I don't know why everyone spends so much time on something that is not going to happen. Obama doesn't even believe the debt ceiling is legal. But either way, we can print as much money as needed until the confidence in the currency breaks. Until hyperinflation, money printing will continue. With hyperinflation, there is no default, just worthless debt. The US is not going to default as defined in the dictionary. We are going to default through paying back the debt with devalued currency. Until there is a change in the presidency and the federal reserve, a default is not an option.
dccpa, "Until there is a change in the presidency and the federal reserve, a default is not an option.' Agree with your view on nil default, and also on Hyperinflation, but the above observation is not on the cards. A change of Presidency or any faint hope of getting rid of the Fed ever solving the problem, is a long shot bet. The red ink now drowning America (and the rest of the world) will stay until the worthless Dollars pay off the US Treasuries as they fall due. The Federal Budget will be in the 1000s of Trillions (Quadrillions) every year and the middle class will starve. OC
Well to have any chance, from this point forward every federal budget needs to have surplus greater than the interest repayments on the debt. And like you said the only way to do that are tax, cut spending, or sell assets. Military is an obvious option, but would need to be a gradual pull-back so there is not a sudden loss of jobs from support companies in that sector. Cutting useless government departments (like Aus needs to do also), but then you face unemployment rises again. It is a double edged sword - certainly no quick fix. You cut back in one area and hurt another. I just wish Australia would learn from this. We shouldnt be running budget deficets, and handing out money willy nilly. We also need to start shedding the uselss gov departments that are draining the money and not delivering. Before it is too late
What does it matter what Obama believes? There IS a debt ceiling and it is there for a reason. Your right in that the Fed can print as much as it likes but how does that help Obama if he can't exchange his treasury bonds for those dollars? They say the 23rd of July is the last day they have to get an agreement or it will be too late to make the August 2 dead line. Edit: the reason everyone spends so much time on this is because every government in the world stupidly allowed the,selves to go onto the dollar standard and now we are stuck (screwed with) it. What is your prediction if there is no debt ceiling raise by then?
"How is the USA going to pay the $14 trillion back? They can't tax the people as the people have no money?" Exactly. The US will never pay back the money it borrows, either nominally or at par. A few percent increase in interest in the 10y bond will increase the interest costs to 100% of all collected tax, leaving only defitit spending to run wargames, moochers and feed the zombies. The continued expansion of the currency is a consequence of the deliberate requirement of systemic inflation, built right in due to a fractional reserve banking system. Since debt destruction destabilises the system an economy can only inflate it's base to survive. Since all US cash is debt based (even a $20 bill is a liability against the Federal Reserve) the only way to prevent deflation is to force inflation. This is where their GDP growth comes from as the real economy is shrinking. The result of this forced growth is perpetual expansion or financial implosion(A black hole depression). Look at the environmental problems of today and ask yourself, if the price of everything didn't go up perpetually how much of that environmental destruction would have been profitable or necessary? Plus, since all money is constantly being reduced in purchasing power there is a built in desire to make capital 'work'. This is also inflationary as it takes relatively static capital earning sub inflationary returns to seek higher risk in order to maintain par. The trouble with 'paying back' debt is the incredulous nature of debt in the first place. When a bank (be it central or retail) creates a debt, it just amends the books and balance sheet and debits itself, and credits you. The 'cash' we think of never existed in the first place, they create it on the fly. A bank doesn't have cash sitting around waiting to lend, the money is created from thin air. The value of debt is NOT in paying it back for the bank, it's in paying the interest, as the interest transfers real value from the economy back to them. But for what? What did you get? The only reason this silly game persists is that our governments sanction this parasitic behaviour which is tantamount to counterfeiting. So, do they pay back the debt? Who cares, the money never existed. It's all just a stupid number game. The number one thing to remember is that if you don't own physical unencumbered tradable objects that you can physically defend(hence claim), then you don't own anything. The best way to think of digits or paper money is 'incomplete trade'. Once you swap I for something physical, with no counter party risk, the 'money' is then at rest. Everything tradable is 'money', its just a matter of liquidity. Just remember, gold\silver pays no interest, because it has no counter party risk. That's why we stack.
