GGives me confidence in our Government

Discussion in 'General Discussion' started by Seacowboys, Jul 16, 2006.

  1. Seacowboys

    Seacowboys Senior Member Founding Member

    Federal Reserve: U.S.
    headed for bankruptcy
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    [SIZE=+1]Report: Coming $65.9 trillion fiscal gap
    5 times GDP, twice size of national wealth

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    <HR SIZE=1>[SIZE=-1]Posted: July 16, 2006
    1:00 a.m. Eastern

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    <!-- begin bodytext -->A newly published paper by a researcher for the Federal Reserve Bank of St. Louis warns that a ballooning budget deficit and pension and welfare timebomb is growing into a $65.9 trillion fiscal gap that will force the United States into bankruptcy.
    <TABLE align=left><TBODY><TR><TD width=195>[​IMG]
    Prof. Laurence Kotlikoff</TD></TR></TBODY></TABLE>
    In the view of Prof. Laurence Kotlikoff of Boston University, the U.S. is already bankrupt – at least the government is.
    "The U.S. government is, indeed, bankrupt," he writes, "insofar as it will be unable to pay its creditors, who, in this context, are current and future generations to whom it has explicitly or implicitly promised future net payments of various kinds."
    While the U.S. budget deficit, currently forecast to be 2.3 percent of the gross domestic product this year, is smaller than that of most European states, Kotlikoff argues the much debated number is not a particularly useful measure of U.S. economic health. "The proper way to consider a country's solvency is to examine the lifetime fiscal burdens facing current and future generations. If these burdens exceed the resources of those generations, get close to doing so, or simply get so high as to preclude their full collection, the country's policy will be unsustainable and can constitute or lead to national bankruptcy."
  2. ghrit

    ghrit Bad company Administrator Founding Member

    Now, then, would that be Chapter 7 or 11? The measure of bankruptcy is not (currently) defined by whether or not your kids can pay your debts, but only in terms of your ability to keep current. Dealing with something as large, long lived and intangible as a nation, the definition needs refinment.

    "Insolvent" might be a better way to think of it, or the inability to continue borrowing because of no confidence in a country's ability to pay back the loans extended by other countries or even of its ability to raise funds from its own citizenry. If that is true, then the interest rates will go sky high first, then repudiation of debt, and finally economic collapse of the debtor nation. Followed shortly, of course, by the collapse of the lender's economies, since the lender's wealth is largely paper from the loans made.

    The US has made loans to other countries, and survived the collapses that have followed. Our economy was strong enough to sustain the loss, much the same as any of us have personally "lent" pocket change to friends, only to see it disappear in the sands of time. It is an open question whether or not the national economy can continue as the proportion of debt increases.

    I agree with Kotlikoff to the extent that the percentage of the GDP is a lousy measure. Not many of us can say truthfully that we owe as little as 2.3% of our gross income, bearing in mind that our income and outgo have to maintain a pretty fine balance between ongoing expenses and debt service. The same general principle applies to national economies. Just because we, nationally, owe a much smaller percentage of our income does not mean we are off the hook for outgo. However, he is a pessimist.

    What should be done is get to a point where our friends have the stones to stand on their own such that pocket change is the real measure, that is, where we can afford to buy them a cuppa coffee now and then and they can return the favor. I forget who the savant was that said neither a borrower nor a lender be, but it remains pretty good advice. Spend our own money on ourselves and stop trying to prop up the rest of the world.

    There is no strength in deficit spending, regardless of the economists posturing. Yes, secured debt is needed, otherwise we would all be living in tents and wikkiups. But until you live in the tent, you have no incentive to pay off the loan for the house. The same goes for other countries, so it seems to me, but secured debt. How to get loans to other countries secured is a very interesting question. What do we do if they default? (Or what will they do if we default?) Call in the mortgage we hold on their Parliament buildings?

    There is no substitute for intrinsic value. Land is about all there is that maintains value, however relative that may be. Even commodity metals are not very solid measured against land.

    IMHO, of course.
  3. melbo

    melbo Hunter Gatherer Administrator Founding Member

    I bet 99% ofthe population has no idea how very grave this is.

    Based on a fractional reserve system, Banks take in $100 and turn around and loan out $900. The fractional reserve part means they have to keep the loans backed by 10%, (It's closer to 0% now).

    So when you get a 'loan' for a new car or house etc... That money was created out of nothing. It just came into existence at the point you borrowed it.

    Every dollar out there is an iou of sopmeone else debt. IF we paid down the national debt, money would cease to exist. All IOUs would be cashed in and we would have zero currency

    We are so out on a limb right now it's scary
  4. ghostrider

    ghostrider Resident Poltergeist Founding Member

  5. ghostrider

    ghostrider Resident Poltergeist Founding Member

    Ghrit was being too kind when he called this idiot a pessimist. If the hamburger joint on the corner has more cash outflow than inflow, it, too will go bankrupt. Any idiot knows that, don't have to pile it higher and deeper. The Greasy Spoon borrows a little on self-liquidating loans for operational expenses, payroll, food deliveries, so the bank has a creditor. We, and I mean US, owe BILLIONS. Beaucoup Billions to the biggest banks in the world. We owe BILLIONS, so we have a partner.

    We'll call this the Ghostrider Second Rule of Economics. Don't remember what the first was, but I'm sure there was one.

    The US Government cannot, will not, ever go bankrupt. Ain't gonna happen. Those banks we owe BILLIONS to can't let us go under, because they too would go under. They don't want a monument or national park from bankruptcy court, they want the interest.
  6. Clyde

    Clyde Jet Set Tourer Administrator Founding Member


    Ghostrider stated:
    The logic of the statement above is wrong.

    The Big banks loan billions
    The goverment guarantys/borrows billions
    The goverment goes banktrupt (can't meet debt obligations)
    The banktrupt governement guaranty/borrowings are worthless
    The bank loans are worthless
    The bank fails
    The Federal Reserve steps in to bailout Big banks for non-performing assets in coordination with the banktrupt, non-performing US goverment.
    The banktrupt, non-performing US goverment must create debt to pay for the failed Big Banks.
    No one wants to purchase new or old debts of the banktrupt, non-performing US goverment.
    The banks fail.
    The banktrupt, non-perfoming goverment fails.
    The federal reserve loses its ability to create money by simply printing itbecause the perceived value of the non-performing, banktrupt goverment is nothing.
    The dollar collapses.
    The federal reserve collapses
    The entire banking system collapses
    The banktrupt, non-performing goverment dissolves
    The banks have failed. Even your [2c] are worthless
    The fan is covered in and dripping thick, black, brown, green and smelly shit:eek:!

    Its time for [booze]. Better get some [do-it]. Get out out your [sawgunner].

    [whipem] my ass and call me [woot]
  7. Quigley_Sharps

    Quigley_Sharps The Badministrator Administrator Founding Member

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