[nek]

I wanted to start a thread to discuss this topic since it's something I'm interested in and, while I have some knowledge on the subject, think that the guys on this forum would have valuable input on this subject. . I searched and there are some threads that touch on it but don't really delve into it. I was prompted to start this by watching Grover Nordquist this week mention that the debt shouldn't be addressed if it's going to hamper growth. So are there any realistic solutions to this problem? Is Grover right about how we should value growth over debt management? Please share your knowledge. It's an interesting discussion in the context in which we're living with Trump as the new president.

P.S. If this belongs in another forum, feel free to move.

[Paracelsus]

As a preface, most of what I understand about this subject is derived from John T. Reed's work. His belief is that the US is headed for hyperinflation and a massive depression. His take on it is essentially libertarian, so take that with a pinch of appropriately-flavoured salt.

Basically, it comes down to this: the US's national debt -- just the government's debt alone -- has hit a level beyond which it is rationally safe to continue raising it. That is evidenced by the fact it's well above 100% of US GDP. While the debt-to-GDP ratio is at best a rule of thumb for when a debt is getting too high, it's about as decent a 'red line' as any for when your country is racking up too much debt.

The simplest way of expressing the US's level of debt is this: the US is now carrying a debt proportionally larger than it carried in World War Two, with no worldwide war to fight. And the debt for the most part is not the sort of spending -- like war debt -- that is eventually going to end one day, it's debt that is mainly structural: pensions, welfare, and so on.

Governments everywhere eventually run out of money to pay for the promises and entitlements they create. When they do, the response is the same: they resort to printing money -- through one medium or another -- in order to pay off those debts. The result is always hyperinflation of one variety or another. And the consequence upon that is that eventually the currency which is hyperinflated collapses: people stop using it and resort to barter, black markets, or other currencies until the government reintroduces a currency that people trust, that trust typically backed by something other than a politician's promise to repay its debts: gold is the historical example, real estate is another (as in what happened after the Weimar Republic.)

In simple economies, like Zimbabwe or Venezuela, you get simple hyperinflation: the government forbids or criminalises trading in anything except the fiat currency and often resorts to military force to make sure it happens. As I've noted elsewhere, Venezuela is an interesting if horrifying variant on the concept because the government and the military have outright control of both the food and money supply, something which doesn't usually happen on hyperinflation and which distorts the normal corrective cycle. In complex economies, you get complex hyperinflation: it's called Quantitative Easing in the US, but it still amounts to the same thing.

The US is obviously not in a state of hyperinflation at the moment; indeed if there is substantial inflation, it's well-hidden and not being officially reported. So what gives?

In my view, it comes down to the fact there isn't a competing, credible currency on the planet to the US dollar. At least, not in sufficient volumes to make people want to trade in large quantities of it. In particular oil and most commodities are traded in US dollars, and a great deal of debt around the planet is in US-dollars.

Some folks here have made persuasive arguments that this is why the US is entangled with Saudi Arabia: because the Sauds allow oil to be traded in US dollars, making them an essential part of keeping the house of cards in place. It's not quite the Triangle Trade, but it comes pretty close. Some will even argue that this was a reason for the Iraq War: because Saddam Hussein was toying with the idea of selling oil in other than US dollars, which brought the might of the US military-industrial complex against him. But that's probably for another thread.

Basically the US has not collapsed in part because there isn't an alternative to the US dollar to trade in. Should that position change I think you would see a very different world financial situation. No currency is too big to fail on its own, but the US dollar doesn't have anything big enough out there to compete with it. In essence, the majority of the planet is still buying into the popular delusion that the US has capacity to pay off its debts into the future. Trading in currency rests on fear and greed for the most part, not on rational assessments of value, just like stocks.

People sometimes talk about how the US is vulnerable because much of its debt is owned by foreigners and therefore open to currency manipulation, ala George Soros and the Bank of England. This is a misconception: most of the US's debt is owed to its own citizens in the form of 401ks, retirement plans, etc, etc. But it doesn't make the US any more insulated against a currency shock. The day that another country has a financial system as robust as the US and a currency in sufficient volume to convince people it's a more reliable storer of value than the US dollar, the era of the dollar is over. The US's main fortune is that -- as with its industrial advantage after World War 2 -- nobody else on the planet seems to have gotten their shit together sufficient to build a financial system that's more transparent and reliable than the US. China certainly hasn't: it is crushing its population with currency controls as we speak. Russia won't: it's not big enough and it's still frozen out by the West. India won't: it's melting down into hyperinflation right now, not that anyone will notice or get around to fixing it until it's too late. And the EU won't: it's one foot in the grave.

That said: for all my optimism about Trump, I don't think he's going to meaningfully impact the US national debt at all. There are some things even the God Emperor can't achieve, and the most pertinent one here is that he cannot convince people to live within their means, which is really the only way the US debt comes down. My Cassandra-like prediction is that the US gets a respite from Leftie hell for 8 years, that he holds the temple up for one more decade before the left finally gets its shit together and stormtroops a socialist President into the White House. There is only one positive result from that: when the US collapses, rather than the Republicans being at the wheel, it'll be the Democrats -- and that, as we've seen from Herbert Hoover, will be enough to put the Democrats out of charge for an entire generation. Not that there will be much left of the US and by extension the West when that happens.

Mumbling that one shouldn't do anything about the debt in case it impacts growth is stupid: there isn't any growth now, because the US needs a massive economic paradigm shift. It has to go back from being debtor to the world to being creditor to the world, as it was in the 1980s. But that path back is a lot harder than it is forward: Cialdini tells us it's nigh-impossible to take a right back from a people when briefly granted, and the right that generations of US administrations have granted to their people is the right to free shit from the public purse, without any plan for how to pay for it. The longer I go on, the longer the old misattributed quote to Alexander Tytler seems to hold true: a democracy only lasts until the people realise that they can vote themselves largesse from the public purse. When that happens, the democracy is doomed.

[Paracelsus]

Further:

The idea "don't endanger growth by doing anything about debt" is essentially what you would expect out of someone who believes in Keynesian economics.

The central plank of Keynes' philosophy on government money, which has been abused for generations, is this: in bad times, run up debt to keep the economy going. In good times, tax higher to pay for the debt you ran up in the bad times."

Keynesian economics in theory (like libertarianism) would work. The problem is that while governments are keen to do step one, they will never do step two. Governments like getting elected, and the surest way to get elected is to give people free stuff. They only tax people when they have no other choice, mainly because people turf the governments that tax them.

One might also note there's a horrifying implication in that economist's words. It is essentially saying that government debt and the growth of the entire economy are connected. The only situation in which growth is endangered by cutting debt is where that growth is dependent on the existence of that debt. It implies, necessarily, that everyone in the US is directly or indirectly working for the government in some way. This is not the way it should be: of course a government can do horrible things to an economy if it fucks around with the fiat currency, but it's another thing entirely when the only reason your economy is running is because the government has borrowed a massive amount of money that it has no credible plan for repaying. There will always be the argument that "debt drives growth, if you take on debt to invest you make more money back" ... but that assumes you actually pay the money back and recoup your investment.