http://www.reuters.com/article/2011/07/12/fortescue-china-idUSL3E7IC0SE20110712 Deals in RMB, that is not good for Aust, very good for China. Deal makers must be painting the town red, while the town is getting painted, red Andy, better not be chartering planes outside oz; he'll be singin, bye bye to the African sky - the mining exec blues
I explained the debt ceiling to the wife this morning. The analogy was our family to the US. If we as a couple earn $216k \ year(tax receipts) flying high having a great time then our credit card limit(debt ceiling) would be at 1.43 million dollars. Why did the credit card get so big? Because we spent $345k last year on crap we didn't need but wanted. We're used to it! That would be kind of scary to consider 'paying back' right? Yeah. In particular if we convinced the bank(Bond Auctions) to lower our interest rate to almost nothing, but the interest bill still consumed 20k a year. The trouble is that that number seems so tiny! Until the interest rates go up when the bank thinks we're no longer able to pay it back. Then, if interest rates approached 10% close to 100% of our real earnings would just pay for interest, leaving nothing to live on. Nothing at all. The reality is that the US would crash LONG before 10% on the 10y. The really interesting thing is that now, every country is a ponzi, and with he USD reserve status being questioned, the base AAA standard being lost would cause huge upheavals in what is pledgable as AAA assets to comply with local securities regulations in each country. A downgrade is likely to see a flight from bonds, and that to me would indicate the jig is up, and the world would need to push the reset button. At that point who 'owns' what? What if debt is involved? I see complete chaos. The game right now is M.A.D. and nobody want to be the one to upset the apple cart as since everyone knows the game is just about up, and the winner is he who borrows most, it's a scramble to 'own' what you can before the reset. The US is not in a battle to bring spending under control, but in a battle to keep the reserve status, as reserve, gives it an inherent discount by devaluing all previously bought us debt (like our reserves). That discount buys a cheaper lifestyle, bigger military that the whole world combined(on total money spent), basically the best of everything and has for around 50 years. Thats why silver and gold price manipulation is in their best interests, and a gold standard of any kind their economic death, as they are simply not structured for a balanced budget. Remember the world pays for their deficit, thats why the reserve status will be defended at all costs. With every tool at their disposal.
"Deals in RMB, that is not good for Aust, very good for China." We can store foreign reserves in whatever currency we want, and do, but mostly USD. Dealing directly with RMB is bad for the USD .. Providing we don't let those RMB IOU's stack up. Without our Chinese trade for plastic crap however, I'm sure we'll stay balanced (or negative).
I believe there will be more and more deals in RMB. China is already dealing in RMB wih Russia for oil and bypassing the US dollar. The more this happens the worse it will be for the USA. Its not exporting all plastic crap - China is producing better quality items now at a quarter normal prices. I bought a small petrol 'copy' motor and a Chinese diesel generator and very happy with both items. China has stolen the manufacturing industries from many of the western countries and it is not going to return to them until wages in China escalate. I do not see a great come back for the US dollar for a long time which means higher gold prices.
Well put and quoted for the truth it contains An the looser is he who lends most (Australian superanuation!!!!!!)
Ron Paul again. I gathered he was hinting at hyperinflation in his floor speech, straight to the point this time from Bloomberg
In a nutshell- It looks like talks to raise the debt ceiling are breaking down - Obama wants to raise taxes as well as cut spending, Republicans do not want to raise taxes. Credit rating agencies threatening to downgrade if debt is not reduced by a large amount - but they can't agree and time is running out! What a mess - but good for gold price! In the midst of this Obama election coming up so he wants borrowing spread throughout 2012 to cover the election. Is he really thinking about the country or his re-election? No-one wants to make the hard decisions now - except Ron Paul (what a man!) - I like the expression - 'end the gravy train' because that is exactly what it has been for the wealthy bankers. They must really hate him for speaking out with the truth. I am just worried that they will find a way to silence him! Whichever way this goes it is not going to be good for the US dollar but good for gold!
Of course - silver too! Gold will 'drag' silver up with it! I know a lot of you dont like the word 'drag' but it feels like that at times!
You know, folks, I have been thinking about this a little, and despite the talks going on right now (which have yet to come up with a solution), I'm not sure America will allow itself to default. So - logically, I wondered... what would be the result of America NOT defaulting? Is their economy even sustainable? What of the value (not comparative to any other) of the USD?
