US government goes bankrupt in ****

The gloom and doom.

It’s getting quite boring to listen to the same song all over again, coz the Paul & Celente Band seems to be short on fecundity. But their blogging groupies and the bloggers’ copy/paste groupies don’t mind, as long as there is something to applaud to.

But what if there is really something ahead that is a legitimate reason to sound an alarm about?

One of the favorite choruses weaves its melody line through the US national debt, which is some 5% shy of reaching 100% of GDP (or has already hit the mark as I type.) That means the country owes its entire year’s production and to pay off this debt in one year would mean that every paycheck you get in 2010 would go to the lenders.

GLOOOOOOOOM AND DOOOOOOOOM!!!!!!!!

Yes, that would be quite unsettling economic condition for an average American family.

But do you remember those buy-now-pay-later financial options that some shopkeepers woo customers in? That’s what keeps us from glooming and dooming all the way to hell. But eventually the customer would have to start paying for the item purchased. And so, when is the time when the government asks the nation to pay?

The question is the fertile ground for all the dark speculations which try to establish the time point. But the view has been obscured by a peculiar money circulation: In 2008, the government asked the taxpayers to set aside $700 billion to help out some unfortunate folks. Not everyone could forfeit a part of the paycheck to help, and so George Bush solved the problem by sending a check with the Statue of Liberty to the taxpayers – the river started to flow backward. So the unpleasant business of collecting was left to Bush’s successor Obama who disposed of the task by making sure that in 2009, the IRS withdraws LESS tax dollars from individual paychecks. With attitude like that, the gravy train can hardly pull up at the Gloom and Doom station sending the Paul & Celente Band to stardom.

My great teacher Michel de Nostredame taught me a trick: If you can’t see When, try to see What. Wisdom applied, what percentage of GDP does the USA need to owe before the collector rings the bell -- 150%, 200%, 300% . . . ?

Answer by example. Travel the world and look for the soup lines:
www.cnbc.com...

A very interesting slant. I wish I could understand it.

So I understand that we are close, if not already AT, the point at which our GDP is equal to our nation's debt.

But who can force the American government to pay their debts? What was the collateral?

Don't you think they would just invent some new word or system that said we didn't have to pay anyone back?

File chapter 11 and stop paying creditors?

I would assume that the tolerance for debt to GDP ratio is probably a lot higher than I would care to play around with.

Do you really think that the fed would expect the citizens to pay down the national debt by keeping our checks? That sounds sort of sensational...how do you think they can settle up and still allow us to feed our kids?

reply to post by stander


Nice post once again sir.

I have used that page as reference before as well.

Some staggering numbers.

Well some of the things the Obama administration has done was more slight of hand rather then handouts... this latest tax deferment in lieu of another stimulus check, was just that that, a deferment. next year you'll be expected to pay those deferred taxes... Of the 787 billion in stimulus money approved a full 1/3 isn't in check form but more of the tax deferments.
all of those come due in 2012.

I cant see our government ever defaulting on its loan obligations but I can see a lot of people making huge mistakes with all these deferred tax payments all hitting at once

reply to post by stander


The debt will be monetized, and we the people will pay for it through indirect taxation long before we ever see the Government default.

The US, in relation to the rest of the World, really doesn't have that high of debt/gdp .. Europe would crash long before the US did, as most of the EU states of over 100% debt to GDP, hell, Ireland is nearly at 1000% and have not collapsed (yet).

reply to post by Rockpuck


Okay, its a given that the US will monetize the debt and not default.

I guess the way it would work though is that the taxpayer, citizens, serfs, whatever you want to call them, would end up paying the tax because of the inflation.

But in a way isn't it counter productive because when our currency loses value it pays the debt off at which it was loaned it just isn't worth what it was when it was loaned.

But now aren't we in an even bigger mess considering other countries will continue to finance our debt?

