by vincecate » Tue Jan 04, 2011 12:46 am
John wrote:One way that we know that a major financial crisis is yet to come is because no serious effort is really being made to reduce the budget deficit. However, the deficit budget must come down, one way or another, and therefore a major financial crisis of some kind, probably forcing a US Treasury default, must occur.
An outright default would be honest and sensible. It would also reduce the debt slavery of innocent grandkids. It would have been better to not bail out the banks. It would be better if states and cities everywhere were declaring bankruptcy and getting ride of unions and big retirement obligations. For years to come people would not loan money to the government. All kinds of good things would happen.
However, as long as the market accepts US dollars there is no pressure to default, they will just print more money. If the market does reject the US dollar, then it won't matter if they print a few more worthless dollars and pay off the debt.
Anyway, I see little reason to hope they will see that the market is about to reject the dollar ahead of time or that the government will do the sensible and honorable thing as long as there are other options (print money). Yes, I count the Fed as part of the government. The government appoints a controlling majority and the government gets any profits the Fed makes.
And in a real sense printing money to pay off the debt is defaulting, as you are paying off debts with currency worth much less than the value at the time you borrowed. So really they will default openly or they default in a clandestine way. Either way bond holders will lose.
Another point. Most of the budget, like Social Security, Medicare, Medicaid, Veterins benefits, etc etc. is "mandatory spending". The only big thing that is "discretionary spending" is defense. So it seems certain that defense will be slashed in the coming years. All kinds of overseas bases will close and the US will pull out of Afghanistan and Iraq. With the "worlds policeman" gone home the world will be more lawless.
[quote="John"]One way that we know that a major financial crisis is yet to come is because no serious effort is really being made to reduce the budget deficit. However, the deficit budget must come down, one way or another, and therefore a major financial crisis of some kind, probably forcing a US Treasury default, must occur. [/quote]
An outright default would be honest and sensible. It would also reduce the debt slavery of innocent grandkids. It would have been better to not bail out the banks. It would be better if states and cities everywhere were declaring bankruptcy and getting ride of unions and big retirement obligations. For years to come people would not loan money to the government. All kinds of good things would happen.
However, as long as the market accepts US dollars there is no pressure to default, they will just print more money. If the market does reject the US dollar, then it won't matter if they print a few more worthless dollars and pay off the debt.
Anyway, I see little reason to hope they will see that the market is about to reject the dollar ahead of time or that the government will do the sensible and honorable thing as long as there are other options (print money). Yes, I count the Fed as part of the government. The government appoints a controlling majority and the government gets any profits the Fed makes.
And in a real sense printing money to pay off the debt is defaulting, as you are paying off debts with currency worth much less than the value at the time you borrowed. So really they will default openly or they default in a clandestine way. Either way bond holders will lose.
Another point. Most of the budget, like Social Security, Medicare, Medicaid, Veterins benefits, etc etc. is "mandatory spending". The only big thing that is "discretionary spending" is defense. So it seems certain that defense will be slashed in the coming years. All kinds of overseas bases will close and the US will pull out of Afghanistan and Iraq. With the "worlds policeman" gone home the world will be more lawless.