Higgenbotham wrote: At present, it seems likely that, since Treasuries are plentiful, the action will be to force citizens to buy.
Which brings us back to my original question.
How will this play out ?
Who will take the blame?
One option is that the U.S. Government, and the U.S. Financial system will survive, and even become stronger as it did in the 1930s.
Here is one speculative scenario ( based on the above option ) for consideration:
1. People actually physically holding U.S. dollar bills and physically holding U.S. debt instruments, like Treasuries bills, and physically holding the stock certificates, will have investments which will continue to have some value. Gold and precious metals will also continue to hold some value. Just like they did during the Great Depression.
2. People who allowed the "regulated financial institutions" to hold the physical dollar bills and physical Treasuries and physical stock certificates, will be informed that the federal government has been forced to liquidate some federally regulated financial institutions because "something bad was going on within those private corporations" and, just like MF Global, those federal reserve dollars and those physical Treasuries and physical stock certificates are no longer in the accounts where they are supposed to be. Do not worry, the U.S. government is on it, they will investigate and let you know what happened, just like MF Global. The U.S. government promises to "stand behind" Federally Insured accounts. But not all accounts are insured.
3. Bank runs begin, retirement accounts are not demand deposit accounts and must wait for their money, the Federal Government is required to declare a "bank holiday" affecting all Financial Institutions in the United States as a result of the bank runs.
4. By federal law, virtually all IRAs, all private. and all state and local government pension plans, must keep their assets in regulated financial institutions and neither the non-bank trustees, nor the individual beneficiaries are allowed to hold their own physical dollars or their own physical bond certificates or their own physical stock certificates, without incurring many costs and many inconveniences. Federal law makes it extremely costly, inefficient, and inconvenient for non-bank trustees to physically hold stock certificates, bonds, treasuries, other securities or cash. Federal law also imposes a fiduciary duty on trustees not to run up transaction costs of the type required to physically hold stock certificates and physical certificates of other securities.
5. The U.S. government moves swiftly to save the financial system and re-opens local banks under new ownership. Initial accounts are being automatically opened for every tax payer with a small nominal deposit of new "electronic safe dollars". These accounts are being opened in all of the newly re-opened banks. An account will automatically be opened for each Social Security Number and each Tax Payer Identification number for non-U.S. citizens. These new "electronic safe dollars" must be accepted within the United States for all debts, the U.S. government "stands behind the safe electronic dollars for internal U.S. use". These new "electronic safe dollars" are only good for use in the United States, but not backed up by the Federal Reserve, and not for buying foreign goods.
6. We are all in this together, and those U.S. citizens holding U.S. federal reserve dollars, U.S. Treasuries, Bonds, stock certificates and precious metals will not be allowed to take them out of the country legally. As an emergency measure all U.S. markets that trade in stocks, bonds, U.S. Treasuries and other securities have been closed temporarily until new regulations to keep the U.S. Financial system safe can be imposed.
7. Paper U.S. Dollars are hoarded and are rare. Private businesses are forced to accept the new "safe electronic dollars". There are simply too few U.S. paper dollars in circulation to be used as currency. The only available form of electronic payment is with the new "safe electronic dollars". New "safe electronic dollars" are used to pay employees. The United States based Visa and Master Card networks have been converted to use new "safe electronic dollars" exclusively within the United States.
8. Those individuals with FDIC insured demand accounts willing to voluntarily accept new "safe electronic dollars" receive the insured portion of those accounts back promptly within a few months, less the initial advance of new "safe electronic dollars" they received from the federal government.
9. The Trillions upon Trillions of Wealth that were in those Pension funds and IRA accounts, using investments not insured by the federal government is gone. Exactly what was insured and was not insured will take months, maybe years to sort out.
10. As in the Great Depression the investment counselors, bankers, trustees and money changers take the public blame for this collapse of the debt bubble.
11. The federal government is praised for being prepared and moving forward in just a few months so that people could again buy food and pay rent. First responders and other federal, state and local government employees began receiving pay checks almost immediately using new "safe electronic dollars". Millions more would have died if the federal government had not moved so quickly.
12. Eventually most U.S. paper dollars backed by the Federal Reserve in the United States are exchanged for new "safe electronic dollars". Tax collection in the United States becomes more efficient because all tax payer financial transactions are conducted electronically through a single account with their social security number as their account number. Income taxes can be automatically calculated monthly and deducted from the taxpayers account automatically each month.
13. The U.S. continues to trade overseas using U.S. Federal Reserve dollars and stands behind U.S. Treasuries held overseas with U.S. Federal Reserve dollars. U.S. government debt issued as Bearer Bonds are Still in wide circulation, but for many years only registered U.S. Government debt has been issued. U.S. debt certificates registered in the United States are not honored if smuggled out of the country and sold overseas. More than half the U.S. Debt has been issued in the last 10 years as registered debt and the vast majority of U.S. Debt is held in the United States.
14. By federal law U.S. government debt re-paid to U.S. citizens is paid exclusively in new "safe electronic dollars". Income tax is now collected on all U.S. Government debt payments to U.S. citizens to insure everyone is paying their fair share.
15. Both U.S. paper dollars and U.S. Debt redeemable overseas has become more rare and more valuable. Just like they became more valuable during the Great Depression.
This is just one scenario where the U.S. government, U.S. Federal Reserve Note Currency and the U.S. Federal Reserve Financial system survive the debt bubble collapse.