The way the US economy is presently being shepherded, there is no source of sustainable investment and wealth that can possibly pay off the US's present level of debt. If anything the rise of AI and robotic replacements of people guarantees less wealth being generated into the future, since robots can't be taxed and the companies that build them are fully intent on concentrating wealth into their hands and their hands alone.

The libertarian point of view on solving the debt problem, as John Reed puts it, is simple: cut US Federal government spending by 50%, across the board, no exceptions. Indeed given the level of the debt one might have to cut the spending even more than that, since cutting spending only stops the debt increasing, it doesn't start to pay it off. As said, like Keynesian economics, this is never going to happen because 99% of people are simply not prepared to deal with a 50% cut in all Federal services; the Federal (and state) parasite is simply too esconced into people's lives to be extracted without very, very painful surgery.

The only other way to do it is by extraordinary growth. That would take something along the lines of the Wirtschaftwunder, i.e. the German economic miracle after World War Two. And on this one I'll simply quote John Reed's proposal, since it's his...

http://www.johntreed.net/growth.html

Quote:

Ever heard of the Wirtschaftswunder? It is German for “economic miracle.” It is what happened in Western Germany after World War II. You would have thought their situation was pretty bad in 1945. The Allies had bombed the ever-loving crap out of their country. They were world pariahs. 7.5 million, more than 10% of their 73 million citizens had been killed, most of them young men back in an era when women were for Kinder, Küche, und Kirche (children, cooking, and church). The Allies deliberately dismantled the German coal and steel industries removing the mining and manufacturing equipment. The Allies also stole all German patents and large numbers of German scientists were forcibly removed to the Soviet Union or emigrated to the U.S.

What caused the German economic miracle, which left the victorious Allies in the dust? A new currency with low inflation and deregulation.

Marshall Plan?
What about the Marshall Plan? Initially, Germany was excluded from the Marshall Plan because they were the enemy we had just defeated. The Marshall Plan was later extended to Germany because it was realized that Western Europe could not recover economically without Germany, historically, and still, the biggest European economy. Even when it was extended to Germany, the Marshall Plan was peanuts in the grand scheme of things.

Here is what Wikipedia said about Germany’s Marshall Plan:

Nonetheless, the amount of monetary aid (which was in the form of loans) received by Germany through the Marshall Plan (about $1.4 billion in total) was far overshadowed by the amount the Germans had to pay back as war reparations and by the charges the Allies made on the Germans for the ongoing cost of occupation (about $2.4 billion per year). In 1953 it was decided that Germany was to repay $1.1 billion of the aid it had received. The last repayment was made in June 1971.

England got far more Marshall Plan money yet had a lousy economy while Germany was having its Wirtschaftswunder.

In recent years, India and China have had economic booms. How? By getting rid of bureaucracy and regulation and letting competition rule.

Here is what the U.S. needs.

- End all government mandates like forcing state governments to do stuff Congress wants, vehicle CAFE mileage standards, forcing public schools to do various federal requirements, etc. Let consumers, businesses, and lower levels of government do what they want. The U.S. is supposed to be a democracy with a relatively weak federal government. People obviously will be more enthusiastic spenders when they can buy exactly what they want—e.g., incandescent light bulbs, trans fat french fries—than when government orders them to buy what liberals want e.g., screw-in fluorescent light bulbs, bean sprouts.

- Tort reform—Reduce our number of civil lawsuits to the normal rate among advanced countries by making the loser pay the winner’s attorney fees and costs of litigation and other appropriate reforms. Seek out and ban more agrgessively junk science like John Edwards’ meal ticket of persuading two-digit IQ North Carolina juries that failure to do C-setions caused cerebreal palsy. It doesn’t.

- Repeal the various environmental laws and regulations other than cost-effective, proven prevention of significant air and water pollution.

- Reduce restrictions on exploration for and extraction of valuable minerals and oil to the level required to prevent imminent direct harm to the public.

- Completely deregulate business activity not involving taxpayer funds either directly by spending them or indirectly by risking them.

- Stop bailing out businesses that are “too big to fail” with taxpayers’ money.

- End all government guarantees including mortgage insurance, deposit insurance, college loans, debts taken over in bailouts our buy-outs. The full faith and credit of the United States should never be used because the politicians see it as a blank check to buy votes and distort markets for political purposes.

- Increase funding for civil common law and criminal law enforcement so that police and courts are more efficient and misbehavior is more often punished and/or deterred. Reduce procedural requirements that have turned litigation into an endless legal fees and costs extortion racket. Whenever a capitalist misbehaves, leftists say it shows we need more regulation. No. It shows we need more enforcement of existing laws against common law fraud and existing statutes that are appropriate.

- End all wage and price controls, both ceilings like rent control and floors like minimum wage laws.

- End zoning and other land use restrictions like permit requirements. Owners of properties can recreate zoning-type requirements, if they wish to lower the resale value of their own properties as a result, through deed restrictions. They can also purchase easements on nearby properties if they are willing to pay the appropriate price reflecting the drop in value of the properties subject to the easements. Or they can simply buy and keep the property whose use they wish to control. Neither neighbors nor the government have any right to tell a person what he can build or renovate on his own land unless the property in question will physically damage a nearby property. Those interested in preserving historical buildings for public can purchase them with their own money, using eminent domain where necessary and lawful. Otherwise, the owners of land and/or buildings can do what they want with them.

- Repeal the XVI Amendment (permitting an income tax). Below is roughly what U.S. law said for most of our history, namely, that any federal tax had to be a head tax—everyone pays the same dollar amount. For details, read my web article that elaborates.

- Replace the current income tax with the following tax based solely on age: I need one new amendment. It would say something like this, All persons above the age of 24 will pay the following annual federal tax:
Agetax
25 to 29$8,737.85
30 to 34$10,162.06
35 to 39$11,399.17
40 to 44$11,546.04
45 to 49$11,956.38
50 to 54$12,222.44
55 to 59$11,286.99
60 to 64$9,673.30
65 to 69$7,434.87
70 to 74$5,840.37
75+$4,286.08

See my article Abolish the income tax for more details on this.

- End taxes on corporations. Taxing their owners individually already takes care of that revenue source. Taxing corporations is just a hidden sales tax on the products of the corporations products and services. Taxes should not be hidden. Sales taxes retard sales which are the key component of growth. When sales taxes become large, as in some sin taxes like those on cigarettes and alcohol, they create large black markets.

- Make the annual due date for taxes the birthday of the taxpayer and make taxes payable to and be collected by the legislator who represents the district in question. For example, you would send your federal income taxes to your Congressperson on your birth day.

- Eliminate all health insurance that has deductibles less than $500. Health insurance should function like car insurance and car maintenance expenses—pay the routine stuff out of your pocket, which will hold down costs, and file a major medical insurance claim on the big stuff that would bust your budget. End involvement by government or employers in health insurance. End the tax deduction for employers paying for their employees’ health insurance. Abolishing the income tax and replacing it with a head tax would do that. Each individual buys their own insurance or does without.

