Forum Post: When the Debt Bomb Comes Here, Will the USA be able to Handle It?
Posted 11 years ago on June 27, 2012, 11:04 a.m. EST by hchc
(3297)
from Tampa, FL
This content is user submitted and not an official statement
http://www.zerohedge.com/contributed/2012-06-27/after-sovereign-debt-crisis-comes-deleveraging
Its coming here sooner or later. And it will be bigger than Greece.
I think this uber-consumer nation will not know how to act when their material goods are no longer available. Our entire food supply is dependent on corporations functioning smoothly through multiple layers. What happens when that supply chain gets messed up?
food is provide through photosynthesis
I am afraid that they lost our hazmat gloves. Hmmm. Barbeque tongs?
Even the 1% will be scrambling.
We just did that. Bernanke and the Fed saved our asses. But without the Fed that is exactly where we would be. That is what the Fed is for.
If the Fed printed enough money to cover the debt bubble, our credit rating would decline so far that we could no longer be a viable safe haven for investors (nobody would trade in dollars) and inflation would be similar to the inflation that caused bread lines in Russia (runaway inflation). The Fed has not saved us from the debt bubble, they simple pushed it on to the national debt and drove inflation which is temporarily hidden but seeping into prices, regardless. The Fed just handed over another 257 billion dollars to Wall Street after two years of record profits and pay which should tell you how effective the Fed is at stimulating the real economy, they aren't. There is no solution because the national and world banks along with all of the reserve banks have leveraged (fractional lending) beyond the all the money in the world, around 20 times over. ie... there isn't enough money in the entire world to cover the debt and anyone trying to print enough money to cover the debt will face the aforementioned credit and inflation issues and those issue are enough to drag any nation and/or the entire world into economic calamity. But don't expect the media to tell you this because their job is no longer journalism, but rather directing public opinion.
http://blog.richardkentgates.com/2012/06/open-embezzlement.html
Credit ratings have no real world meaning to a country that issues its own currency. We don't need to sell bonds and t-bills to create money. Because of our high unemployment and larger underemployment our real productivity is no where near the GDP, higher debt levels can be tolerated.
Finally, debt and deficit do not have the same meanings as they did 40 years ago when we were on the gold standard. The debt issue is political posturing. Not that debt isn't important, its not the gloom and doom scenario, scare tactic its made out to be.
http://pragcap.com/understand-the-modern-monetary-system/understanding-modern-monetary-system
http://neweconomicperspectives.org/2012/05/playing-monopolis-monopoly-an-inquiry-into-why-we-are-making-ourselves-so-miserable.html
You picked one very selective portion of the overarching point to work on and still added partisan downplaying. A credit downgrade in reality will cause investors to find other safe havens for their money, they will sell out from the dollar. On a large scale, this devalues the dollar and has the exact same effect on the economy as inflation. Are you saying that a major jump in the shelf price of goods would not be harmful to the economy? I also enjoy seeing the other party hacks voting this comment up as if to say their is public appetite for the Fed continuing to prop up the banks. It's not the same argument as saving GM and the public isn't so dumb as to not know the difference.
No partisan downplay at all. I am simply promoting the macroeconomic theory of MMT.... the only theory that understands the operational realities of our fiat currency. With your questions I see that you didn't read my links.
We don't need investors buying bonds and T-bills, and the main driver there is interest rates, not the volume of money in the system. The jump in commodities bubbles has been a side effect of low interest rates as well.
The Monetarists are running our economy now... incorrectly. There are many incorrect philosophical ideas being put forth with heavy policy implications.
MMT is the only model that works. It is apolitical, non-partisan. Don't spin my words.
I am not nor do I need to spin anything. You're are indeed trying to downplay the impact of debt and credit ratings on our economy. Simply restating your previous post with new wording does not make it any more true. I could throw around a bunch of financially related but meaningless statement too, but it doesn't make it true. I see your wordpress nobodies and raise you two reliable sources.
http://www.washingtonpost.com/business/economy/five-ways-the-downgrade-in-us-credit-rating-affects-you/2011/08/06/gIQAin5LzI_story.html
http://www.cnbc.com/id/47960752
Corporate Mainstream Media links, and archaic macroeconomic thought.... who is the real partisan playing the same government game of the sky is falling to line up the sheep?
Before you diss it completely, research MMT. There are far more thorough treatments, I used the easy to understand ones in my links. You would rather believe this guy from your last link who is part of the problem?
"The author is Professor Moorad Choudhry, Treasurer, Corporate Banking Division, Royal Bank of Scotland"
yeah that makes sense.
