"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?" IMNHO, the USA will NOT tell her Bond holders that she cannot or will not pay the interst or principal of the Bonds. She WILL (and IS) deliberately generate such inflation of her dollar that payment of interest and principal will be a minor part of the US budget. The Debt Ceiling WILL be raised. I expect the US Dollar to be damned near worthless within a year or three. That is the known result of printing the Greenbacks to buy the Bonds that nobody else will buy. The 'experts' all seem to be using the word "hyperinflation", and my gut feeling is that they are right. The end result is probably hyperinflation, a debt paid off, and a devastated middle class that will starve over the next few years. The bit I cannot know is just what/how that scenario will play out in Australia.
I've got a bad feeling that even if we could dodge it, Uncle Sam will grab us by the leg and take us down with him.
"I've got a bad feeling that even if we could dodge it, Uncle Sam will grab us by the leg and take us down with him." I have little doubt that we will be dragged down too, especially in the form of an economic GREAT depression, but whether it will be DEflationary or INflationary i am not at all certain. OC
Me also! Our problem is that our banks are just as insolvent as the other banks. Once hyperinflation starts the Feds obligation to raise interest rates ala the 80's will have to kick in. With hundreds of Billions owed by our banks to overseas lending this will be disastrous for Australia. The RBA could lower it's rates all it wants but this scenario will show the RBA is a redundant institution and we will see them take the only option they have to "rescue" the situation and that will be to do it's own version of QE to buy up all that O/S debt and devalue the AUD in the process. In the short term that may be a good thing for Australia as it may spur continued export of our commodities, tourism may return and the AUD precious metals prices may rise significantly. Of course there will be adverse affects on the flip side.
L80, We have been over this one, and I DISagree that the 'Big 4' are in the same boat as the overseas ones. The billions that they owe to the NY and London markets are generally in USDs and GBPs, and BOTH as far as i know are DEpreciating against the AUD. In other words they are getting CHEAPER to pay back. The REST of all that PRIVATE debt owed by Australia is usually owed by Australian public companies. In other words the liability is held by the SHAREHOLDERS! If the companies cannot pay the company folds, and the shareholders lose their money, NOT the taxpayers. It is ONLY the Australian Treasury Bonds held overseas that we have to worry about. OC
Right now the AUD is strong but for how much longer? Can you bank on the AUD staying strong for ever? What happens when the foreign lenders want to roll over that short term debt held by the big four at double digit interest rates? It's a similar argument the banks were spruiking to potential home owners when interest rates dropped, that Australian homes were never as afordable because the (temporary) interest rates were so low even though house prices were off the chart. The fairy tail can't last forever and sticking your head in the sand about it doesn't change the poor situation we are in.
codge, i thought that a few of the big 4 were bailed in TARP days, though at the time they denied the need for bailouts i remember the trumpets in the media in 2008, declaring no solvency issues in the banks and yet Rudd backstopped bank accounts up to 100k and later we discover the 4 pillars are only salt
Good call there Millededge. If the regulators had any sense they would be forcing the big four to use these record profits to pay down foreign debt. But of course the fractional reserve ponzi would begin to slow that way.
Please consider what happens when a vicious low pressure system meets a cantankerous high. Isn't that what makes something altogether new, someone has named a cyclone. There is not a formal name for it yet. However, it will resemble a warzone. Maybe even initiate a new type of war. Cold war, trade war, war on terror, war for hearts and minds, ???.
Not sure how this is going to play out here in Australia myself. One thing is for sure - housing prices here in Australia are - when you look at things - WAY overinflated. And if interest rates go the way of the 1980's (sure, that'll be good for people with money to invest), then a lot of people are going to suffer with foreclosures on their homes. All begins to sound a bit reminiscent of USA in 2008, albeit for different reasons directly speaking. Thoughts, anyone?
The "Dodd-Frank Wall Street Reform and Consumer Protection Act" has just produced the first ever "audit" of the US central bank. It reveals that in the period between December 2007 and July 2010, the Fed parcelled out $US 16.1 TRILLION in emergency loans to financial entities all over the world. Almost half of this - a total of $US 7.75 TRILLION - was loaned to four US banks. They were Citigroup, Morgan Stanley, Merrill Lynch and the Bank of America. In July 2010 (the cut off date for this "audit"), total US stock market capitalisation was $US 15 TRILLION. The Fed provided about half of that.