- Encourage talented, healthy, ambitious people to immigrate to the U.S.—a brain drain against the rest of the world—a producer recruiting program.

- Encourage lazy, immoral, or unhealthy people to emigrate out of the U.S. to more “compassionate” countries—a parasite drain away from the U.S. Anyone who thinks lazy, immoral, or unhealthy people deserve charity can give them some of their own money, but no one else’s.

- Legalize recreational drugs. I have never used them and will not start. I have never even touched tobacco or alcohol. But I see no point in the current Prohibition Era which gives criminals a monopoly on a popular, profitable, alcohol-like chemical, corrupts police, and charges me lots of taxes to stop its use and incarcerate its users and sellers.

- Reduce the percentage of the population that works for all levels of government to the 1929 level—the peak of the “Roaring Twenties.”

- End all government insurance programs that insure uninsurable risks, i.e., those where massive numbers of claims would likely be filed simultaneously, like floods, deposit insurance, crop failure insurance. These policies create an extremely expensive moral hazard, that is, they encourage citizens to engage in stupid risky behavior like building a home on a flood plain. If people want to do that, let them, but when the flood comes, punch their T.S. card. Don’t give them any taxpayers’ money.

- Make a fair draft lottery the only way to be in the military. End career military and their extremely generous retirement pay and benefits. Let military personnel use IRAs, HMO’s and such like the rest of us. Outsource whatever non-combat activities possible, e.g., pay, logistics, non-combat maintenance, communications, intelligence, aviation, medical care, criminal investigation, construction. Reduce the number of military persons whose job is musician to 200 worldwide.

- End special benefits like gold-plated free health care, other than secret service protection, for Congress and the president. Let them find an HMO or Blue Cross and pay for it like the rest of us.

- Prohibit any official from serving more than one term in any elected office or better yet, choose legislators and operate the Legislative bodies the way grand juries are selected and operated. See my article on that William F. Buckley, Jr.-like approach.

- End government schools. The Founding Fathers never attended such schools. School was not mandatory in the U.S. until around 1900. Parents buy the food, clothing, and medical care for their kids without government involvement. They can and should do the same with education. One European once asked why the U.S., of all countries, had a Soviet-style school system. Actually, it’s Prussian. Horace Mann admired the Prussias in the late 1800s and designed the American public schools after the Prussian ones. How did American liberals ever fall in love with a Prussian way of doing things? But the main problem is not Mann and the Prussian approach. It is government and union dominance of public schools. If public schools are ended, the kids will generally go to school afterwards in the exact same, now-privately-owned buildings with the same parents now having more power over the schools and with better motivated, better qualified, lower paid teachers. Unions and government have destroyed American public schools. Socialists are fond of proving to Americans that Americans actually love socialism because public schools are socialism and Americans generally think public schools are a great idea. They are not. Socialism does not work and neither, increasingly, do American public schools.

- End atomization of ownership that stifles innovation and efficient intellectual property and land use as documented in the book The Gridlock Economy.

- Adopt reforms of corporate governance, like those advocated by T. Boone Pickens and others, so top execs no longer get away with looting the corporate treasury to feather their own nests regardless of their performance.

- Eliminate all tariffs and other restrictions on imports. Make all of America a “duty-free zone.”

- Make right-to-work laws federal and prohibit laws that force union membership or union dues paying by nonmembers.

- End unions’ exemption from the Sherman and Clayton Anti-Trust Acts. Business cannot fix prices, but unions can. That’s bull and hurts American growth, job creation, and international competitiveness. End that double standard which stems from nothing but political power.

- End all government subsidies for crops, energy conservation, milk, education, and so on.

- Repeal the Endangered Species Act. This has been some sort of colossal joke since day one. Protection for species like the American bald eagle can be legislated on a case-by-cae basis. Letting lefties stop all land use by finding an “expert” who will swear there is some endangered weed or salamander or some such on the property is insane on its face. That law could not pass again if it had to.

- Sunset all laws and regulations every three years on the anniversary of their enactment. Without such a sunset law, the United States Code and U.S. Code of Federal Regulations have become like the world’s most cluttered attic long overdue for a cleaning. They hamper economic growth and the vast majority have no current supporters but they live on because no one wants to spend political capital to get rid of them. In a free country, the presumption is less laws are better. Sunsetting all of them moves us in that direction.

These reforms would make the nation more just, more democratic, and more efficient. They would cause an explosion of productivity that would leave the rest of the world in the dust and might stave off a financial collapse that currently appears imminent and inevitable. We can no longer afford environmental kooks, union greed, disgraceful schools and tax laws, free lunches, seniors who take out of government three times as much as they paid into them, etc., etc. Most of these changes would dramatically reduce government spending. A couple, like better enforcement of laws against white-collar crime, would raise it, but would be more than paid for by the savings of the others and the better economy that comes from enforcing the truly necessary rules.

Again, some of these suggestions are libertarian and I don't necessarily agree with absolutely every one of them, but basically when it comes to debt you have three choices: cut your spending to pay for it, increase your income to pay for it, or some mixture of the two. I'd prefer the third item, and some of these deserve some thought.

[Off The Reservation]

nek this is your homework.

The "answer" is given in under 2 minutes and the explanation, which is well worth watching, is the next 3.5 hours of this video.

[Paracelsus]

Also further.

If you want the real nuclear option, the most painful band-aid ripoff of them all, it's this:

The US could default on its debt.

Again, here's John Reed's argument regarding it, dating back to 2015:

http://www.johntreed.net/default.html

Quote:

The U.S. government owes over $15 trillion. That is also known as our national debt. It is also the total amount of U.S. government bonds we have sold. You can see the real time amount of it zooming up like a rocket car odometer at http://www.usdebtclock.org/.

Furthermore, we are increasing the national debt each year by the amount of our annual deficit spending. The 2009 deficit was $1.9 trillion. The deficits for the next ten years are projected by Obama’s own administration to be about $1 trillion a year. Most likely, the actual deficits will be higher than those projections. The 2011 deficit was $1.65 trillion.

(My note here: going by the US debt clock, this at least is somewhat in error as : the current budget deficit is around 0.5 trillion, or 500 billion - although it isn't clear to me whether this is actually a half-financial year total since the number is running in real time.)

Defaulting would mean stealing the money we borrowed from the bond buyers by reneging on paying it back.

Would that be immoral?

Absolutely.

My personal code says,

Tell the truth.
Keep your promises
Treat others as you want to be treated.

Would the U.S. government defaulting on its debt violate the second of those three provisions?

Yes.

So how can I suggest such a thing?

1. We may not have a choice.
2. It may be the least immoral of multiple choices all of which are immoral.

The important immorality was borrowing more and more which with each passing day knowing we had no hope of ever paying it back. Default after doing that is inevitable anticlimax.

The national debt and interest on it can only be paid from U.S. tax revenues. Those are about $2.2 trillion a year. But we spend $6 trillion a year (counting paying off maturing bonds). So like Tennessee Ernie Ford sang in Sixteen Tons.

You load sixteen tons
And what do you get?
Another day older
and deeper in debt.

