[MonteQuest]

Everything that still functions in the US now runs on government bail-outs and guarantees via deficit spending and monetization of the debt…just flat creating money out of thin air by printing it. Without this “stimulus,” all manner of the economy would come to a screeching halt.

So, as in Charles Dicken’s story, “please, sir; can I have some more?” I think government bail-outs and guarantees will be necessary forever…or until the boat sinks. Who would have thought we would ever see…Government Motors? 20 billion to date, and the hand is out for 30 billion more. We have bought into a perpetual Money Pit, not only with GM, but with all manner of what makes this country, and the world, for that matter, run.

99 trillion in unfunded entitlement programs, from Social Security and Medicare to VA pensions? Say what?

Our financial system now closely resembles the definition of a boat: a wood-lined hole in the water into which you pour money. (Boat owners will know what I mean)

If a person has $40,000 of income, and $500,000 in credit card debt - there is virtually no rational scenario in which their income will ever catch up with the debt. He goes bankrupt. The court says, “we judge that these debts can never be repaid.”

When the govt does this, it is called debt repudiation, or a unilateral disclaiming of a debt instrument obligation by a debtor.

We are going to do that, as there is no way in hell the US can pay off that amount of debt. And with all this printing of money, it looks like inflation of the money supply may well be the vehicle. And since, we have this “money pit” to justify it, it is easy to do.

And only an impossibly fast return to a very high GDP growth in the United States could ever prevent this.

[erl]

When the govt does this, it is called debt repudiation, or a unilateral disclaiming of a debt instrument obligation by a debtor.

We are going to do that, as there is no way in hell the US can pay off that amount of debt. And with all this printing of money, it looks like inflation of the money supply may well be the vehicle.

That is exactly how the U.S. Government will "repudiate" our debt. They will never actually refuse to repay the dollars. They will simply print the dollars and hand the worthless bills to the Chinese, Japanese, Koreans, Russians, Europeans and any other lenders that were foolish enough to loan it to us.

Sorry saps one and all. And we're the biggest saps of all.

[Grautr]

When the govt does this, it is called debt repudiation, or a unilateral disclaiming of a debt instrument obligation by a debtor. We are going to do that, as there is no way in hell the US can pay off that amount of debt. And with all this printing of money, it looks like inflation of the money supply may well be the vehicle.

That is exactly how the U.S. Government will "repudiate" our debt. They will never actually refuse to repay the dollars. They will simply print the dollars and hand the worthless bills to the Chinese, Japanese, Koreans, Russians, Europeans and any other lenders that were foolish enough to loan it to us. Sorry saps one and all. And we're the biggest saps of all.

And this will eventualy start WWIII

[Caffeine]

And this will eventualy start WWIII

World War 3 would likely result in large amounts of profit-producing land being turned into radioactive wasteland. Is this really what the various governments of the world would want?

[joewp]

And this will eventualy start WWIII

World War 3 would likely result in large amounts of profit-producing land being turned into radioactive wasteland. Is this really what the various governments of the world would want?

You're assuming that humans and their governments are rational and see the consequences of their actions. They aren't and they don't, at least when the time horizon is sufficiently in the future to be past their lifetimes.

[Tyler_JC]

Grautr,

Going to war with the United States would not make the US more inclined to pay back its creditors.

China has NOTHING to gain by declaring war on the USA.

[AgentR]

Something to think about, if we're talking China... Who do you think a Taiwanese businessman is likely to consider a more reliable and honest partner after such a default, the US or the PRC.

I got a a feeling his friends in Beijing are about to get a significant bump up, and his friends in Los Angeles are about to suffer a significant demotion.

Otherwise rephrased as.. how to get Taiwan to realize her interests are best served under the Aegis of the PRC, not the United States.

[seldom_seen]

Everything that still functions in the US now runs on government bail-outs and guarantees via deficit spending and monetization of the debt…just flat creating money out of thin air by printing it.

This is the monetary equivalent of a perpetual motion machine or "free energy." Which doesn't exist.