Wouldn't end up in a never ending downward spiral? I.e. The monetized debt pays off the current debt, but in order to keep funding the operation cost it cost more now because of the devalued dollar so the debt we have to borrow only increases in cost.

reply to post by GreenBicMan

The point is that there are other countries with much larger debt -- Ireland leading the pack owing some 800% (!) of its GDP -- but it doesn't seem to matter that much to Patrick O'Brian. The Central European countries are indebted about twice as much as the USA, but it doesn't seem to be the problem either. So I'm not sure why this national debt is made one of the instruments of doom in the USA.

I only understand that there is a difference in who are the lenders. The domestic and foreign debt could make a difference, and the USA owes a lot to the folks abroad. There is a model that shows that when you lend money to yourself (like taking money from your saving account) it's only up to you to negotiate with yourself the condition under which you put the money back, but this option isn't there when you owe to someone else. The cnbc tour through the debtor nations doesn't separate the foreign and domestic debt. So it may not be overly representative in showing that the US debt could cause a problem. But otherwise the national debt doesn't seem to be such an issue at these figures. That only encourages to borrow more. The whole borrowing instrument involves the next distant generations in paying the debt off and that creates the idea that the borrowing process can go infinitely on. The folks in Ireland seemed to figure that one out. LOL.

Weird stuff . . .

reply to post by Hastobemoretolife

But in a way isn't it counter productive because when our currency loses value it pays the debt off at which it was loaned it just isn't worth what it was when it was loaned.

Of course..

But honestly no one can do anything about it. From 2001-2008 our Dollar was in a straight decline, this ultimately led to debt being repaid not being worth nearly as much as it was when it was loaned...

But they still bought our debt. They might hate it, they might wish for something else.. but ultimately, there is no alternative.

If the budget was kept inline with the inflation, hypothetically we would not see a downward spiral as you suggest.. it wouldn't be a Gold Age, that's for sure.. but it sure would beat the hell out of National Default, wouldn't it?

But when you actually consider the tiny amount of money being paid each year (interest) is actually relatively small compared to the budget.. I wanna say it's somewhere around 12% of the budget goes to paying back debts. Not much compared to the amount of debt we have.. we would need to be at several hundred percents to actually come close to the default line..

reply to post by stander


A lot of people with a lot of:

a)Different Interests

b)Misinformation

c)Natual Bias

d)Stupidity


Have commented on the previous from all walks - members of this board to the press.

If you look to the "real picture" of the world, not only are we "assumed" still to be the best - our dollar is still a safehaven (reference our auctions lately)

One number or figure can't really stand alone- it's one thing to say that such drastic ratios are not a problem, but how are they not a problem?

Aren't European nations debt ratios less of a concern because of the intra-dependent nature of the EU? Not to mention in comparison to the US- most European states (individually) have an incosequential comparison to the raw numbers that the USA has?

I think a more glaring figure would be to compare our debt ratio with our balances, which for the US, is a staggering negative number:

www.indexmundi.com...

These numbers don't include the monstrosity which is "The Stimulus"

Now, I am not an economic expert, which I readily admit. And I understand that negative does not equal bad. But isn't this showing that we are a debtor nation with no economic means in the near future to pay it back? Doesn't this mean that we are headed to 200%, 300% and beyond in terms of external debt? Particularly when, internally, we are spending more and more of our money on programs that weigh us down, such as Medicare and Medicade, SS and the repayment of debt? Programs that don't inspire any type of real economic growth?

www.scribd.com...

In the long run, I can't see how this makes us a productive nation. I don't see how it makes countries like Japan, Saudi Arabia and China want to finance us fifty years from now.

I don't necessarily agree with Schiff that the sky will fall this year or next year, or even in five years. But within a generation, something drastic will need to change (NAU?) for this nation to continue on the status quo without this debt having huge negative consequences.

