View Full Version : The House of Cards

04-25-2011, 07:30 AM
I don't see how it can be avoided at this point. Just like the real estate bubble and the high tech bubble before that - its all built on sleight of hand and lies.

WASHINGTON (AP) — The United States has never defaulted on its debt and Democrats and Republicans say they don't want it to happen now. But with partisan acrimony running at fever pitch, and Democrats and Republicans so far apart on how to tame the deficit, the unthinkable is suddenly being pondered.

The government now borrows about 42 cents of every dollar it spends. Imagine that one day soon, the borrowing slams up against the current debt limit ceiling of $14.3 trillion and Congress fails to raise it. The damage would ripple across the entire economy, eventually affecting nearly every American, and rocking global markets in the process.

A default would come if the government actually failed to fulfill a financial obligation, including repaying a loan or interest on that loan. The government borrows mostly by selling bonds to individuals and governments, with a promise to pay back the amount of the bond in a certain time period and agreeing to pay regular interest on that bond in the meantime.

Among the first directly affected would likely be money-market funds holding government securities, banks that buy bonds directly from the Federal Reserve and resell them to consumers, including pension and mutual funds; and the foreign investor community, which holds nearly half of all Treasury securities.

If the U.S. starts missing interest or principal payments, borrowers would demand higher and higher rates on new bonds, as they did with Greece, Portugal and other heavily indebted nations. Who wants to keep loaning money to a deadbeat nation that can't pay its bills?
At some point, the government would have to slash spending in other areas to make room for any further sales of Treasury bills and bonds. That could squeeze payments to federal contractors, and eventually even affect Social Security and other government benefit payments, as well as federal workers' paychecks.

A default would likely trigger another financial panic like the one in 2008 and plunge an economy still reeling from high joblessness and a battered housing market back into recession. Federal Reserve Chairman Ben Bernanke calls failure to raise the debt limit "a recovery-ending event." U.S. stock markets would likely tank — devastating roughly half of U.S. households that own stocks, either individually or through 401(k) type retirement programs.

Eventually, the cost of most credit would rise — from business and consumer loans to home mortgages, auto financing and credit cards.
Continued stalemate could also further depress the value of the dollar and challenge the greenback's status as the world's prime "reserve currency."

China and other countries that now hold about 50 percent of all U.S. Treasury notes

more .........

http://www.google.com/hostednews/ap/article/ALeqM5jirYFVwn0fcyqiz-3xpL9N3TZL0w?docId=4d28a118fd5146c190bbef2e2c4b9ab 3

Cuyahoga Chuck
04-25-2011, 08:16 AM
That's been in all the papers.
An hour late and a dollar short, as usual.

04-25-2011, 08:38 AM
From our local press today (momday)
"CHINA is about to overtake the United States as the world's biggest economy, creating profound changes in the balance of global power.
In forecasts inserted quietly on its website in recent days, the International Monetary Fund has projected that, by 2016, China will overtake the US in real economic output - the first time in the modern era that any country has done so."

Read more: http://www.theage.com.au/national/china-to-lead-world-economy-20110424-1dt1j.html#ixzz1KXfhx3eh

Bruce Hooke
04-25-2011, 08:56 AM
I don't see how it can be avoided at this point. Just like the real estate bubble and the high tech bubble before that - its all built on sleight of hand and lies.

I am not sure exactly what you are saying can't be avoided at this point but I think there is a good chance we will avoid failing to raise the debt ceiling. I suspect it will come down to the wire, like the budget, but that neither party will want to be blamed for the chaos that would result from failing to raise the debt ceiling so ultimately some sort of agreement will get hammered out and passed. Of course the long term situation is much more complicated but that is not what this article is talking about.

04-25-2011, 10:53 AM
The US government is not too big to fail. Nobody is going to rescue us once the Japanese and Chinese lose faith in our debt.

Its going to make the " great recession" look miniscule by comparison.

I heard some fella on nightly business report the other night - he was predicting gold at over $ 3000 an ounce

Personally, Id rather eat than get stuck holding bright shiney stuff with no intrinsic value when the music stops.

04-25-2011, 11:15 AM
If the dollar collapses gold may have exchange value, but it may go something like this; You want that 10lb bag of flour? $20.00 in gold, or even $50.00.

In a real collapse barter goods will be much more valuable than gold. Sorry to say it, but think what a handgun with 50 rounds of ammo would be worth. Or a water purifying system. Or some canned goods.


04-25-2011, 04:10 PM
Which is my point Waddie

04-25-2011, 04:22 PM
Which is my point Waddie

And you are right !! In 1920's-early 30's Germany barter was extremely widespread, gold useful but not always preferable unless you had lots of it, and paper money all but worthless.


Memphis Mike
04-25-2011, 05:53 PM
I don't know about you guys but I'm stockin up on potted meat.

Glen Longino
04-25-2011, 06:04 PM
I still have 1000 pounds of potted meat left over from Y2K!
No worries here!

04-26-2011, 06:35 AM
I'd flog it soon as the crash comes Glen, should reduce the competition somewhat. What was that song about ptomaine poisoning? ........................... Ah, no, it was cocaine I think..............

04-26-2011, 08:01 AM

You been reading too much Mish Shedlock and Gerald Celente, Dutch.

May I recommend instead Patrick O'Brian ?

Ted Hoppe
04-26-2011, 08:58 AM
Do you really think the largest international banking interests are going to let this happen? They are just extracting their pound of potted flesh from monetary policies set up in their favor in 1913 that require tweaking now to reflect changes in industrial powers and growth in asia. The era of cheap money to fund western military wars is closing as capital is needed to stimulate the new asia powers that be.