U.S. Is Bankrupt and We Don't Even Know

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http://www.bloomberg.com/news/2010-08-11/u...-kotlikoff.html

[Magox]

http://www.bloomberg.com/news/2010-08-11/u...-kotlikoff.html

And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.

 

seems like we are already beginning to go down this road.

 

Worse Than Greece

 

Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices. This is an awful, downhill road to follow, but it’s the one we are on. And bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.

 

Just a matter of time.

 

Some doctrinaire Keynesian economists would say any stimulus over the next few years won’t affect our ability to deal with deficits in the long run.

 

Only a partisan economists would make this argument, Paul Krugman anyone?

 

This is wrong as a simple matter of arithmetic. The fiscal gap is the government’s credit-card bill and each year’s 14 percent of GDP is the interest on that bill. If it doesn’t pay this year’s interest, it will be added to the balance.

 

Duhh!

 

Demand-siders say forgoing this year’s 14 percent fiscal tightening, and spending even more, will pay for itself, in present value, by expanding the economy and tax revenue.

 

My reaction? Get real, or go hang out with equally deluded supply-siders. Our country is broke and can no longer afford no- pain, all-gain “solutions.”

[UConn James]

Can we call in any debt-forgiveness favors like most/all of the African countries do every so often?

 

Oh, wait. This is America. We're supposed to put the meal tab on our credit card. My bad.

[erynthered]

China would probably forgive some debt if we turned our backs on Taiwan.

[Magox]

China would probably forgive some debt if we turned our backs on Taiwan.

We won't default, we'll inflate our way into a more manageable debt situation.... Federal Reserve will save the day...

[Pine Barrens Mafia]

We won't default, we'll inflate our way into a more manageable debt situation.... Federal Reserve will save the day...

 

 

What's the worst thing that can happen if we DO default? All these massive entitlements die off due to lack of funding?

[keepthefaith]

We won't default, we'll inflate our way into a more manageable debt situation.... Federal Reserve will save the day...

 

Ya know, if we cut spending and balanced our annual budgets, a little help from the Fed Reserve might not be the worst thing for us. Bigger problem is the trajectory of spending which compounds the problem every day.

[Magox]

Ya know, if we cut spending and balanced our annual budgets, a little help from the Fed Reserve might not be the worst thing for us. Bigger problem is the trajectory of spending which compounds the problem every day.

We will end up balancing our budgets AND cut spending AND increase taxes... You can take that to the bank...

 

The question is will we do it soon or will we wait until US bond holders hold us accountable. If we do it soon, we will lessen the pain, the longer we wait the more painful the process will become.

 

And in regards to the Fed Reserve, they will undoubtedly continue to be a player in helping us try to resolve our debt issues.

 

There is a reason why foreign bond holders are buying the 2 and 5 years notes at a much more aggressive pace than the 30 year.

[bartshan-83]

Baby, we're so not money and we don't even know it.

[finknottle]

What's the worst thing that can happen if we DO default? All these massive entitlements die off due to lack of funding?

 

Something I've often wondered about. [Defaulting on issued debt, that is. Defaulting on promised social spending is quite different.]

 

I think the real issue is what exactly our debt-holder mix is. In the simple case it is all foreign, and the ramifications are that we can no longer get financing for deficit spending. But in the more complicated case, most of it is ultimately held by Americans. Try telling grandma that her 100k retirement savings parked safely in treasuries is now worthless.

[Magox]

What's the worst thing that can happen if we DO default? All these massive entitlements die off due to lack of funding?

It would be disastrous... Our credibility would be shot. Remember, the dollar still is the world's reserve currency, and it is proving it today.... Look where people flock to when they are fearful.... US Treasuries

 

Also, the collateral damage would be Ginormous. Look at the carnage that took place when Greek bonds were on the verge of defaulting... You have to remember just about every bank on this planet has US treasury holdings, and usually those holdings come in large numbers. So a large haircut on those holdings would destroy banks balance sheets across the globe. No one would lend. The ramifications of a default are beyond belief.

 

What we went through in 2008 would look like peanuts compared to US default.... Everything would go down in value...

 

So I can tell you with certainty that this won't happen....

 

The more likely option would be the Federal Reserve stepping up in a big way, through an outright monetization of debt, massive cuts in the entitlement programs, descretionary spending, defense, higher taxes, reduction of federal employees, and a possible restructuring of debt with some of the foreign bank holders.

[DC Tom]

What's the worst thing that can happen if we DO default?

 

Dwight Drane becomes correct, for starters...

 

I mean, isn't that unthinkable enough?

[Pine Barrens Mafia]

an outright monetization of debt, massive cuts in the entitlement programs, descretionary spending, defense, higher taxes, reduction of federal employees, and a possible restructuring of debt with some of the foreign bank holders.

 

Which would have to happen if we defaulted. Sometimes the best thing that can happen to an alcoholic is that he runs out of cash to buy booze.

[Magox]

Which would have to happen if we defaulted. Sometimes the best thing that can happen to an alcoholic is that he runs out of cash to buy booze.

It's sort of like a bankruptcy, there is a difference between an orderly and disorderly bankruptcy. If we were to Default on our bonds, then the world would probably go through a very long DEPRESSIONARY time period. If we made the necessary cuts and tax increases along with some self-induced inflation through the federal reserve then the world would probably just go through a protracted slow down.

 

Big difference between the two.

[Pine Barrens Mafia]

It's sort of like a bankruptcy, there is a difference between an orderly and disorderly bankruptcy. If we were to Default on our bonds, then the world would probably go through a very long DEPRESSIONARY time period. If we made the necessary cuts and tax increases along with some self-induced inflation through the federal reserve then the world would probably just go through a protracted slow down.

 

Big difference between the two.

 

 

Indeed there is, and I agree with what you're saying for the most part. I'd imagine that the threat of default would be enought to keep someone (like the PRC, for example) in line if necessary.