To pay off the national debt, we would have to cut spending enough that we ran a government surplus each year, and use that surplus to pay down the debt. There is no plan to ever run a surplus. Obama has projected trillion-dollar deficits for each of the next ten years. He did not stop projecting them at the ten-year point because we are going to stop deficit spending at that time. Rather, he stopped projecting them then because he is not required to project a budget more than ten years. If he had projected another ten years, there is no reason to believe there would not be another ten years of trillion-dollar annual deficits.

In other words, we cannot pay off the debt until we start running surpluses and there are no plans to ever run a surplus. At some future combination of interest rate, national debt, and national tax revenues, the total taxes collected will not even be enough to pay just the interest on the debt. For example, if the interest rate on the national debt were 10%, our current tax revenues of $2.1 trillion would exceed the interest of 10% x $13 trillion = $1.3 trillion, but not by much. When the national debt reaches $20 trillion seven years from now, our $2 trillion of tax revenues would all go to interest with none left for the military, Social Security, Medicare, FBI, and so on.

In short, we cannot pay off the debt now and with each passing day, we become less able to pay off the debt. In other words, we are headed for default whether we like the idea of default or not. If we are truly moral people who do not default, we should have behaved accordingly starting in the mid-2000s.

The other kids are all doing it
It may be that we are about to witness multiple defaults by developed countries like Greece, Portugal, Italy, and Spain. Iceland already defaulted. Russia and many other developed countries have defaulted in the last several decades.

The U.S. government has defaulted partially in the past, like reneging on its promise to pay back World War I Liberty Bonds in gold. (My note: bear in mind that hyperinflation is an implicit default on the national debt, since the person who loans the US government money in the form of buying bonds is not being paid back in the same thing he put up, i.e. he's being paid back in worthless money. Refusing to pay back bonds for gold value, if promised, amounts to the same thing: you're being paid back in apples when you loaned in oranges.)

If multiple countries start defaulting, I wonder if the U.S. and the others might all just say, “To hell with it. Let’s all default and start over fresh.” Call it MAD: Mutually Assured Default. It could also be retaliatory default. During World War I, the U.S. loaned huge amounts of money to European countries. In 1930, the U.S. passed the Smoot-Hawley Tariff Act. Europe was so pissed about the tariff that all the countries there but Finland defaulted on their World War I debts to the U.S.

Multiple developed countries may also default for copycat reasons. If you are the only one, you look bad, but if everyone is doing it, what the hell.

What choice do we have?
Protesting against defaulting suggests we have another choice. And what exactly might that be?

Actually, we do have another choice in theory: cutting federal spending by the amount of the current federal deficit—$1.427 trillion according to the national debt clock when I originally wrote this. That would at least stop the national debt from growing.

Since that same clock says we are spending $3.558 trillion a year, that means we need to cut by $1.427 trillion ÷ $3.558 trillion = 40%. That would mean cutting federal payroll by laying off 40% of all federal employees, cutting people’s Social Security and federal pension checks by 40%, refusing to pay 40% of Medicare and Medicaid bills, etc. You get the idea.

If we cut the federal spending by more than 40%, the additional cuts would enable us to start paying off part of the national debt.

Can we do that?

Yes, we can.

Does the political will exist to do that?

Not at the moment.

Will it ever?

Sure. When the world bond market makes that the only choice by refusing to buy U.S. government bonds.

It’s not my opinion. It’s arithmetic.

Hyperinflation
Our only real alternative to defaulting is to just “print” the money to pay off our debt. I am afraid that is what the politicians will do on the theory that they will be able to blame retail merchants like Exxon, Wal-Mart and McDonald’s for higher prices.

That would cause hyperinflation. Hyperinflation of the U.S. dollar would be a disaster for the nation and the world. Who would it hurt? Everyone on earth who owned a dollar or a dollar-denominated asset like a U.S. government, corporate, or municipal bond or any U.S. mortgage or account receivable.

Hyperinflation is so bad that it cannot last for long. The most famous hyperinflation was in Weimar Republic Germany, where it was perpetrated in response to the reparation burden imposed by the victorious countries of World War I. That hyperinflation lasted 16 months, but arguably led to the election of Hitler to chancellor of Germany and World War II.

Who would be hurt by default?
Who would be hurt if the U.S. government refused to pay off its bonds? The people who bought U.S. government bonds in the last 30 years or so.

Here is a pie chart of who that is. http://en.wikipedia.org/wiki/File:Estima...y_0608.jpg

In other words, a lot of U.S. citizens and entities as well as many foreign citizens and entities and governments (about 27.9% of U.S. bond ownership), especially Japan and China.

Do America’s bond owners deserve to lose all of the money the trusted the U.S. government with?

Actually, they sort of do.

How so?

For decades, knowledgeable observers have warned that Social Security was going to bankrupt the U.S. The 78 million Baby Boomers have generally not yet begun receiving Social Security. They can, without income limits, starting in 2013. Social Security already went into the red as far as the amount paid out exceeding the amount received in Social Security taxes.

For decades they have also been warned that Medicare and Medicaid were going to bankrupt the U.S. The 78 million Baby Boomers are eligible to start receiving Medicare in 2011.

All the warnings were true, yet the bond buyers still bought. The dumping of an intolerable debt burden on our children and grandchildren has been done not by Congress and the White House, but by a conspiracy of Congress, the White House, and the bond buyers.

Since January 2010, they have also been warned that Obamacare was going to bankrupt America, which it most definitely will.

Canada and almost all of Western Europe are also going bankrupt because of too many entitlement programs. It has been in all the papers. (In mid 2010, those countries started to adopt austerity programs.)

Someone should have stopped the U.S. Congress and Oval Office from all this government spending. Who could have done that? No one but the bond buyers. They could have, and should have, just said no. The voters never had a fiscally-responsible alternative in the voting booths. Democrat politicians created most of the entitlement spending, but Republican politicians were afraid to oppose it for fear of losing elections.

The bond buyers have been the enablers of the “drunken sailors” in Congress and the White House during the last 78 years.

When Congress and the president said, implicitly, “We want to place a huge debt burden on our children and grandchildren,” the current U.S. bond owners answered, “I want to own a piece of those children and grandchildren.” Screw the bond buyers who helped perpetrate that crime against those children and grandchildren!

Who would be helped by the default?
Our children and grandchildren would be the beneficiaries of the default. They would be born into a debt-free America. America would have the cleanest balance sheet in the world. (My note: this I think is the strongest argument in favour. The Baby Boomers will be almost unique among the generations of the world for leaving their children with vastly more debt than they themselves ever took on.)

Perhaps even better, Congress’ and the White House’s credit cards would have been sliced up and cancelled.

Various efforts to pass a balanced budget amendment to the Constitution have failed. They should be renewed until successful.

In the interim, default on the national debt would have the same effect. It would prevent the Congress and White House from engaging in any deficit spending. It takes two to tango. And it takes two to deficit spend: legislators to pass an unbalanced budget and bond buyers to lend the U.S. government the money to spend more than it takes in in taxes.

