Doug Casey, well respected around here and, well, anywhere sane people still reside, is advocating the U.S. default on it’s debt. The U.S. is obviously bankrupt, and thanks to the Fed buying most of the debt issued by the Treasury, the criminals in Washington can continue to spend like there’s no tomorrow.
Everyone is aware that deficit spending and raising the debt limit can’t go on forever. More than 50% of the population polled believes the U.S. is already bankrupt. Our debt has been classified as the number one threat to national security, and it is.
Considering the criminals in Washington are unwilling or unable to stop spending and stop borrowing, somebody needs to send them a wake-up call: jail. Doug Casey is correct, we have to wipe out the debt and start over. It will happen sooner or later anyway.
America Should Declare Bankruptcy: Doug Casey
This week started with President Obama Monday demanding lawmakers raise the U.S.’s $16.4 trillion debt ceiling, warning Republicans not to insist on spending cuts in return. The same day, Federal Reserve Chairman Ben Bernanke advocated getting rid of the debt limit altogether. The Washington Post reports in a conversation at the University of Michigan Bernanke said the debt ceiling has only “symbolic value.”
And the week ends with lawmakers still careening towards a deadline somewhere between mid-February and late March, when the U.S. will run out of funding for most government programs and risk default. They have no plan to raise the ceiling or abolish it. Even so, perhaps playing chicken with the debt limit, a charade we already witnessed once before in 2011, is not the real story.
“Bernanke is quite correct, it is theatrics,” Doug Casey, chairman of Casey Research, professional investor, and author of Totally Incorrect: Conversations with Doug Casey tells The Daily Ticker. “The problem is the amount of debt itself. The problem is so big at this point, I think it’s very questionable whether this can be solved at all.”
Casey points to the money America owes above and beyond the official $16 trillion in national debt, as the real issue. This includes the so-called unfunded liabilities from entitlements like Social Security and Medicare.
Two former U.S. government officials put the federal government’s actual liabilities in excess of $86.8 trillion, or 550% of GDP, in a Wall Street Journal Op-Ed. Casey argues we’re talking of upwards of $100 trillion when you also factor in the liability of promises such as FDIC deposit insurance.
“This is far more than can conceivably be repaid, so the debt is going to be defaulted on, it’s simply a question of how,” he says.
There is the specter of outright default like we’ve seen in the case of Argentina, where Casey himself spends much of his time. There’s also the scenario of “destroying the dollar,” devaluing it so the debt burden isn’t as heavy.
Casey takes it one step further:
“I think the U.S. government should default on the national debt,” he says, pre-empting his statement with the admission that it may sound outrageous and too radical. “I say that for several reasons. The most important of them is if they don’t default on it, it’s going to make the next several generations of Americans into effect indentured servants, serfs, to pay off the debt that their parents and grandparents have incurred.”
AWD says:
The Ticking Trillion Dollar Debt Bomb
Submitted by Phoenix Capital Research on 01/18/2013
We view a “real solution” as one that A) cleared bad debts from the system, B) brought debt levels down to manageable levels, and C) got the troubled country’s economy back on track.
By way of example, real solutions would involve outright debt defaults, bank failures, and very likely one or more countries leaving the Euro. However, no major EU leader ever seriously promotes any of these ideas because doing so would akin to committing political suicide as the rest of the political class would blame them for what followed.
As a result, EU politicians continue to kick the can down the road with half-measures such as austerity measures in exchange for bailouts. The end result is that nothing is ever solved as those in charge of the decisions that matter have no incentives to actually do anything beneficial for their countries’ economies. See Greece whose economy has completely imploded to the point that children are being admitted to hospitals every week for malnutrition… and it will still have a Debt to GDP of 120% in 2022!
It is now obvious that US politicians have seen this work well for their European counterparts (nothing gets fixed, not tough choices have to be made and almost no one gets kicked out of office), and are now adopting this strategy on this side of the pond
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18th January 2013 at 10:42 am
AWD says:
The house of cards is starting to crumble
Today, the top story for the US is gun control even though we will officially breach the debt ceiling in roughly one month’s time. The last time we did this the US lost one of its AAA ratings from a credit agency and the markets imploded wiping out over a trillion dollars in household wealth in a matter of days.
This time around, things will be far worse if nothing is solved. If the US loses another AAA rating, then the financial markets could face systemic risk. The reason for this is that US Treasuries are one of the senior most forms of collateral used by the banks to backstop the $600+ trillion derivatives market.
As any trader who trades on margin can tell you, when the value of your collateral is called into question, those on the other side of the trade come looking for you to put up more capital on your trades. This can result in assets being sold en masse (similar to what happened after Lehman failed) and things can get very ugly very fast.
Another consequence of the US losing another AAA rating would be a potential spike in interest rates as a result of us having a lower credit rating. A 100 basis point move higher in interest rates means the US paying another $100+ billion in interest payments on its debt. The US is slated to pay some $300+ billion in interest payments in 2013. This amount could explode higher if interest rates rose.
