Generational Dynamics Forum - New Site

Bankrupcty of the United States?

One thing I have noticed over the course of this financial meltdown is how an idea gets introduced, is considered unthinkable, gets re-introduced, then bandied-about, and then comes to pass.

Here are some links to people who think the USA going bancrupt is not out-of-the-question...whoops, make that, likely, according to some.

http://www.cnbc.com/id/27641538
http://research.stlouisfed.org/publicat ... likoff.pdf -- from Federal Reserve Bank of St. Louis, 2006
http://www.youtube.com/watch?v=P39x9QfU ... re=related -- Marc Farber

--Fred

That is not strange at all.

America borrowed and spent for decades driving its savings rate to nil, while printing trillions of dollars in attempt to sustain the (unsustainable) global imbalances caused by its own profligacy and saddling the rest of the world with trillions of bad debt.

If you were spending money you did not earned, but borrowed - soon or later you have to pay for it.

Only thing which is not so clear for me, is that there are people who believed that USA must continue with this party and that other nations must to finance it...

hmmm...

US is the big country - but definitely not the center of Universe.
On the other side, USA is the epicenter of the crises too.

the entire world financial system exists on American credit which means that none of it was ever really saved money. There is $9 trillion of some kind of near cash in the US. Someone saved it. I don't know if you understand that savings equals debt. There cannot be a savings account without debt on the other end and in fact, the savings cannot even be received without it being borrowed into existence somewhere. If the US hadn't borrowed in spent, the rest of th world wouldn't have 2 cents of savings to their name, since the whole world was bankrupt when this cycle started. The US has declared bankruptcy several times. So have all the other countries in the world. You might look up the term reorganization in Blacks Law then read how many times it has been used over the years in various US law. The dollar is bank paper, not government paper and in any case, it collateralizes every savings account in the world.

mannfm11,

I agree with this logic in one "normal" situation.
If you have bad debt of 100k$ - you are in trouble.
If you have one of 1 million $ - your bank is in trouble.
AND the consequences would be logical too.
This kind of situation was in 1930ties.

Or simply - now:
The US owes the rest of the world so much money that they cannot afford to let the US go ‘bankrupt.’ But the rest of the world knows that sooner or later, the US will go ‘bankrupt.’
Other countries that account for the vast majority of US imports (namely the oil-producing Middle Eastern nations, Russia, China and Japan) are sitting on so much US dollars that they do not know what to do with it.
Their problem is not just that they have too many idle and unproductive dollars, but it is more than clear that hey are beginning to fear is that their dollar reserves are turning out to be an increasingly unreliable store of value in the long term.
It is so clear for everybody (almost not necessary to discuss), that the US has been running a ballooning trade deficit—its imports.
It is paid by its own printed dollars and has now been exceeding US exports by an ever-widening margin. From China, the US has been importing consumer goods and from the oil-producing nations, oil. The US dollars that are used to buy oil are nicknamed ‘petrodollars’.
I think that we agree up to this point.


What I do not quite agree is that is the base of this sick system.

All conclusions and differences - coming out from it.

Namely - the position of the US currency... the dollar.
And with it position of the USA.
The US, being in the enviable position of having its money as the world’s primary reserve currency, is not subjected (for now) to the same rules as the other countries—it can spend more than it earns simply by printing its own dollars to pay foreigners.
Or simple:
- when Chinese, Japanese or who ever on the Planet would buy a barrel oil (lets say 50 bucks) - their states have first to earn this money, then to convert it in dollars - and then they can buy.
- When Americans would like to buy the same barrel - for USA it is good enough to print this amount.

1. That IS the firs real problem, even if many American specialist do not agreed with it.
2. Second great problem is that there is no way the US will let their dollar relinquish its reserve currency status without a fight... AND NOT to exclude - even and military threat!
(Actually, especially military, brutal force which was in the last couple decades become the last and only defender of USA dollar dominate currency trade)
3. The third real problem is - to find appropriate alternative for dollar in this situation.


Finally:
I understand you and some people from USA so (may be I am wrong...) like this:
It seems that you believe that world (at least those countries over) did not survive without US dollars, and that "the rest of the World" would be just plain poor... ("wouldn't have 2 cents of savings to their name")
On the other side - this logic means (my understanding) - that if you borrowed 5$ - that you are 5 $ richer.
In my understanding - you are not 5$ richer, but 5$ (+interest) poorer.

Or more simple:
- USA is about 10 trillions poorer - not richer.

The creditor countries as we agreed would be also 10 trillions poorer if all these dollars disappear.
Of course that they would like to move away from dollar, but sudden move can mean that rest of their savings can be drastically reduced too.
(And behind these savings are NOT just printed green papers - but hard work from these nations working people)

So "deflation" or "inflation" is actually not the question.
"Dollar as reserve currency? - ... and which alternative?..." - is in my opinion the real questions.
Status quo is obviously not possible...
The "answer" will come soon... I suppose in the next couple years.
From "answer" of this question - we are getting "the directions".

This article on Yahoo!
http://biz.yahoo.com/ap/081114/earns_freddie_mac.html
is interesting for how astounding the numbers are (FreddieMac loses $28 billion in a quarter) and how this isn't really even news anymore...just a commonplace occurence after AIG's loss and GM's pending bankruptcy.

--Fred

Simple question:

How the state USA will fill up its budget for next year?

http://news.yahoo.com/s/ap/20081114/ap_ ... et_deficit

As I know that is just 3 ways to do it:
1. collecting taxes
2. borrowing abroad
3. "printing money"

(Perhaps I am wrong?)

