Econowatch

Economists Stephen Gordon (ULaval), Mike Moffatt (Western) and Kevin Milligan (UBC), as well as Macleans.ca’s Erica Alini and guest bloggers write about the economy and economic policy in Canada, the U.S. and the world. We like charts. On Twitter, follow Stephen: @stephenfgordon; Mike: @mikepmoffatt; Kevin: @kevinmilligan and Erica: @ealini.

Categories: Econowatch

Debt nation, take 76

by Colin Campbell on Tuesday, April 5, 2011 11:05am - 77 Comments

Treasury secretary Tim Geithner is warning that the United States will hit its $14.29 trillion debt limit by May 16th. And some weeks after that would begin defaulting on it debts. The money quote: “Default would cause a financial crisis potentially more severe than the crisis from which we are only now starting to recover… Default by the United States is unthinkable.” So unthinkable that in the past decade, Congress has voted to raise the debt ceiling ten times. In fact, it has done it 76 times since 1962. Lawmakers are finally threatening to get serious about tackling the budget deficit, but it seems pretty clear how this is going to end: badly.

Tags: debt, U.S

More by Colin Campbell

bergkamp

"And some weeks after that would begin defaulting on it debts. "

I wonder when the last time an Anglo country reneged on its debts. Don't think it happens except in times of war/upheaval.

OriginalEmily1

List of countries by external debt.
http://en.wikipedia.org/wiki/List_of_countries_by…

bergkamp

That's a shocking list. Sea of debt around world.

OriginalEmily1

Yup..far more debt than dollars.

So they can't really help each other out like they've done in the past when someone gets in trouble.

Thwim

Argentina, I believe.
Steve

The system itself requires continuous insolvency. There must be more debt than dollars to keep the treadmill rolling.

Ultimately sound money is going to require a restructuring of the very mechanisms in which money is created, distributed and retired. And this goes much further than a simple question of "backing" the currency.
http://www.positivemoney.org.uk/

OriginalEmily1

End the wars, close the 1000 military bases around the globe, bring the troops home, and stop playing the world's policeman.

noob_goldberg

Total Department of Defense spending is under $700 billion per year; total deficit is $1.5 trillion. In the long term, it's absolutely dwarfed by unfunded liabilities.

Here's a useful illustration:
http://www.mint.com/blog/wp-content/uploads/2009/…

OriginalEmily1

No it's not….but I am aware that's the latest Repub nonsense.

It's an effort to attack healthcare and social security rather than the trillions spent on war.

The choice remains guns or butter.

noob_goldberg

This post needs some numbers to illustrate the problem:

2010 US Federal Government Spending: $3.4 trillion
2010 US Federal Government Tax receipts: $2.16 trillion
Defense spending: $689 billion
Medicare/Medicaid/Social Security: $1.5 trillion
Other Mandatory and Discretionary Spending: $1 trillion
Debt servicing payments: $200 billion.

Here's a real question: although everyone is waiting for medicare and social security to sink the American financial ship, what happens to their debt servicing capabilities if interest rates start to rise? They're squabbling over $30 billion right now; how much screaming would occur if their debt servicing charges were a trillion or more?

BGLong

I think you'll find that the actual war funding is off-budget … all the wars.

OriginalEmily1

Exactly.
modster99

So where, pray tell is the money coming from? If it's 'off budget' it is still being spent, and it has to be accounted for.

Just Joe

"Wrong week to quit sniffing glue." … ;-)

[ http://www.eschatonblog.com/2011/04/wrong-week-to... ]
BGLong

Two ifs …

If US health care spending was around the level of other developed nations, it would
be in surplus .. not deficit.

If the Bush tax cuts were allowed to expire, the deficit would disappear.

If ……

http://ragingranter.blogspot.com Raging_Ranter

Actually, rescinding the Bush Tax cuts would not come close to reining in the deficit. Not even close. Had taxes stayed exactly the same as they were under Clinton, and had the US not embarked on any foreign adventures, they STILL would be in deficit right now. All those projected surpluses "as far as the eye can see" of the late 1990s and early 2000s were based on flawed models that assumed the stock market would keep rising, and the resultant capital gains taxes would keep flowing in at the same rate they did during the 1990s bull market.

The US budgets of the late 1990s and into 2000 benefited from a massive influx of capital gains taxes from the anomalous bull market of that era. Once that bull market ended, the capital gains tax windfall ended with it. The US had a structural deficit the whole time, they just never realized it. Of course, the tax cuts, foreign wars, and myriad other reckless spending programs under Bush and Obama caused a manageable structural deficit to become a runaway freight train. But lets not pretend there are any simple solutions to this. We'll leave those to Emily.

Steve

We are only going to move out of this malaise once we restructure our monetary system so that money does not have to be created against interest bearing debt.