A default on the national debt would at long last force America to live within its means. It is disgraceful that America’s “leaders” have to be forced to behave in a responsible manner. But no one can claim they did not have to be forced. Other than six-term Republican Wisconsin Congressman Paul Ryan and New Jersey Republican Governor Chris Christie, Rand Paul, Michele Bachmann, and some other Tea Party-supported candidates, there are few in politics who have even suggested cutting entitlements. But it is also mathematically impossible to solve the nation’s fiscal problem without cutting entitlements.

Is there a moral basis for default?
Absolutely. There are actually several moral bases for defaulting.

Taxation without representation
Borrowing money that is to be paid back by our children and grandchildren is immoral taxation without representation. Children and unborn grandchildren cannot vote. Yet bond buyers will be indignant if and when the upcoming generations refuse to pay those debts. The bond buyers should have thought of that when they bought the bonds.

Sons should not be punished for the sins of their fathers.

The Doctrine of Odious Debt
There is a legal or perhaps philosophical, ethical Doctrine of Odious Debt. The Patricia Adams article to which I just linked has the title “The Doctrine of Odious Debts: Using the Law to Cancel Illegitimate Debts.”

Should the citizens of Germany have had to pay back the debts of Hitler’s Third Reich after World War II? Are Russian citizens obligated to work for decades to pay off the debts of the former Soviet Union? The Soviets sure as hell renounced the Czar’s debts right after the Russian Revolution. And the current Russian government also defaulted on its bonds in the late 1990s.

Our current impossible debt level (including unfunded liabilities for future entitlements) was generally created by Democrat politicians to buy votes and the loyalty of voters to cement themselves into power forever. Republicans went along because they felt it would be political suicide not to. In other words, they placed their own political careers ahead of the needs of the nation and the oath they took when they got elected.

Here are some quotes from Alexander Sack, a Russian law professor who taught in Paris in the 1920s:

If a despotic power incurs a debt not for the needs or in the interest of the State, but to strengthen its despotic regime, to repress the population that fights against it, etc., this debt is odious for the population of all the State. This debt is not an obligation for the nation; it is a regime's debt.[It is] a personal debt of the power that has incurred it. [When this power falls, that debt] consequently . . . falls with the fall of this power.

And here is the pivotal point of Sack's doctrine: "the debts of the state must be incurred and the funds from it employed for the needs and in the interests of the State," in order to be considered legally enforceable.

The creditors have committed a hostile act

Here are some quotes from the Wikipedia article on Odious Debt;

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.

Defaulting on the national debt will mean fewer wars
Patricia Adams of Probe International said,

by giving creditors an incentive to lend only for purposes that are transparent and of public benefit, future tyrants will lose their ability to finance their armies, and thus the war on terror and the cause of world peace will be better served.

If the Doctrine of Odious Debt were more widely applied, nations that have used deficit spending to wage war would not have been able to do so and there would have been fewer wars. If citizens of the U.S. are not willing to fund a war out of pocket with tax revenue, it should not be fought at all. More frequent application of the Odious Debt doctrine would make bond buyers reluctant to buy bonds being used to fund dubious wars thereby preventing any such wars from happening in the first place. I think it is pretty clear that our wars in Iraq and Afghanistan would not have happened if we were unable to borrow the money to fight them.

We like to call ourselves the world’s only remaining super power. Here’s a news flash on that subject. The world no longer has any remaining super power. We are too poor to be a super power. We talk about military intervention in Iran and North Korea to prevent them from getting or keeping nuclear weapons. We can only do that if China will lend us the money to do it. They won’t. Recently, when China gave less money to Haiti than we did after their earthquake, we chided China for their lack of generosity toward Haiti. When you consider that we have no money and only got money to give to Haiti by borrowing it from China, our tongue-lashing of China seems a bit much. Nowadays, we are a super power in hock who has to go hat in hand to economic super powers like China to ask for the money to throw our leased weight around. We no longer even have a manned space program. We now must hitchhike rides on other nation’s manned space vehicles to get to our own space station.

Once we built a space station, we made it run, made it race against time.
Once we built a space station; now it's done. China, can you spare a dime?
Once we built Apollo, up to the moon, Saturn main rocket made it climb;
Once we built Apollo, now it's done. China, can you spare a dime?

It is often said that the Constitution is not a suicide note. Actually, it is in the sense that it establishes our fealty to principles that trump mere survival of a form of government. But the Constitution is not a document that should be able to condemn our descendants to eternal serfdom in a poor house constructed for them by long-dead Democrat politicians. That leads me to the next moral grounds for default: bankruptcy.

Governments cannot declare bankruptcy
Americans are supposed to pay their just debts. But American individuals and companies are also allowed to declare bankruptcy.

The moral idea behind bankruptcy is that there is a tipping point at which a person or entity, however well-intentioned, cannot pay all their debts. Since the bankrupt person or entity has demonstrated an inability to manage their own financial affairs, a third party takes over and distributes the assets of the bankrupt person or entity equally to all creditors limited only by priority given to secured creditors and provision being made in individual cases so that the bankrupt person has enough left to get a fresh start and have a chance to return to prosperity. Prior to bankruptcy, those unable to pay their debts and their families were incarcerated in a poor house or poor farm and kept there until the family paid off its head’s debts.

The vengeful victors in World War I essentially put all of defeated Germany into a virtual poor house by the mechanism of the Versailles Treaty which forced Germany to pay huge reparations for the war. The result was Germany defaulted and started World War II. After World War II, little or no reparation burden was placed on the defeated nations. Indeed, in Europe after World War II, the U.S. Marshall Plan provided huge amounts of charity to both allies and former enemies.

Bankruptcy is considered best for all concerned including creditors. Because of its size and economic potential, it would not be in the interest of the world to put the U.S. into any sort of Versailles Treaty poor house.

What happens to countries that default?
For a while, they have to do without borrowing or pay higher interest rates. In other words, they get about what they deserve creditwise. Ultimately, it appears that past defaults are largely forgotten. For example, U.K. never paid the U.S. back either the money we lent it in World War I or World War II. It has ultimately just been forgotten.

Shakespeare gave great advice in Hamlet Act I, Scene II when one of his characters said,

Neither a borrower nor a lender be,

The United States should have followed that advice. We failed to, and we failed to behave in a financially responsible way. Now, it may be best for us to admit it and get on with our lives and let our children and grandchildren get on with theirs.

A reader called my attention to the fact that Forbes.com did a similar article on 5/24/10. It was called “Learning to Love a U.S. Default” by John Tamny. It says the same as I do plus some other things I did not think of. It also leaves out some of the arguments I made.

One thing you can say about Trump: if he were minded to renegotiate or eliminate the US's debt, he's basically the best President you could ask to do the job - since he's personally been on the edge of bankruptcy in the past and has a lot of experience doing so. That said I don't think even anyone here would countenance Trump deciding to default on the national debt - it is simply too massive a shift to contemplate ... at least for this generation. Your sons and daughters may well have a very different view.