My father used to tell me, the government willnever go broke..for as long as they can print money and have paper to print money on, they'll never go broke. The way its said, is meant to sound scandelous.

reply to post by stander

what percentage of GDP does the USA need to owe before the collector rings the bell -- 150%, 200%, 300% . . . ?

I looked through those 16 slides & they illustrate your point very well - especially in the case of Ireland, as Rockpuck pointed out.

Nevertheless IMHO calculating the answer to the question you pose in the OP is fiendishly difficult, as it involves more than a nominal national debt to GDP ratio. This is partly because any snapshot taken at a particular point in time by nature fails to reflect the pace of change, which is arguably a more powerful indicator of the health of an economy.

This takes us into the realm of future liabilities. Let's bring things straight down to earth: if the government of the Republic of Ireland was overseeing a particularly rapid expansion in some particular aspect(s) of expenditure (from which it was neither prepared nor able to extract itself) then 811% external debt as a % of GDP, the current figure, might equate to five to midnight. If, however, at the other end of the scale, it was cutting back government expenditure with absolute ruthlessness, the future might look quite reasonable.

With regard to the US there are indeed grounds for concern regarding projected liabilities, as I'm sure you are aware. This wiki article provides a layman's introduction to the issues at stake, (particularly the section entitled 'Long-term risks to financial health of federal government' and its subsection 'Unfunded obligations').

According to this summary the chickens still don't come home to roost for many years to come. But clearly that assumes a level of year-on-year growth of GDP approaching the average seen in recent times. (And some would say the era of the bubble-based economy is now in its dying days, and that only a new paradigm based on sustainability/stability could rebuild what the collapse-in-progress has destroyed.)

A prolonged contraction (or lower level) of GDP relative to today's level would obviously skew the calculations in terms of when the chickens come home to roost. And we haven't even mentioned the issue of military expenditure, an introduction to which can be found here (-see 'Military spending'). Tax policy, also mentioned in the same article is clearly a significant issue as well.

Here's where it gets interesting: according to the above article:

According to the CIA Factbook, only six other countries have debt to GDP ratios over 100% for 2008, the largest of which is Japan at 170%.

...which significantly contradicts the data given with the slideshow from the OP. This is in the section entitled (you guessed it) 'Debt relative to gross domestic product (GDP)'. Here's another excerpt:

Based on the 2010 U.S. budget, total national debt will nearly double in dollar terms between 2008 and 2015 and will grow to nearly 100% of GDP, versus a level of approximately 80% in early 2009. President Obama and multiple government sources including the GAO, Treasury Department, and CBO have said the U.S. is on an unsustainable fiscal path. As the debt ratio increases, risk of currency devaluation increases. This would be a tacit form of default, by paying back the debt with cheaper currency. Investors (including other governments) may compensate for this risk by demanding higher interest rates, which would slow domestic U.S. growth. Further, this increases interest payments on the debt, which already exceed $430 billion annually as discussed below, or about 15 cents of every tax dollar for 2008.

That's one nasty spiral, and I see hastobe was pointing in the same direction.

Furthermore I believe GreenBicMan's premise that the dollar's current status is safe is unsound. Clear calls for the dollar to at least share its status as world reserve currency have been unmistakable for many months now. And it is not fly-by-night pundits that have been talking this way, it's China and Russia in particular, and it may soon be on the agenda of the G8 :

G8 signals end to dollar supremacy

...though domestic troubles in China seem to have pushed the discussions back for the time being:

The instability prompted President Hu Jintao to abandon plans to attend a G8 summit in Italy and return home to monitor developments in energy-rich Xinjiang, where 1,080 people were wounded in rioting and 1,434 arrested.

Source

...as Russia will now be somewhat isolated in calling for a review of the system at the meeting.

So the long and the short of it is: there are many variables. The US has to contend with the issues surrounding expenditure in health care, social security, the military, and so on, and also grapple with with its tax policy and the status of the dollar as the reserve currency.