What is truly amazing to me is that despite the sophistication and complexity of our civilization, once it stops growing, it starts to rapidly fall apart. It is so poorly designed it should have never made it off the drafting table. Any sort of product or device that failed so easily would have never made it to market.

The government has no solutions, no plans, no alternatives, no escape routes, no ideas...except to print money and make happy talk. That's it, that's all. A contracting economy does not compute, it's not part of the model, it doesn't fit the equation.

A plant or animal species with the same characteristics would have become extinct a long time ago.

[MonteQuest]

Look for an FDIC bailout soon. They are about out of cash.

[yesplease]

Everything that still functions in the US now runs on government bail-outs and guarantees via deficit spending and monetization of the debt…just flat creating money out of thin air by printing it.

I doubt that. The stimulus was what, a trillion or so? US GDP is about 12-13 trillion IIRC. Where did the government hide the extra 10 +trillion?

If a person has $40,000 of income, and $500,000 in credit card debt - there is virtually no rational scenario in which their income will ever catch up with the debt. He goes bankrupt. The court says, “we judge that these debts can never be repaid.

Good thing we have about 12-13 trillion/year in income, and about 4-5 trillion/year in debt over the next 7-8 years.

[Caffeine]

I doubt that. The stimulus was what, a trillion or so? US GDP is about 12-13 trillion IIRC. Where did the government hide the extra 10 +trillion?

I found an interesting website that analyzes how US GDP is calculated:

http://www.chrismartenson.com/crashcourse/chapter-16-fuzzy-numbers

You may find it interesting. In particular, his description of imputations, hedonic adjustments, and how inflation is calculated (and how inflation calculations affect GDP calculations).

[Quinny]

Good Luck Caffeine. You'll need it!

[bratticus]

Look for an FDIC bailout soon. They are about out of cash.

FDIC Increases Fees, but Fails to Fix Moral Hazards

... At the end of Q4 '08, the FDIC had around $18 billion in reserves. We can assume that amount is significantly smaller now, especially after the $4.9b hit from Bank United.

FDIC Reserve Ratio Plummets

... The FDIC's Deposit Insurance Fund [DIF] has plunged to an all time low of just $13 billion as of March 31, or 0.27% of $4.8 trillion in insured deposits.

Bair Defends Fee to Build Deposit Reserves Amid Bank Opposition

... “Without additional revenue beyond the regular assessments, current projections indicate that the fund balance will approach zero,” [Federal Deposit Insurance Corp. Chairman Sheila] Bair said.

Zombie banks walk among us

... Small banks facing severe loan losses and in need of capital continue to operate, indicating a reluctance on behalf of regulators to shut them down.

Banks take a beating in a bad week

... The FDIC said it would nick banks 5 cents for every $100 in assets, less their capital, at midyear.

Banks to Pay Higher Fees to Build FDIC Insurance Fund

... “Many small banks benefit from this, but there’s a lot of pain that others will suffer as a consequence,” said James Chessen, ABA’s chief economist. “It’s a zero-sum game and there’s unidentified consequences of changing this assessment base.”

Chart: http://static.seekingalpha.com/uploads/ ... _ratio.jpg

[patience]

Looks like the FDIC could be next on the bailout list. Been waiting for that, as a signal of when to get out of cash and into hard assets entirely, minus some living expenses. Or, the short term US Treasury market going to hell in a handbasket. That would trip my trigger.

[MonteQuest]

Everything that still functions in the US now runs on government bail-outs and guarantees via deficit spending and monetization of the debt…just flat creating money out of thin air by printing it.

I doubt that. The stimulus was what, a trillion or so? US GDP is about 12-13 trillion IIRC. Where did the government hide the extra 10 +trillion?

CBO says the cost of the stimulus is $3.27 trillion over ten years. 10 trillion? Say what? Systems don't have to experience total capital shut downs to stop functioning.

Good thing we have about 12-13 trillion/year in income, and about 4-5 trillion/year in debt over the next 7-8 years.

Think again. We have 99 trillion in unfunded entitlements alone.