Know this: the question they'll ask you when you're old and gray will not be what part you played in the Great Europa Race War of 2025, or how many turns you walked on the Trump Wall, or whether you stood in the front line of patriots as the LGBTXYZ hordes marched on 1600 Pennsylvania Avenue. Being educated men and women, they will be asking you: "Why didn't you take some responsibility for the debt that your father and his father put on you? Why didn't you say "No more, for the sake of my children?""

[brick tamland]

You could also look at some of Joseph Stiglitz's books. I last read them a few years ago. He has good credentials and the average reader will still be able to make sense of the content.

[Fast Eddie]

The National Debt, huh, yeah. What is it good for. Absolutely nothing. Uh-huh.

That's my contribution.
Peace

[nek]

(01-31-2017 03:39 PM)Fast Eddie Wrote:  

The National Debt, huh, yeah. What is it good for. Absolutely nothing. Uh-huh.

That's my contribution.
Peace

This reminds me of when George Carlin condensed the 10 commandments down to 2. Good Talk.

[Off The Reservation]

(01-31-2017 06:41 PM)nek Wrote:  

(01-31-2017 03:39 PM)Fast Eddie Wrote:  

The National Debt, huh, yeah. What is it good for. Absolutely nothing. Uh-huh.

That's my contribution.
Peace

This reminds me of when George Carlin condensed the 10 commandments down to 2. Good Talk.

Well it reminds me of an article on Rolling Stone about the top 500 albums ever made...

[Kid Twist]

Here is a great link explaining the sham, and how it's not a tax on the future per se (it is still though, lol) it is also a black hole for many now:

http://danielamerman.com/va/Conflict.html

Then interesting videos from Martin Armstrong:

https://www.youtube.com/watch?v=ARBduyoXsP4

Check these out and tell me what you think

[MOVSM]

On top of everything else, it turns out the U.S. national debt is calculated using Enron accounting methods:

Treasury Report: True U.S. Government Shortfall Is $88.9 Trillion, an Average of $704K Per Household

Quote:

President Trump has presided over economic growth, but the debt and long-term obligations of the U.S. government are still massive. If the national debt were officially calculated the way assets for private companies are calculated — by tallying assets, debts, liabilities, and obligations — the official federal debt would be $88.9 trillion, or $704,000 per household.

This represents no less than four times the projected national debt of roughly $20 trillion. The federal government uses accounting practices different from private companies, and so it can report a much smaller national debt than its true liabilities account for.

While the federal government reported a budget deficit of $666 billion for the 2017 fiscal year, a new comprehensive report from the U.S. Treasury showed that finances really deteriorated by $1,157 billion. The document explained that this difference comes from accrued costs that are not necessarily paid, such as estimated future costs of federal employee and veterans' benefits.

As JustFacts' James Agresti pointed out, the Treasury's report uses accrual accounting to provide "a complete picture of the federal government's financial operations and financial position." Accrual accounting involves measuring the full spectrum of financial commitments, while cash accounting — the kind used to calculate the federal budget — only counts money as it flows in and out.

The distinction is crucial, as the case of an employee's pension benefits makes clear. Under accrual accounting, an employee's pension would be recorded as the employee earned it. Under cash accounting, this liability would not emerge as a cost until years or decades later, when it is actually paid.

The federal government requires large corporations to use accrual accounting for pension plans, since this is the "most relevant and reliable" way to measure financial health. The official rule explains that "a failure to accrue" implies "that no obligation exists prior to the payment of benefits." The federal budget, however, is not bound to this accounting standard.

The Treasury report revealed that the federal government currently owes $7.7 trillion in pensions and other benefits to federal employees and veterans. Paying these benefits would require an average of $61,000 from every household in the United States. Even so, these liabilities are not all reflected in the national debt.

So why is the national debt really $88.9 trillion? That number accounts for three different liabilities not fully accounted for in the official numbers. The federal government had $9.2 trillion in liabilities such as federal employee retirement benefits, accounts payable, and environmental/disposal liabilities.

The lion's share of liabilities comes under the umbrella of entitlements, however. The federal government has $30.75 trillion in obligations for current Social Security participants above and beyond projected revenues from their payroll and benefit taxes, transfers from the U.S. Treasury, and assets of the Social Security trust fund.

Finally, the federal government has $34.6 trillion in obligations for current Medicare participants, above and beyond projected revenues from payroll taxes, benefit taxes, premium payments, and assets of the Medicare trust fund.

These projections for Social Security and Medicare come from calculating the "closed-group" unfunded obligation, the money needed to cover the shortfalls for all current taxpayers and beneficiaries in these programs.

According to JustFacts, the $88.9 trillion figure amounts to 92 percent of the nation's private wealth, including every American's assets in real estate, corporate stocks, small businesses, bonds, savings accounts, cash, and personal goods.

Even as the American economy grows, the unfunded liabilities of the social safety net remain a serious problem. President Trump seriously needs to consider entitlement reform, no matter the political liabilities.

[Repo]

It's common for governmental entities to be evaluated differently than corporations for many obvious reasons.

In laymans terms, if you include estimated future costs but not also estimated future revenue, then the picture will of course look much worse. This is completely different from what Enron did; they actually included projected but not realized profits on their books in the form of mark to market valuations on investments. So Enron included profits that have yet to be realized (and many never were of course), and you are asking the government to include payments that have yet to be realized while not accounting for future tax revenue.

Going to go out on a limb and assume the author of this article does not have a financial background.

[Bluto]

(01-30-2017 10:22 PM)Paracelsus Wrote:  

That said: for all my optimism about Trump, I don't think he's going to meaningfully impact the US national debt at all. There are some things even the God Emperor can't achieve, and the most pertinent one here is that he cannot convince people to live within their means, which is really the only way the US debt comes down. My Cassandra-like prediction is that the US gets a respite from Leftie hell for 8 years, that he holds the temple up for one more decade before the left finally gets its shit together and stormtroops a socialist President into the White House. There is only one positive result from that: when the US collapses, rather than the Republicans being at the wheel, it'll be the Democrats -- and that, as we've seen from Herbert Hoover, will be enough to put the Democrats out of charge for an entire generation. Not that there will be much left of the US and by extension the West when that happens.

As much as I would like to see it, I doubt that this would happen. This country is no where near what we were like in the 20's and 30's, and there was enough derision against the Democrats back then that once FDR was in the ground, the 22nd amendment was passed to stop a generational presidency.

Today the indoctrination is so rampant that I doubt that even a self induced famine that would starve the whole country would change the minds of the Socialists that permeate the Democratic Party. Likewise I would expect a play for complete totalitarianism during those hard times. My fear is that the next time that a Dem is in power, they will have a General Order 66:


to take control and we are than off to Civil War II.

To answer the original question, no one has any idea what is in store for the world or the US, but we have seen this act a few times before and it always ended very badly. Planning ahead with like minded people are prudent measures however.

[Enoch]

The situation is far worse when you include unfunded liabilities. (unpaid Pension money)

You absolutely cannot get away with this in the private sector (potential prison time if proven intent was malicious / money stolen)

Some big tests ahead...