If you think that anything has changed from idiotic printing, which is what has caused this global mess, then you are gravely mistaken.
Derivatives caused this global mess. Not monetary expansion.
The deriviatives are, in a way, the same as monetary expansion, making money out of thin air. At least, thats how I see it.
I put the credit boom, the deratives, the CDS collections, the entire kabit and kaboodle in the same pot.
Before the credit boom, only about half the property in the country were generating money for the banks. The rest were all paid off.
Afterwards, it was up to almost 90%. Thats a huge splash of cash.
That is incorrect. Derivatives are bets. The gamblers are betting with money they don't have. Which is why they needed to be supported when the bets failed and they didn't have the reserves to cover the losses when they became due. It has nothing to do with monetary expansion.
I just group them with it because they exploded at the same time the credit expanded.
I believe the CDS got created in like 1993 or something, right?
Which comes first? The Obama hate or the Ron Paul love. Not being snide. I am really curious. Occupy seems split between liberals and libertarians. I see it was not just at home.
Please don't hang yourself on 'rope' of your own making - you're an intelligent enough chap. Thus for a reminder about how and why 'OWS' came to pass, please watch : http://vimeo.com/32828077 .
'Moral Hazard' ; 'Regulatory Capture' and 'Perverse Incentives' are just some phrases that deserve consideration by way of reflection upon just how The Banksters put us all in the mess we're in.
ad iudicium ...
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Just about everyone has respect for him on his views of the banking system, hard not too. He is socially too conservative for most, although I believe he would let people do as they may. Main problem with RP is the R after his name.
Occupy is an ever changing thing, a freestyle movement. You never know what you are going to get from week to week.
RP is a love/hate thing for me. Love seeing him at the debates telling stuff they hate to hear. Love the social side. Hate the fiscal side.
So if one of the candidates cam out for medical MJ, would the RP folks be swayed?
From what I have seen, medical ganja isnt that high (no pun intended) on the list of important things.
I personally dont want the gov messing with my ganja :)
I think it might be to the Paulies.
We won't have enough presidents' faces for all the bills we'll have to create when we're playing in the Quintillions and Sextillions of dollars.
"The Reserve Bank of Zimbabwe issued 21 additional denominations between 1 September 2008 and 2 February 2009. They were as follows: $1 000, $10 000, $20 000, $50 000, $100 000, $500 000, $1 million, $10 million, $50 million, $100 million, $200 million, $500 million, $1 billion, $5 billion, $10 billion, $20 billion, $50 billion, $10 trillion, $20 trillion, $50 trillion and $100 trillion."
http://en.wikipedia.org/wiki/Banknotes_of_Zimbabwe
See also: Hyperinflation.
See also: I'm a hundred trillionare and I can't buy bread.
Hey, this country is doing just fine - ask any Obama supporter - they think he's the "cats meow" when it comes to economic recovery.
However what they fail to recognize is how much he has increased the Peoples Credit Card Debt" without giving any thought to how it will be paid back.
And if blaming Bush is the reason behind his constant excuses as to why the ecoomy is in a slump and the debt has increased by 5 trillion since he has been in office then he is never going to solve the problems of this country - just give excuses for them.
"Peoples Credit Card Debt" Do you know what the rate on that is? Under 3%. So should we wait until the economy miraculously comes back while we fire 600,000 government employees and cut off unemployment benefits (for the first time during a recession, I think) and the rate hoes up to 6% before we start investing in America again? Really?
If we can't get a good rate of return on investing 2% money in America then we have no business calling ourselves capitalists.
Give me a deal like that. Hell I will take all I can get. Buy treasuries at over 3% and clip coupons for a living like our presidential candidate. Oooh, and pay under 15% taxes on that "unearned income" line on my tax return.
I won't pretend that the 5 trillion additional debt during the last few years of Pres Obamas term was left to him by your boy Bush and his republican 1% tools. Pres Obama has added less to the debt than any president since Ike. These are facts. The annual deficit was left over by Bush just as Bush was left (and squandered) a huge annual surplus by Clinton. Do you understand these simple facts? Or are you simply pretending in order to attack the President.? Are you a partisan plant?
There is a difference between the debt and deficit as you well know. Just because the Obamantion added less to the debt still doesn't account for the 5 trillion debt - including both deficit and debt spending.
It should be going the other way wouldn't you think?
