Joined: Mar 26, 2005 Posts: 3787 Location: over here
Posted: Sun Jul 20, 2008 6:54 am Post subject: The Economist: America may default on it's debt
According to the economist, the American government, after explicitly backing more than 5 trillion in freddie mac/fannie mae debt, combined by more bank faillures that could deplete FDIC's (Federal Deposit Insurance Corporation ) reserves of 53 billion, as well as shortfalls in the Pension Benefit Guaranty Corporation, could lead to a bill that can't be paid anymore by the American taxpayer, leading to America defaulting on it's debt:
Quote:
... The GSEs are not the only liability for the government. IndyMac’s recent collapse is the latest call on the Federal Deposit Insurance Corporation (FDIC). The FDIC has some $53 billion of assets, so it is better funded than most deposit-insurance schemes. But if enough banks got into trouble, the government would be on the hook for any shortfall. The same is true of the Pension Benefit Guaranty Corporation, which insures private sector benefits, but is already $14 billion in deficit.
In the end, the turtle at the bottom of the pile is the American taxpayer. But that suggests that, if Americans are losing money on their houses, pensions or bank accounts, the right answer is to tax them to pay for it. Perhaps it is no surprise that traders in the credit-default swaps market have recently made bets on the unthinkable: that America may default on its debt.
The Economist _________________ "The best thing about the future is that it comes only one day at a time."
Joined: Apr 27, 2007 Posts: 4353 Location: The Great Sonoran Desert
Posted: Sun Jul 20, 2008 7:27 am Post subject: Re: The Economist: America may default on it's debt
Bas good to see you posting again.
My first post here was a call to mail your keys in...default on your credit cards and student loans...buy what you need now even if it means going into debt. The rationale: OUR GOVERNMENT WOULD DEFAULT ON YOU AND EVERY OTHER DEBT THEY HAD VIA INFLATION - AS ROME DID AND EVERY OTHER EMPIRE SINCE THE HISTORY OF MAN BEGAN.
Of course most thought it will be different this time. Well its not - and ones FICO means ZERO. Got preps? If not best charge it while preps are still available to get.
Another one in the five ring. _________________ "There must be a bogeyman; there always is, and it cannot be something as esoteric as "resource depletion." You can't go to war with that." Emersonbiggins
"... hope is a rotten-thighed whore" Niko Kazantzakis
Posted: Sun Jul 20, 2008 7:35 am Post subject: Re: The Economist: America may default on it's debt
I don't think they'll default. The government just issues more debt and gets credit from the fed to cover the old debt payments. They can do this basically indefinitely as they have been doing. I think what's more likely is a run on the dollar by foreign countries which would put an enormous amount of government bonds on the market without a buyer. In this case the fed would have to buy them by their mandate and the result would be severe inflation and the downfall of the dollar as a global currency. _________________ Just look at us. Everything is backwards; everything is upside down. Doctors destory health, lawyers destroy justice, universities destroy knowledge, governments destroy freedom, the major media destroy information and religions destroy spirituality.
Joined: Mar 26, 2005 Posts: 3787 Location: over here
Posted: Sun Jul 20, 2008 7:42 am Post subject: Re: The Economist: America may default on it's debt
mmasters wrote:
I don't think they'll default. The government just issues more debt and gets credit from the fed to cover the old debt payments. They can do this basically indefinitely as they have been doing. I think what's more likely is a run on the dollar by foreign countries which would put an enormous amount of government bonds on the market without a buyer. In this case the fed would have to buy them by their mandate and the result would be severe inflation and the downfall of the dollar as a global currency.
I'm not sure which way will be more devastating to the US economy, so why you'd prefer one over the other.
Either way, we also may have had the worst of the credit crisis and right now may be the closest we will come to defaulting. _________________ "The best thing about the future is that it comes only one day at a time."
Posted: Sun Jul 20, 2008 7:56 am Post subject: Re: The Economist: America may default on it's debt
[quote=article"]Nevertheless the hope is that, if confidence can be restored, Fannie and Freddie can survive without raising capital until market conditions improve.[/quote]
Herein lays the crux of the situation: we lunies at PO news know that this is not going to improve, but even the more “politically correct” (those innately endowed with delusional stupidity) investor should be aware that Alt-A and prime mortgages are now facing the same dilemma as has sub-prime over the last year. Defaults on both are skyrocketing, and they are ten times bigger in book value.
With F&F leverage of 65:1, the mirage is definitely going to fade. Without a jinni to assist and a couple of magic carpets to ride out of town with, F&F are going down the tubes. Regardless of these almost hopeless statistics, Hank and Ben appear to be totally dedicated toward insuring that everyone’s savings and retirement portfolios are stuffed down that same hole that the Twins are ascending into.
It behooves one to understand how they have acquired such a magnanimous amount of social responsibility. The mental picture of us all falling on our swords together, brings such a gratifying image of social cohesiveness.
Posted: Sun Jul 20, 2008 8:04 am Post subject: Re: The Economist: America may default on it's debt
The article was surprising (since I had the view that the Economist was propaganda). It was very frightening, well-written and clear to a layperson like myself.