[MOVSM]

(03-12-2018 10:20 AM)Repo Wrote:  

It's common for governmental entities to be evaluated differently than corporations for many obvious reasons.

In laymans terms, if you include estimated future costs but not also estimated future revenue, then the picture will of course look much worse. This is completely different from what Enron did; they actually included projected but not realized profits on their books in the form of mark to market valuations on investments. So Enron included profits that have yet to be realized (and many never were of course), and you are asking the government to include payments that have yet to be realized while not accounting for future tax revenue.

Going to go out on a limb and assume the author of this article does not have a financial background.

I used the Enron as a figurative example of shady accounting.

The article author is indeed a mere journalist, possibly without financial background, who's writing about a Treasury Financial Report.
While I'm waiting for the TaxProf to take it apart, maybe you can inform us about why the Treasury (I assume they do in fact have a financial background) might do such a heinous thing.

[Repo]

I already did, literally in my post that you quoted.

[MOVSM]

You made fine points of technicalities. Not disputing any of it, it all has merit.

I am asking you to explain why all those fine folks with plenty of financial experience (allegedly) at the U.S. Treasury would do this thing that is contrary to all financial backgroundness.

[Repo]

(03-12-2018 10:18 PM)MOVSM Wrote:  

You made fine points of technicalities. Not disputing any of it, it all has merit.

I am asking you to explain why all those fine folks with plenty of financial experience (allegedly) at the U.S. Treasury would do this thing that is contrary to all financial backgroundness.

It is not contrary, and I do not know why you think it is. There are different nuances between corporate and municipal accounting

Let me quote the report you linked to. Read the last paragraph. They are not hiding these liabilities; otherwise you certainly wouldn't have been able to look them up so easily. But there are reasons some things are on the balance sheet, and others are disclosed in the notes, this is normal. These reports are written assuming the reader has some knowledge of how this all works, this is not meant to be an accounting 101 lesson.

"Liabilities are obligations of the Government resulting from prior actions that will require financial resources. The most
significant liabilities reported on the balance sheets are federal debt securities held by the public and accrued interest, and
federal employee and veteran benefits payable. Liabilities also include environmental and disposal liabilities, benefits due
and payable, as well as insurance and guarantee program liabilities.
As with reported assets, the Government’s responsibilities, policy commitments, and contingencies are much broader
than these reported balance sheet liabilities. They include the social insurance programs reported in the Statements of Social
Insurance and disclosed in the Required Supplementary Information (RSI)—Social Insurance section, fiscal long-term
projections of non-interest spending reported in the Statements of Long-Term Fiscal Projections, and a wide range of other
programs under which the Government provides benefits and services to the people of this Nation, as well as certain future
loss contingencies.
The Government has entered into contractual commitments requiring the future use of financial resources and has
unresolved contingencies where existing conditions, situations, or circumstances create uncertainty about future losses.
Contingencies and commitments that do not meet the criteria for recognition as liabilities on the balance sheets, but for which
there is at least a reasonable possibility that losses have been incurred, are disclosed in Note 18—Contingencies and Note
19—Commitments.
The collection of certain taxes and other revenue is credited to the corresponding funds from dedicated collections that
will use these funds to meet a particular Government purpose. If the collections from taxes and other sources exceed the
payments to the beneficiaries, the excess revenue is invested in Treasury securities or deposited in the General Fund;
therefore, the trust fund balances do not represent cash. An explanation of the trust funds for social insurance is included in
Note 20—Funds from Dedicated Collections. That note also contains information about trust fund receipts, disbursements,
and assets.


Due to its sovereign power to tax and borrow, and the country’s wide economic base, the Government has unique access
to financial resources through generating tax revenues and issuing federal debt securities. This provides the Government with
the ability to meet present obligations and those that are anticipated from future operations, and are not reflected in net
position."

Sorry for the formatting, on my phone and that is how it copy pasted.

[Geomann180]

(03-12-2018 10:18 PM)MOVSM Wrote:  

You made fine points of technicalities. Not disputing any of it, it all has merit.

I am asking you to explain why all those fine folks with plenty of financial experience (allegedly) at the U.S. Treasury would do this thing that is contrary to all financial backgroundness.

Because they're not on your side.

G

[kamoz]

Massive national debt is not a problem unique to the US. Pretty much the rest of the first world has debts well over 100% GDP.

https://en.wikipedia.org/wiki/List_of_co...ernal_debt

A lot of people don't realize that this concept is a fundamental piece in building the Brave New World. My theory is that as national debts become so large over time, as we clearly see thus far, this will become the vehicle by which governments are made obsolete. They will gradually go the way of monarchy, becoming mere relics for display but exerting no significant power. Power will gradually (or suddenly) go to corporations and banks exclusively. Corporations because they hold all the means of production. Banks because they provide the monopoly money to the corporations. Neofeudalism at its finest.

And with the elimination of governments comes the elimination of everything that goes with it; borders, police, fire, welfare, laws. Now getting laid off from a company could well mean a death sentence, since the company is probably providing a lot of services in lieu of the government. Talk about an effective workforce.

Granted this is only my theory. UBI which many are predicting doesn't fit into this. But it's the way I see things going, and what the intent of government debt is.

[Razor Beast]

If the current fiscal trend continues the debt will never be paid off. It's all one massive debt bubble that's way bigger than 2008. Nothing was solved from the last crisis the can just got kicked 10 years. All I have to say is I hope you all have a plan for when this debt bubble blows up for your own sake/safety because it's going to be more catastrophic than anything that markets in modern civilization have ever seen. Not saying it is imminent but most people don't realize how serious this actually is. I am pretty sure Janet Yellen recently said that thinking about the size of the national debt should keep people up at night.

[GoingTheDistance]

I think Trump mentioned the national debt and said his plan to help chip away at it was to help the economy, though I'm not certain about that so don't quote me on it.

It is pretty worrisome with how big those numbers are getting, certainly to me it seems unsustainable.

Although the interest level on the debt seems to be falling, I don't know how much that would help us but I imagine it would help quite a bit:

This is from Pew Research: http://www.pewresearch.org/fact-tank/201...ould-know/

[Super_Fire]

(((National debt)))

[nek]

https://108bitcoins.wordpress.com/2019/0...er-escape/

Interesting read. While I think the Bitcoin solution is a bit pie-in-the-sky, it's eye-opening to seen the amount of worldwide debt vs.available assets to pay the debt.

[Arado]

There were some really interesting posts in the Trump thread about the national debt that I thought would be worth posting here before they got buried and would like to see what others think.

This thread should look at all the implications of the growing national debt, from political ramifications to how it will affect your investment portfolio.

First is a comment from Samseau:

(03-02-2019 05:57 PM)Samseau Wrote:  

3. The Real National Emergency is the National Debt

In less than 10 years, just the interest payments on our debt will be greater than the cost of our military. We are easily looking at trillion dollar payments on interest by 2028.

America is bankrupt in all but name at this point. In 40 years or less, America will be unable to pay its interest payments, and will need to start giving haircuts (i.e. declaring partial bankruptcy) on the debt. This of course solves nothing because declaring bankruptcy on any amount of debt means devaluing the dollar, which means makes it harder to fund the government, which means we need to borrow more, which means interest payments go back up higher than before! The only way out is to stop spending, no shit, but tell that to a Dem!