[gnm]

CBO says the cost of the stimulus is $3.27 trillion over ten years. 10 trillion? Say what? Systems don't have to experience total capital shut downs to stop functioning.

Good thing we have about 12-13 trillion/year in income, and about 4-5 trillion/year in debt over the next 7-8 years.

Think again. We have 99 trillion in unfunded entitlements alone.

Exactly, And the 12-13 trillion is GDP, not gov _income_ . I'm thinking their _income_ (our taxes) are going to take some revenue losses in the next few years as well exacerbating the deficit spending.

Recovery my ass - used to be that 250k job losses/per indicated a recession, and now repeated 600k+ loss is a GOOD THING?!

-G

[yesplease]

Everything that still functions in the US now runs on government bail-outs and guarantees via deficit spending and monetization of the debt…just flat creating money out of thin air by printing it.

I doubt that. The stimulus was what, a trillion or so? US GDP is about 12-13 trillion IIRC. Where did the government hide the extra 10 +trillion?

CBO says the cost of the stimulus is $3.27 trillion over ten years.

In terms of comparison, one trillion in stimulus in a year versus ~14 trillion in GDP in a year is way worse than $3+ trillion over 10 years, so about 300+ billion/year versus the ~14 trillion/year in GDP. The first would've been a much more favorable estimate from the d00mc0pian POV, but hey, I suppose would could stick with 2% (And a large portion of that was Obama reinstating horrible funding for stuff that was cut under Bush or creating new funding for jobs in agencies such as the US Forest Service) of GDP.

10 trillion? Say what? Systems don't have to experience total capital shut downs to stop functioning.

A few hundred billion a year? Say what? Odds are our economic system ca handle a couple percent increase in costs, which is far better than the 25% drop in GDP we saw during the last crisis similar in magnitude.

Think again. We have 99 trillion in unfunded entitlements alone.

Only if we, assuming costs do not change, add up the sum of future costs of medicare, pensions, and so on, to current debt, but don't include GDP over the same time frame.That unique method of accounting has already been debunked.

Now, I'm all for doom 'n' gloom--they've done very well for me in the journalism business over the years--but this struck me as too bad to be true. And on closer examination, it is. About $40 trillion of PGP's $56 trillion in liabilities is its calculation of future Medicare and Social Security benefits ($34 trillion of it is Medicare alone), which Congress has promised to future senior citizens but has made no provision to pay for.

If we applied that mthod to stuff like debt in the past, for instance from WWII, then the US would've collapsed in the late 50s/early 60s. Fortunately for us costs do not constantly increase and the economy will not grid to a complete halt just so we can realize a fearmongerer's (whoever Peter Peterson is) wet and wild dream. We won't finance medicare at any price, (although we will hopefully see costs similar to other first world countries, even if it means poor stock "performance" or no stock "performance" for health organizations who think it's a great idea making big bucks off of the suffering of others) just like GM won't continue to fund exorbitant UAW benefits.

[MonteQuest]

So, all this monetization of the debt and debt guarantees is not meant to keep the financial system afloat and commerce functioning? LOL!

[MonteQuest]

Please, sir, can I have some more?"

Benefits, such as Social Security, food stamps, unemployment insurance and health care, accounted for 16.2% of personal income in the first quarter of 2009, the Bureau of Economic Analysis reports. That's the highest percentage since the government began compiling records in 1929. In all, government spending on benefits will top $2 trillion in 2009 — an average of $17,000 provided to each U.S. household, federal data show.

One in nine Americans are using federal food stamps to help buy groceries as the country's deep recession forced another 591,000 people onto the federal anti-hunger program at latest count. Congress allocated some $54 billion for food stamps this fiscal year, up sharply from $39 billion last year. In the new fiscal year beginning Oct 1, costs are estimated at $60 billion.

[odegaard]

Benefits, such as Social Security, food stamps, unemployment insurance and health care, accounted for 16.2% of personal income...

One in nine Americans are using federal food stamps to help buy groceries...

It seems that America is doing a piss poor job of living up to it's reputation as a "conservative" nation that values small government and self-reliance.