seniors get discarded to the death camps so easily.

The melodramatics and political crap in the White House is a joke. In the meantime our rights are being stolen out from under neath us. The banksters are evil and they're making the power grabs. I like how Bernanke told Ron Paul that collecting gold was a tradition and that it had no real value. Ron Paul followed it with "why not collect diamonds then". The dumb crouton was fumbling for his words.

Us dumb Americans. We've been dumbed down and dumbed down that no matter what is being done, we only see gift wrap. We can't see the forest through the trees.

DEFAULT BY INFLATION!

http://www.realclearpolitics.com/video/2011/07/28/ron_paul_default_is_coming.html

Lets see.
My prices that I charge are frozen. People just can't afford my services like they once could. Why? Many are now unemployed and those that have been re-employed are now making fractionally less.

Everything goes up while my paycheck goes down, or stays the same. Something is wrong with that picture. This is Broke Back America.

I do see one beneficial thing to this all, but it's not from the vantage point of the people. Our money is being stolen from us with the intention of impoverishing us and making us completely dependent on our Lords. Our Lords are going to reap the harvest like no tomorrow.

We're becoming the POOR MIDDLE CLASS. All I know is this "ME SOCIETY" needs to stop.

Mexico had La Malinche from the 1500s and we've got Master Obama and his cronies and I think his cronies are on both sides and are working incognito.

GOLD, WHY GOLD?

http://www.youtube.com/watch?s​ource=patrick.net&v=RvL_Dm2d99​A&feature=player_embedded#watc​h-headline

PART 1- It's just nice to know that the people have someone who cares first about them and not necessarily themselves.
http://blogs.forbes.com/afonte​vecchia/2011/07/13/bernanke-fi​ghts-ron-paul-in-congress-gold​s-not-money/

this is the best animated history lesson that is intentionally not taught to students, but that should be part of every history teachers arsenal. It juxtaposes our history with our current economic situation and it's a fun watch.
http://www.youtube.com/watch?v​=ZPWH5TlbloU

I agree. I've already posted a subject promoting strategic defaults. Immediately on posting came several comments, ONLY to moralize that such was not only morally wrong but counter productive.

There is more and more data floating out there that deliberate bankruptcy may be the ONLY way of putting Obama in jail.

I am glad to see so many comments. Patrick I am married to a wonderful Argentine lady. We lived through the sovereign default that took place in Argentina in 2001. When the default happened, it was a cataclysmic event. The Argentine peso crashed from 1 peso to the dollar to three pesos to the dollar. Unemployment shot up to Great Dperession evels of 25%-30%. Housing prices collapsed. My wife bought her condo in Buenos Aires in 1996 to $54,000 US. It collapsed to a value of $18,000 US in 2002. In all of this turmoil fortunes were made by a lucky few who purchased the distressed real estate and businesses. The human misery was without equal. People literally sytarved to death. Sicne then Argentina has had a huge economic recovery. Economic growth last year was 8%.

Defaulting creates huge legal hassles. The creditors would be suing and freezing assets. It would get messy!

Largest national default Russia 1998. See I have this bridge I need to sell. Anway. It's Kind of saying this is a planned housing blowout for a lenders neferious purposes. Just ain't true. You need to understand more about banks and lending to buy into that load of crap.

Anyhoo back to on purposed defaults. One thing I have learned there is a rat in every article written in the mainstream news and financial news that leads us back with a turn around to a nice warm sunny day. With them making themselves plenty of cash. Screwing us to the wall and us loving them for doing so. After all we love seeing the big guys succeed and us well we just adore sweating our chuckles off trying to make sure they do succeed. After all they expect such and deserve more.

That said.

You have to understand clearly that these lenders were making big, big money in screwing people with MBS's. They loosened up lending standards so much to make loan so they could move those MBS's. They were even trying to make loans to homless people living in refrigerators.

What am I trying to impart. Well they tightened up lending standards very true now. However what they did not do is to tighten up legal standards for bankruptcy and defaults. See. So now you can get away with a lot. In two years if you went bankrupt today. You can get another loan very easily if you keep your credit clean enough. I don't think in two years the lending standards are going to loosen. However what will more than probably happen is that 150k house your drooling over now will be selling for 45 to 50k. And well by then even a one legged fruit picker could get a loan for that.

Major countries have defaulted before, many times, but that was before globalization. Now, worldwide oligarchies are fighting to prevent the people who should be taking it up the bum from being rogered by doing everything they can to socialize their losses. They've been quite successful at it thus far, too.