And while the GDP itself could conceivably fall off a cliff and remain very weak for many years to come (-the banksters have seen to this,) as it could with the US's trading partners, giving a double-whammy, many of the aspects of government expenditure listed above cannot simply be dropped overnight!

So what's on the cards if you get bills for expenditure that far exceed income receipts (whether generated or borrowed)?

Bankruptcy. (Though governments print money to give the illusion it can't happen.)

At present the rate of increase of government borrowing is rocketing, and the US economy, along with that of several other major countries, continues to spiral downwards.

Nobody wants to see it happen. But while the stock market can survive on positive thinking alone, a government can't.




[edit to fix code]


[edit on 13/7/09 by pause4thought]

Originally posted by stander

But what if there is really something ahead that is a legitimate reason to sound an alarm about?

Really??

It was certain bloggers (Market Ticker, Zero Hedge, Mish, John Galt...etc) that were warning of the events of last fall, and , in some cases, for years....

And you were probably one of the chorus who claimed "Nothing to see here...move along.."

And yet, I've never heard you go out on a limb and lay out, in your perceived brilliance, why you think these bloggers are just trumpeting doom and better yet, offer an argument to counter their opinion...

What's the real reason bloggers bother you? It's easy to take pot shots from the mountain top with hindsight as your guide....

I would love to hear your economic predictions for the next year.....will you please enlighten us?

[edit on 13-7-2009 by RolandBrichter]

[edit on 13-7-2009 by RolandBrichter]

reply to post by stander


I think it is important to remember who the lenders are. They (the "lenders") dont need to ring the bell. They are already some of the most wealthiest and prominent men in the world. All "they" need to do is fix the books.

If China feels it wants to call in some of its debt, then they are looking for a fight. But is is obvious they do not want that. They still have to beat Vegas ...**Macau**.... They don't want it. We dont want it. More importantly the internationalist elites dont want it. Therefore, not gunna happen. Theres too much to loose and not enough to gain. So the game will move on well past the 12th round...

Originally posted by pause4thought
Here's where it gets interesting: according to the above article:

According to the CIA Factbook, only six other countries have debt to GDP ratios over 100% for 2008, the largest of which is Japan at 170%.

...which significantly contradicts the data given with the slideshow from the OP. This is in the section entitled (you guessed it) 'Debt relative to gross domestic product (GDP)'. Here's another excerpt:

Count again:
en.wikipedia.org...

The source above is based on CIA World Fatctbook as well and the data don't contradict nor deviate from those in the slide show. I'm not sure what point you are trying to raise by claiming otherwise.

But while the world is out, you can notice that a correlation may exist between those "fiscally responsible" countries who owe less than 10% of their GDP and their standard of living. Cameroon, Ethiopia and others are not exactly the countries where the doomsayers decided to emigrate fearing the oncoming USA insolvency due to the national debt. If you browse through this list
www.mapsofworld.com...
you can see familiar faces: Hi guys! Haven't we met at the Slide Show?

I see DUH flying by . . .


[edit on 7/14/2009 by stander]

Originally posted by stander
But while the world is out, you can notice that a correlation may exist between those "fiscally responsible" countries who owe less than 10% of their GDP and their standard of living. Cameroon, Ethiopia and others are not exactly the countries where the doomsayers decided to emigrate fearing the oncoming USA insolvency due to the national debt. If you browse through this list
www.mapsofworld.com...
you can see familiar faces: Hi guys! Haven't we met at the Slide Show?

I see DUH flying by . . .

[edit on 7/14/2009 by stander]

So,are you implying that debt doesn't matter? That Ireland has the best standard of living??

reply to post by stander


Hi stander. I was just saying the contrary figure attracted my attention as it suggested the US was not as far from the bottom runners as the slide show in the OP suggested (- though I can't vouch for the veracity of either figure). It was only an aside.

It was more the paragraph I quoted after that and the issues that followed which I saw as particularly interesting.

Just looking for a discussion.