We already have a Debt to GDP ratio of over 100%. Our deficit to GDP is nearly 10%. These are Greece type levels. And while the US has several advantages Greece does not (it produces the reserve currency of the world and is also the largest economy), the bond markets can be very unforgiving of fiscal profligacy.
But US politicians don’t care. They know that the US economy is a disaster and will be getting worse. The issue for them is not fixing this, but shifting the blame for what’s coming onto the other party.
Bottomline: the US debt situation is not going to be brought under control. We’ll either breach the debt ceiling or pass some hurried bill to raise it. Neither of these will help our credit rating or our fiscal issues.
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18th January 2013 at 10:47 am
Bradford Flecke says:
Hey, Iceland did the same thing. ‘Told the bankers to take a hike. And look where Iceland is: back to normal and much wiser. Why can’t the US do the same. Short answer: it can!
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18th January 2013 at 10:47 am
ThePessimisticChemist says:
Distract with the gun control issue, while the real problems chug away behind the scenes, unnoticed.
Par for the course I’m afraid.
I’m sure another credit downgrade will kick off the next “official” Recession.
Another drought in the mix means my company’s profits will soar, and America’s declining health means that my wife’s job is also secure.
If this stupid country can keep itself from breaking down into a Civil War, I’ll come out of this mess in great shape.
Thats a big “If”
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18th January 2013 at 11:21 am
beast rudopho says:
note to banker: you can go to jail, you should go to jail. . . relax, you won’t.
b.r.
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18th January 2013 at 11:38 am
Card802 says:
If defaulting is the best solution, you can bet politicians will do the opposite.
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18th January 2013 at 11:47 am
Hollow man says:
Anyone with common sense knowa the way the goverment has spent and managed money is morally wrong. So do the powers that be. Conculsion, it has been done on purpose. Conculsion # 2, the education system is truely screwed up and the first conculsion is also true.
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18th January 2013 at 11:56 am
DaveL says:
The public debt is backed by the full faith and credit of the United States(us). The government has the power to confiscate everything you own to pay that debt. And it will!
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18th January 2013 at 11:57 am
Eddie says:
I think it’s pretty well understood now that currency debasement is the preferred method of default where politicians are concerned. Of course, if they lose control of interest rates the whole sorry house of cards could collapse in days.
So we prepare for the inflation and slow death by taxation…and worry about the other thing where all our money goes poof at once.
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18th January 2013 at 12:05 pm
fool on the hill says:
Casey you SCHMUCK !
Social security is the wage earner’s money!!!!!!
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18th January 2013 at 2:01 pm
IndenturedServant says:
This is probably a stupid question but what is the end result of the FED buying our debt? Seems to me that the country itself is the actual collateral in this game so the banksters end up owning the country in every possible way. Am I missing anything?
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18th January 2013 at 2:03 pm
AWD says:
Those of you (us) in twelve step programs may enjoy this:
The Twelve Steps
We came to understand that our government is powerless over its spending – that our nation’s debt had become unmanageable.
We came to believe that a power greater than our fiat currency could restore us to sanity.
We made a decision to turn our savings and our investments over to the care of gold, as we understand gold to be a physical asset – not a paper promise.
We made a searching and fearless inventory of our wealth.
We converted to gold, to Krugerrands, and to Maple Leafs, the fiat paper assets of our wealth, thus eliminating our counterparties.
We were entirely ready to have gold remove all risk of default.
We humbly asked the coin dealer to reduce our exposure to The Inflation Tax.
We made a list of those politicians that expose us to The Inflation Tax, and became willing to work against them all.
We gave direct support to Libertarians whenever possible, except when no Libertarian is on the ballot, and then we voted against the incumbent.
We continued to create wealth through our own industry, and then we converted it to gold, and promptly buried it.
We sought through silver coins to increase our contact with precious metal, as we understand silver to be a physical asset – not a paper promise, paying for as many day-to-day transactions with silver as possible, using our credit card (not debit) for what was not, and paying off the entire balance each month.
We, having had a fiscal awakening as the result of these steps, tried to carry this message to others, and to practice these principles in all our affairs.
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18th January 2013 at 2:24 pm
Eddie says:
Bill Wilson would no doubt approve of this.
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18th January 2013 at 3:02 pm
prtrb'd says:
The end result of the fed buying gov debt? Well, if I had the printing press and the debt I could just print as many dollar bills as needed to cover my debt. No big deal until I began to realize that my dollar bills were really only worthless pieces of paper covered with ink and I was getting nowhere. Kinda like trying to climb a steep icy hill with bald tires, 4×4 or not. When faith runs out you stop moving.
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18th January 2013 at 3:24 pm
prtrb'd says:
On further thought, maybe it’s after you stop moving that faith runs out. same end result either way.