We are dealing with the worse financial crash in 80 years!. The Bush "great recession" created by his 1% bankster friends, that he then gave almost 1 trillion in bailouts. We have begun to undo the massive damage that Bush & the republican 1% tools created. It will take years. It would be further along if your repubs in congress didn't obstruct every effort at jobs creation. And if your repubs at the state level were not firing working American during this unemployment crises. If the repubs were not overusing the filibuster, and weren't committed to making the Pres was a 1 term Pres. we would be in a faster recovery. The repubs don't care about the economy.! It is hurting Dem constituents not the 1% constituents of the repubs. The repubs can't have a real recovery during a dem pres after the way the repubs trickle down, supply side philosophy crashed it.
The crash was a combination of things and it wasn't Bushes fault as everyone would like to think.
First you had people borrowing money they knew they couldn't pay back - you had banks giving loans that the government forced them to do which by the way Bush wanted to stop.
Next and the biggest effect on the downturn of the economy was the higher cost of gasoline prices.
When the price of oil went up, everything else went up and as a result people who were marginally making it by with their big houses, high dollar suv's and all the ammenities to go along with it that is what caused the economy to collapse.
Gasoline was around 1.15 a gallon in 2004 and I believe it was around 3.25 a gallon in 2007. Add that hugh increase to the family expense equasion and what do you get - a recession.
There are similarities in high oil prices and high unempoyment - they go hand in hand.
Nope. The banks you have excused ("govt forced them to do"? LOL) created all the problems. They knew what they were doing when they scammed and conned good honest hard working American families into subprime mtgs when they qualified for better rates. Banks avoided risk by bundling and selling the bad loans with inaccurate ratings. I won't blame the only people in this scam who suffered by losing their homes and life savings. We gotta at least be smart enough to realize that the guys who got away with the loot are the guilty ones. Blaming the victim is unproductive. We will simply repeat the same mistakes if we don't acknowledge the real problems.
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No one ever gave the figures on how big a hole we were in when the economy crashed. Pouring 5 trillion in to it and not having the desired effect gives you an inkling of how big the hole really is. The hole created by CDO/CDS bundles of bad mortgages. Most of the bad ones were bought by the FED or kept by the GSE's.
It's going to take a lot more Federal money to fill the hole we dug, get used to it. You want to deregulate and let the banksters play, without any accountability, then the hole has to get filled.
I dont' disagree with you with regard to banks selling bad mortgages to the fed - but fed allowed it by not following up if people were able to pay.
Also, the fed wanted to get in on the action and that is another reason for them buying bad debt.
Now, lets look back prior to 2007 - why was the economy in full swing prior to that - why didn't it collaps back in 2003, 2004, 2005 or 2007.
Can someone please explain that and make sense out of it.
Due you understand how a speculative bubble works?
Please explain it to me so I can understand. Just who was doing the speculation between 2003 - 2006 - was it banks and investors or was it people with jobs buying houses they though they could afford but couldn't when the price of oil went up.
In 2000, The Commodities Futures Modernization Act was passed. This was the final piece of the puzzle that allowed for the deregulation of financial products, specifically exempting derivatives from any regulation at all.
Mortgages could now be mass bundled into exotic investment vehicles like CDO's and then insured by CDS's to 'hedge' them, and they were thus marketed as 99.9% risk free.... add to that 'AAA' ratings from Moody's and Standard & Poors, and you have a multibillion dollar investment vehicle guranteed to sell like hot cakes to the big boys.
Interest rates dropped through the floor and real estate agents and mortgage brokers pushed mortgages big time. The banks no longer cared about due diligence in vetting loans, because they no longer held the loans.... the loans were immediately sold and securitized, bundled and sold as high quality investments. So big money no poured into the real estate market.
At the same time the GSE's opened up the subprime market, because the government wanted to put people in houses. Anybody who had a pulse was approved for loans that were well beyond anyones ability to pay back. Lies were told to customers by 'financial advisers' at mortgage brokers regarding terms of the loans and fraudulent paperwork was submitted to the banks... who didn't care because they were not accountable for the loans. Everybody made money on fees, investors made money on the derivatives. As long as loans were rubber stamped and pushed through... everybody in the chow line got a cut.
This easy money put a strain on the real estate market. Real estate went up because demand went up. Middle class people were taking out second mortgages to renovate their houses so they could be sold and cashed them in on the rising market. Commercial real estate went through the roof as well. The vast majority of the mortgages written were for Middle Class households.
What goes up must come down. The default rate increased dramatically. The derivative contracts for the CDO's were written for a calculated default rate that was low, so the CDO's started to default, which caused the CDS's to default. Every bank around the world that held these investments.... and they were sold to every large bank around the world.... suddenly found themselves without the reserves to pay off the contracts that were due in full upon default.