We've hit the exponential stage of our debt. There is no climbing out of this. I thought, after the election of Trump, if things could be quickly fixed along immigration and government spending, we could actually save America. Instead, we got fucked over by the cucks and it's game over for America now.... but it's not game over for Americans!
...
So do you see the game plan yet? In 20-40 years, Federal America dies, so that real America may live. A national bankruptcy will destroy any legitimacy the federal government has. States will easily be able to declare independence, and for each state that revolts and stops paying taxes, the greater the death blow to the Federal government will be.
...
So, don't vote Republican to save America. Vote Republican to destroy America instead, and save your own ass. A total Democrat victory will mean Christian and White genocide by the end of the century. Whereas we are looking at bankruptcy in 20-40 years at current debt levels, I can see full Democrat control extending the bankruptcy date out to 50-70 years with proper totalitarian control methods that would also be extremely destructive upon the productive members of society.

Followup responses:

(03-03-2019 02:57 AM)8ball Wrote:  

2. The current policies that dem candidates are running on will not pay for themselves through high taxes on "productive population" because there are too many loopholes in the US that don't exist in other countries you use as examples. Some of their policies will likely be ruled unconstitutional, the candidates running know this, but they don't give a shit about the debt. Even if by some luck they get some of their tax policy through, it won't even make a dent in covering all the free shit they are promising.

3. While you are correct that when an empire can't pay for its military, it collapses, it only does so when it is challenged by other strong powers. Dem candidates will gut part of the military and will likely be less "hawkish" in foreign policy. Obama for instance didn't go into syria even after his "red line" + pulled out of iraq too early and Iran pretty much took charge of both places. He let russia walk into ukraine and barely lifted a finger when it was clearly evident china has global military power ambitions. He also closed some bases over seas, i think about 4 in Germany. Another dem candidates will likely pull all bases from places like germany.

(03-03-2019 03:44 AM)Paracelsus Wrote:  

As for those who say "Hyperinflation could never happen here":

(1) It has happened in the US before. Twice. Once early in the Revolutionary War - that's where the phrase "Not worth a Continental" comes from, from the Continental currency which was in effect at the time - and at the end of the Civil War, when the South's currency was hyperinflated and collapsed. Notice that the hyperinflation is correlated with large conventional wars; note also that Germany's hyperinflation in the Weimar Republic was following a war they lost and due to the reparations - the Social Justice Exercises of the day - they were forced to pay afterward. Notice the sheer size of the US military, and the fact its budget is essentially duplicated in the VA budget.

(2) People are saying "Everyone uses the US dollar, therefore it's not going to hyperinflate and collapse." Wrong, and mainly wrong because a huge component of that "dollar" is in the debts the US owes to other countries which are denominated in US dollars, not to mention the "assets" which are denominated in US dollars. Hyperinflation blows the value of those debts to zero, which is why governments use it again and again ... but it also causes that currency to collapse, because it quickly becomes worthless. Indeed everyone using the US dollar makes the problem even bigger: what was a collapse of just one country's currency becomes a worldwide collapse of currencies. The US dollar's status as the fiat currency of choice lasts only so long as enough large countries trust the US government is someday going to pay its debts off. As the US's debt balance gets bigger, that trust gets stretched further and further. Indeed I would suspect some quant somewhere has instructed his personal AI to wake him up the moment the debt-to-GDP ratio ... or the Federal tax-to-debt ratio ... hits a certain percentage point and tells him to sell the lot. Or turn it into gold, which is almost just as stupid, but I digress.

Most people who say "The US dollar isn't going to deflate" don't quite appreciate the size of the problem. The US's debt level is above World War 2 debt-to-GDP levels with no world war to fight; what was a temporary expense for a short 2.5 year problem is now a structural debt that it is mathematically impossible to pay off via growth. That's why Trump's belief that growth is going to solve everything is very, very wrong. To pay it off, the US would need an economic boom dwarfing that of the postwar period and well north of that, and then sustain it for many, many years. That, or a more-than-50% cut to Federal government spending, immediately, and a higher percentage as the minutes tick by.

That will not happen in the US regulatory environment, and Trump has shown no real signs of making big slashes to regulations around business and commerce. It may take more than grade-school mathematical knowledge to work it out -- as evidenced by the fact most people do not understand how big and how real the threat is -- but it is there nonetheless. The US literally passed the point of no return somewhere around Trump pushing the spending up, if not earlier.

(3) And finally, to those who say "Lol, Schiff and friends have been saying the dollar will collapse for 15 years, ain't collapsed yet": there's a very simple metaphor that answers that.

On ski slopes, there is a glorified pole with a red line on it that tells us one thing: the historical snow depth above which avalanches are very likely to happen on those slopes. When the snow depth goes above that red line, skiing on the slopes in the area is curtailed or outright forbidden because there is a high likelihood of an avalanche, even if no single person can predict precisely when it's going to take place. That's because nobody can predict down to the moment when an avalanche happens: it's a combination of factors tied together, but the common element in every case is that the snow has exceeded safe levels. Maybe skiiers go out when the snow depth is above the red line, and maybe they don't get killed in an avalanche. But you'd be a grade-A moron to say that the validity of the warning is any less reduced because the snow's gone above the red line and there hasn't yet been an avalanche.

The US has been above the red line financially since Obama's time and well before. The GFC put the US above the line, but the fact it's been building up over decades should tell you how difficult it's going to be to reduce it or bring it down - because the slow buildup comes from adding structural, ongoing debt to the problem, not from quick and sudden increases and decreases like World War 2 was.

"But the Baby Boomers will all die off, and that'll bring the debt down naturally." Not in time, and not enough. There will still be 50 million of the fuckers around in 2036, and by that point every single one will be expecting or drawing on public pensions. Indeed some state-based pension schemes are already starting to collapse under the strain of withdrawals (and there is a bill to pass that liability onto the Federal government presently being put forward to Congress, too. Expect more of that shit as the years go on.) The Boomers' life expectancy is greater than the generations following them, and even the millennials -- the second biggest generation -- are not projected to cause a net increase in population. (Which is also why you have an immigration problem - Boomers want brown babies to fund their retirement -- but again, I digress.) If you haven't got enough taxpayers or high enough tax rates, the debt will have to rise. And to make matters worse, the millennials actually believe in the whole 'free shit for everybody' mantra. They will change that idea the day the dollar dies, and that will be sometime in the lifetimes of the young and not-so-young men on this forum, today. Worse still if they achieve more breakthroughs in gerontology and some fool comes up with a pill that allows Obama to live to the age of 150 or so, but no scheme to increase his retirement age.

Things seem pretty grim, but I'm not sure about the timing. 20 years seems a long time to wait for the debt to become a major problem. Who knows what will happen in the meantime - an AI revolution can drop costs in all industries making debt irrelevant, China's further rise can disrupt the balance of power, blockchain can disrupt the banking system, etc...