Projack, Do they say how much interest was charged on these loans, or whether the loans were ever paid back, or are they still outstanding? Or were they a GIFT? Not sure where the US$16 Trillion came from either. AFAIK the US Treasury bonds on issue did not rise by US$16 truillion in 2008. Nor AFAIK, did the US Money supply, so I doubt they filled a few trucks with $100 notes and shipped them to the banks front door. Sound like they may have been simple book entries between a Bank and the Federal Reserve. OC
The first ever GAO(Government Accountability Office) audit of the Federal Reserve was carried out in the past few months due to the Ron Paul, Alan Grayson Amendment to the Dodd-Frank bill, which passed last year. Jim DeMint, a Republican Senator, and Bernie Sanders, an independent Senator, led the charge for a Federal Reserve audit in the Senate, but watered down the original language of the house bill(HR1207), so that a complete audit would not be carried out. Ben Bernanke(pictured to the left), Alan Greenspan, and various other bankers vehemently opposed the audit and lied to Congress about the effects an audit would have on markets. Nevertheless, the results of the first audit in the Federal Reserve's nearly 100 year history were posted on Senator Sander's webpage earlier this morning. What was revealed in the audit was startling: $16,000,000,000,000.00 had been secretly given out to US banks and corporations and foreign banks everywhere from France to Scotland. From the period between December 2007 and June 2010, the Federal Reserve had secretly bailed out many of the world's banks, corporations, and governments. The Federal Reserve likes to refer to these secret bailouts as an all-inclusive loan program, but virtually none of the money has been returned and it was loaned out at 0% interest. More here http://www.unelected.org/audit-of-the-federal-reserve-reveals-16-trillion-in-secret-bailouts
All we know is "virtually none of the money has been returned and it was loaned out at 0% interest." No incentive to give any loan back if interest is 0 and no time limit fixed to the loan.
I wonder how this will end up in the books of the Fed and/or Treasury? 1. Unsecured Loans at 0% interest - $16,000,000,000,000. (and zero cents)
I have been doing a lot of reading up about the Federal Reserve Bank and it is really only a private bank with its main purpose (besdies printing US dollars) to bail out the other private banks! It has never been accountable to the US government and has never been audited. How a financial system can operate like this with private businesses getting huge sums of government money in bail outs so that bankers can get their million dollar bonuses is unbelieveable. Ron Paul has been trying for a long time to get it audited because when people find out what it has been up to they will 'End The Fed' (his book) Thomas Jefferson had amazing insight:
Bear Sterns received $853 billion from this money, but only this is what you can find on Wikipedia. Where is that money now? I am talking about billion not only 853 million http://en.wikipedia.org/wiki/Bear_Stearns Bear Stearns Fed bailout and sale to JPMorgan Chase On March 14, 2008, the Federal Reserve Bank of New York agreed to provide a $25 billion loan to Bear Stearns collateralized by free and clear assets from Bear Stearns in order to provide Bear Stearns the liquidity for up to 28 days that the market was refusing to provide. Apparently the Federal Reserve Bank of New York had a change of heart and told Bear Stearns that the 28 day loan was unavailable to them. The deal was then changed to where the NY FED would make a $30 billion loan to J.P. Morgan (collaterallised not by any J.P. Morgan assets but collaterallised by Bear Stearns Assets), who would buy Bear Stearns for 2 dollars per share.[18] Two days later, on March 16, 2008, Bear Stearns signed a merger agreement with JP Morgan Chase in a stock swap worth $2 a share or less than 7 percent of Bear Stearns' market value just two days before.[19] This sale price represented a staggering loss as its stock had traded at $172 a share as late as January 2007, and $93 a share as late as February 2008. In addition, the Federal Reserve agreed to issue a non-recourse loan of $29 billion to JP Morgan Chase,[20] thereby assuming the risk of Bear Stearns's less liquid assets (see Maiden Lane LLC). This non-recourse loan means that the loan is collateralized by mortgage debt[21] and that the government can not seize J.P. Morgan Chase's assets if the mortgage debt collateral becomes insufficient to repay the loan.[21][22] Chairman of the Fed, Ben Bernanke, defended the bailout by stating that a Bear Stearns' bankruptcy would have affected the real economy[23] and could have caused a "chaotic unwinding" of investments across the US markets.[19] On March 24, 2008, a class action lawsuit was filed on behalf of shareholders, challenging the terms of JPMorgan's recently announced acquisition of Bear Stearns.[25] That same day, a new agreement was reached that raised JPMorgan Chase's offer to $10 a share, up from the initial $2 offer, that meant an offer of $1.2 billion.[26] The revised deal was aimed to quiet upset investors and any subsequent legal action brought against JP Morgan Chase as a result of the deal as well as to prevent employees, many of whose past compensation consisted of Bear Stearns stock, from leaving for other firms. The Bear Stearns bailout was seen as an extreme-case scenario, and continues to raise significant questions about Fed intervention. On April 8, 2008, Paul A. Volcker stated that the Fed has taken 'actions that extend to the very edge of its lawful and implied powers.' See his remarks at a Luncheon of the Economic Club of New York.[27] On May 29, Bear Stearns shareholders approved the sale to JPMorgan Chase at the $10-per-share price.[28]