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18th January 2013 at 3:27 pm
efarmer says:
AWD,
you say “Everyone is aware that deficit spending and raising the debt limit can’t go on forever.”
Did you ask Krugman?
EF
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18th January 2013 at 5:28 pm
AWD says:
Krugman eats shit and dick
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18th January 2013 at 5:43 pm
AWD says:
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18th January 2013 at 5:46 pm
Dorkus Maximus says:
What the government SHOULD do is pretty easy to answer. The gov’t should, among many other things, default.
How will the gov’t do it?
I’m convinced that the treasury will never pay the bonds held by the Fed – accounting types may argue “but they can’t do that” to which I respond “who’s gonna stop them?” It’s all phoney money anyway. Laws will be changed/written/ignored to allow the Fed to simply eat the bonds, wipe the balance sheet clean, and resume printing.
The rest will be managed by money printing because people are too stupid to know it’s being done. I’ve talked to a lot of people about the Dollar and not 1 person in 100 has a clue what it really is (and isn’t). They think “fiat” is an Italian car. The have no clue what “federal reserve note” signifies or that it used to be called a “silver certificate.” They don’t know the difference between the Treasury and the Federal Reserve. The have no clue on bank credit or fractional reserve banking. Dorothy knew more about the Wizard of Oz . that much ignorance is bound to be taken advantage of.
I’ve talked to a few people about how wampum beads used to be used for currency and they thought it was silly to use something like that for currency, then, when confronted with the fact that the dollar’s intrinsic value is less than wampum they have no good response other than it seems to work.
Personally, what I think will happen is that at some point all the “dollars” that are floating around the world are going to come screaming back into the US in search of tangible assets and the price of anything tangible is going to hyperinflate. We’ll go from a first world country to a third world country over the course of a few months.
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18th January 2013 at 5:53 pm
Novista says:
Here’s Wendy MCElroy on topic:
http://fff.org/explore-freedom/article/repudiate-the-national-debt/
The key point to remember: Fully two-thirds of the national debt is owed domestically. From individual’s savings bonds to bank ‘liquid’ reserves, ‘assets’ in state and city accounts, and more.
It’s not as though the U.S. has never defaulted, one way or another.1933, case in point, EO 6012 was the figleaf to hide that the Liberty Bonds could not be redeemed, followed by a devaluation of the dollar.
1971 was a default, followed by two devaluations and the official U.S. gold price is $42.22/troy oz.
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18th January 2013 at 9:12 pm
KaD says:
Here’s another reason why America will default: Corporate welfare for multinational corporations. The IRS just gave Bank of America(s biggest crooks) a huge tax break; but at the same time they’ll stick it to the middle class: http://www.huffingtonpost.com/2013/01/17/foreclosure-settlement-tax-break_n_2497827.html
Consumer advocates have complained that U.S. mortgage lenders are getting off easy in a deal to settle charges that they wrongfully foreclosed on many homeowners.
Now it turns out the deal is even sweeter for the lenders than it appears: Taxpayers will subsidize them for the money they’re ponying up.
The Internal Revenue Service regards the lenders’ compensation to homeowners as a cost incurred in the course of doing business. Result: It’s fully tax-deductible.
Critics argue that big banks that were bailed out by taxpayers during the financial crisis are again being favored over the victims of their mortgage abuses.
“The government is abetting the behavior by not preventing the deduction,” said Sen. Charles Grassley, R-Iowa. “The taxpayers end up subsidizing the Wall Street banks after the headlines of a big-dollar settlement die down. That’s unfair to taxpayers.”
Under the deal, 12 mortgage lenders will pay more than $9 billion to compensate hundreds of thousands of people whose homes were seized improperly, a result of abuses such as “robo-signing.”
Many consumer advocates argued that regulators settled for too low a price by letting banks avoid full responsibility for wrongful foreclosures that victimized families.
Taxpayers “should not be subsidizing or in any way paying for these corporations’ wrongdoing,” said Phineas Baxandall, a senior tax and budget analyst at the U.S. Public Interest Research Group, a consumer advocate.
“It is simply unfair for taxpayers to foot the bill for Wall Street’s wrongdoing,” Brown wrote in the letter dated Thursday. “Breaking the law should not be a business expense.”
Unfair, too, in the eyes of Charles Wanless, a homeowner in the Florida Panhandle who is fighting his lender over foreclosure proceedings. As Wanless sees it, the government is giving help to banks that it refuses to give to troubled homeowners, who still must pay their full share of taxes.
“The government comes after us for every little bit of money we have,” Wanless said.
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18th January 2013 at 11:36 pm
AKAnon says:
KaD-Nice post-accurate, too. But remember, “Deserves got nothing to do with it”. It ain’t right, it just is. Batten down the hatches.
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18th January 2013 at 1:05 am