LG
malleni

Mallini, you miss the point. The US can't spend what it wants to spend. It can only spend what its consumers can afford to spend along with buy what the rest of the world will sell it. I have had to evolve my thinking over the years to get around the idea that 2+2 is supposed to equal 4 when the world doesn't operate that way. The US spends because it can, not because it is the reserve currency. As I said on another page and something I am going to develop further on my blog, the US pay for the existence of money worldwide and the payment is recycled in a negative balance of payments. Because all money supply is credit, it stands to reason that a country would need credit standing to start with and it is clear that Bretton Woods was created with the US being most likely the only sizable country in the world with any credit. Japan, Germany, Italy and Russia clearly had no credit. Due to the credit arising out of the US, the dollar still stands as the only creditworthy currency in the world since the rest of the world also derive their credit out of the dollar. It is so paradoxical it is really hard to understand on a logical basis, as we all know the dollar should have collapsed long ago. It is also paradoxical that Japan could have deflated with such a constant inflow of dollars, but it is clear that once the yen appreciated to the point that Japan could only issue about 90 yen for every dollar they received that this was insufficient to keep their system and their asset bubble inflated and upon slowdown in the US, the bubble deflated. On the main page, another person responded to a response to something you wrote that I bluntly responded to about the US inventing out sourcing. The US didn't invent outsourcing as it has been around for centuries. There happens to not be enough credit in the rest of the world for the rest of the world to ever outsource to the US, until the world moves to a new credit system. Who gets to be the lucky guy in the barrel next whose domestic credit is tapped to support money around the world? Does the US go bankrupt? It already has, as has every other country in the world. The entire world operates in reorganization. Just start thumbing through law books and look for that term re-organization, which is defined in blacks as a bankruptcy proceeding.

mannfm11

Thanks for your point of view.
(BTW, I would like to see your blog too... Can you give address please?)

I admit that this logic, you explained in this short answer, is not quite clear by my.

I would like to clarify some things:

mannfm11 wrote: ...The US can't spend what it wants to spend....

Exactly there is misunderstanding.
I think that, unfortunately, US CAN spend what it wants to spend.
Simple with "printing" additional amount of own money.
That is exactly what somebody here mentioned - systematic error.

For explanation:
If state USA decided to wage a war for example Iraq - it should as all countries before US:
1. be prepared militarily (that is out of question)
2. be prepared financially (even Julie Caesar had looked in the wallet first and THAN decide if he invaded Galia or not...

Unfortunately - USA need not to "look in the wallet".
Not because it is empty - but because USA know that the rest of the World MUST finance this war. With or without wish!
Simply, for reason we are talking quite long here about.
With other words - the Europeans, Russians, Chinese, Japanese and all other in so called "developed world" are financiers of the USA occupation of Iraq. Through - dollar.

mannfm11 wrote: ...It can only spend what its consumers can afford to spend along with buy what the rest of the world will sell it....

Obviously, I do not think that US consumers can afford to wage a war... (Even wars - a many wars at the same time).
Simple reason is - that state which wagging the war has NO money.
So simple was it through complete history of human kind.
Today - due to "system error" - the state which is technically and in all other aspects bankrupt - still has possibility to wage unfortunately more wars, as well as threaten other nations with more of the same.
(I hope that you are read something from general Butler too.)

So the government spending (on wars for example) is not something the consumers will or "can afford".
That is nothing in it - what "the rest of the world selling".

And obviously it is NOT just US government who "investing in the US WAR industry":
http://www.iht.com/articles/ap/2008/04/ ... tments.php

"WASHINGTON: Members of the U.S.Congress have as much as $196 million (€126.2 million) collectively invested in companies doing business with the Defense Department, earning millions since the start of the Iraq war..."

How you expecting that your country EVER going to reduce budget spending and deficit (THAT is not something what "consumer can afford" - obviously!) - when your representatives are EARNING big money on it too?
So besides "the system error" - US consumer desperately need to reduce spendings and obviously many of them doing it too!
But your State - have NO intention to stop spendings, even if it obviously CAN NOT afford it. (Otherwise it would NOT go around and ASK for money other creditor nations and threaten either with crises, terrorism or war...?
One answer of some of your Members of the U.S.Congress - would be interesting to hear, but your answer will be appreciated too... ?



If we assumed that your thesis from the beginning is correct, i.e. "The US spends because it can, not because it is the reserve currency."...

How to explained this obviously irrationally thing:
That one bankrupt state, can wage a very expensive war?
(We can for sure agreed that Emperor Julie Caesar, or Napoleon as you wish... first fulfilled those 2 points from the beginning of this discussion.)

Reputedly, the Iraq war is even more expensive that complete 2ww for the USA! Besides this war, USA is involved in more other wars and conflicts as in Afghanistan, Pakistan, Somalia, prepare a next war with Iran and so on...

Do you really think that the "the rest of the world selling" this to the state USA?


Regarding the next "lucky guy in the barrel" - I said previously couple times that this question will be very difficult.
After disaster with USA and Bretton Woods - I do not believe that anybody get the chance to again retake this monopoly position - AFTER the monetary system collapse.

Later on - who knows...
Who survive - can talk about it.

Additionally,
It is obviously some connection here... (kay words : Crisis, debt, bankruptcy, "export" of green paper, oil...)

"The United States has asked four oil-rich Gulf states for close to 300 billion dollars to help it curb the global financial meltdown:..."
http://news.yahoo.com/s/afp/20081120/bs ... 6Ff0es0NUE

"...The U.S. government has agreed to guarantee over $300 billion of Citigroup's troubled assets..."
http://www.cnbc.com/id/27881439

"...Saudi Arabia Forced To Slash Interest Cuts By Crisis..."
http://www.cnbc.com/id/27873721