Posted: Sun Jul 20, 2008 8:44 am Post subject: Re: The Economist: America may default on it's debt
mmasters wrote:
I don't think they'll default. The government just issues more debt and gets credit from the fed to cover the old debt payments. They can do this basically indefinitely as they have been doing.
That strategy only works if you have a functioning banking system. That may be a rather presumptuous assumption to make at this junction.
Quote:
In an interview with RTT News, Nouriel Roubini, Professor of Economics and International Business at NYU's Stern School of Business and Chairman of RGE Monitor stresses that we are in the middle of a "severe recession that is deepening" and will cause "at least a couple hundred small banks," to go "belly up," a third of regional banks to be in "severe trouble" and "at least a couple" major national banks to become "insolvent." Roubini says there is "no doubt" that the FDIC's reserve will be "drained 100-percent" and stresses that there is "nothing that can be done" to prevent this financial crisis and recession.
In addition, Roubini predicts that Lehman Brothers "won't be able to survive" as an independent broker dealer.
This is more than an isolated incident of insolvency of a GSE. It is a systemic crisis that is taking down the entire financial system. The old system will not function in a PO world. Attempting to hang on to it will be like trying to catch clouds with a butterfly net.
Joined: Jun 13, 2007 Posts: 3642 Location: Minniesotuh
Posted: Sun Jul 20, 2008 8:48 am Post subject: Re: The Economist: America may default on it's debt
ohanian wrote:
Print more money! Actually, we'll blackmail the rest of the world Lend us more money or we will print lots and lots of money.
I would suspect that if that action is employed, And the rest of the world learns of it, No One would accept a dollar for anything. The rest of the world is learning that they can get along quite nicely without the US. Too bad that it seems the US thinks the opposite is still true. _________________ "RRrrruuuunnnn!!!" ~Apocalypto
Last edited by Ferretlover on Sat Sep 13, 2008 7:04 am; edited 1 time in total
Joined: Apr 27, 2007 Posts: 4353 Location: The Great Sonoran Desert
Posted: Sun Jul 20, 2008 8:55 am Post subject: Re: The Economist: America may default on it's debt
Quote:
In addition, Roubini predicts that Lehman Brothers "won't be able to survive" as an independent broker dealer.
Hey Iaato - Roubini agrees with me. Got silver? _________________ "There must be a bogeyman; there always is, and it cannot be something as esoteric as "resource depletion." You can't go to war with that." Emersonbiggins
"... hope is a rotten-thighed whore" Niko Kazantzakis
Posted: Sun Jul 20, 2008 9:32 am Post subject: Re: The Economist: America may default on it's debt
I'd like to see a one-time super-wealthy tax. No one should be able to accumulate a billion dollars, let alone more than, say, $25 million. The marginal utility after that is minor and it allows individuals to distort the democracy. A one time super-wealth tax would redistribute a dangerously lopsided society and could pay for the infrastructure changes we need to prepare for peak oil. It could also be used to pay off much of our debts. Just an idea.
Joined: Oct 11, 2005 Posts: 409 Location: Arizona, USA
Posted: Sun Jul 20, 2008 9:36 am Post subject: Re: The Economist: America may default on it's debt
shortonoil wrote:
Roubini says there is "no doubt" that the FDIC's reserve will be "drained 100-percent" and stresses that there is "nothing that can be done" to prevent this financial crisis and recession.
I never thought I'd live to see the day when bank runs would happen. If there's no FDIC, there's no safety in having your money in a bank. More than that, it becomes dangerous in this financial climate. I wonder when I should pull out our savings. Just a couple thousand dollars for maternity leave, but it'd be a sore loss.
Three cheers for the invisible hand. Three cheers for less regulation and oversight of banking and finance.
Joined: Oct 15, 2004 Posts: 2196 Location: Arkansas
Posted: Sun Jul 20, 2008 9:37 am Post subject: Re: The Economist: America may default on it's debt
Its interesting to me that "The Economist" would even raise the ugly specter of this possibility. "The Economist" is a well respected publication, and to even suggest this possibility is blasphemy at the highest levels of the American dream. The "butterfly effect" of this article will ripple throughout the world, literally in ways we peons cannot possibly imagine.
Posted: Sun Jul 20, 2008 10:04 am Post subject: Re: The Economist: America may default on it's debt
Uniquack wrote:
I'd like to see a one-time super-wealthy tax. No one should be able to accumulate a billion dollars, let alone more than, say, $25 million. The marginal utility after that is minor and it allows individuals to distort the democracy. A one time super-wealth tax would redistribute a dangerously lopsided society and could pay for the infrastructure changes we need to prepare for peak oil. It could also be used to pay off much of our debts. Just an idea.
I think you're only telling a part of the truth. What you'd really like to see is anybody who has more than you knocked down to your level. _________________ Massive Human Dieoff must occur as a result of Peak Oil. Many more than half will die. It will occur everywhere, including where you live. If you fail to recognize this, then your odds of living move toward the "going to die" group.
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