Note that this is different from a borrower and a lender in the economy trading money with negotiated interest rates. The problem is with the mechanisms in which the commercial banking sector holds a monopoly in the creation of money and the debt and servicing charges in interest that comes attached with it.
http://www.youtube.com/watch?v=QuBy3BzCXwg

http://ragingranter.blogspot.com Raging_Ranter

I used to bash the gold standard advocates whenever I saw them. It's only in the past year that I've pulled my head out of my a$$ and actually come to the realization that fiat currencies are universally doomed. Central banks simply can't resist the urge to print their way out of trouble. And printing your way out of trouble simply is not possible. It only "kicks the can down the road," to use an Obama expression. The built-in inflationary bias inherent to all fiat currencies is so inevitable and so destructive, and so reliant on perennial credit expansion to keep the system solvent that they can't help but implode sooner or later. Without sound money, there is no sound economy.

madeyoulook

The real question that precedes the rising interest rate real question:

How long will it take before those creditors currently enabling the USA's debt addiction suddenly decide that it is time to cut their losses and stop buying American debt? That's when interest rates will (of necessity) start spiking up, and the ugly unsustainable spiral takes off.

I am quite surprised that those creditors didn't bail the very day Obama's team submitted its proposed budget this year.

http://ragingranter.blogspot.com Raging_Ranter

Makes me glad I invested in gold and silver last year. Silver in particular has miles to go. Wish I would have bought more. I still might.

OriginalEmily1

No it's not.

Do you have the money set aside today to cover your heating bill in Dec 2020? Not likely.

You count on your income in Nov 2020 to do it.

Same with all the US govt social programs….new people coming into the work force in 2020 will pay for the people exiting the work force at that time.

No country can have that kind of money set aside, invested and untouchable….the needs of today override it….and the programs were never meant to be run any other way. There is a buffer, a cushion but that's all.

Defence spending not only takes up a huge chunk of their budget 'right now', but for centuries into the future with the continuing R&D….and all the wars are off the Pentagon books….Iraq alone cost close to a trillion, not accounted for in what's laughingly called the budget.

The US has to make a choice. So does everyone else.

noob_goldberg

The wars are not off the pentagon books; Iraq and Afghanistan are included in the $700 billion figure.

And your heating analogy is apt only if the number of new workforce entrants equals demand on programming. Since those programs will be stressed due to uptake from the aging baby-boomer generation, that's not an appropriate assumption.

OriginalEmily1

It's called a supplementary spending bill…and doesn't appear in the budget.

As to heating….yes, you are counting on making money in Nov 2020, although there is no guarantee you will be….and you'll have to operate on pension or disability instead.

Any country assumes the new workers coming in will equal or exceed the old workers going out. The boomers remain the 'pig in the python' but once past them it will level off. Govts have known about boomers for half a century, but have done nothing about it. So now they can only hope lots of boomers die early [and that is entirely possible given boomer health stats] or they can promote having children….and most of them have tried doing so….or they can bring in immigrants.

noob_goldberg

"The recent invasions of Iraq and Afghanistan were largely funded through supplementary spending bills outside the Federal Budget, so they are not included in the military budget figures listed below.[6] Starting in the fiscal year 2010 budget however, the wars in Iraq and Afghanistan are categorized as "Overseas Contingency Operations" and included in the budget."
http://en.wikipedia.org/wiki/Military_budget_of_t…

And yes, as soon as the pig in the python is through, the spending will level off. You're much more optimistic that the USA will survive that event than I am, however.

OriginalEmily1

Exactly. An attempt was made to start controlling it after Rumsfield mentioned that billions went missing in Iraq and they had no idea where it went. You may remember news reports from that time that mentioned 'suitcases of cash' being handed out. They will never get that money back.

The war was supposed to pay for itself, as the US would get the oil….but that didn't work out….so all that money is gone.

2010 was far too late to try and get a handle on costs.

Has it stopped them spending on wars? No, Obama just got into another one…so now they have a 3-front war.
OriginalEmily1

I have no optimism whatever about the US…..they went broke about the same time the USSR did, but instead of cutting back and regrouping like the USSR did, they just borrowed money and carried on with wars and wild spending. Now the chickens are coming home to roost.

My point is that it isn't pensions and medical care causing the problem however….boomers haven't even hit yet….this is only the first year of their retirements. That certainly won't help….but it didn't cause the problem. What would genuinely help is if they stopped attacking people, and the US is not yet prepared to do that.
noob_goldberg

I'm not disagreeing with your statements, Emily. I'm still saying that the $700 billion is not enough–not even 50% of enough–to avoid having to raise the debt ceiling. I'm also saying that the combination of medicare and social security–even if they are completely justified expenses–is currently double the expenditures of the military and will continue to grow as the pig attempts to swallow the python, as you stated earlier.

All I'm saying is that you can't position this as a binary 'guns or butter' argument, when it's almost certainly a 'guns and butter' scenario.

Amateur Hour

Actually, it's a bit worse. Pentagon spending is driven by the POM cycle (Program Objectives Memorandum). Each even year all defense agencies and departments put forward their estimates for the coming 6 years. This input is reviewed and is later taken up in the formal Five Year Defense Plan. DoD funding runs on these five-year cycles, so money spent today was planned for 6 years prior and appropriated by Congress 5 years prior. Any additional costs (unforeseen conflict, disaster response, etc.) is financed through special appropriations. Even if DoD were to stop everything today, they are still set to spend through to 2016/2017.

OriginalEmily1

Time to cut the Pentagon down into at least a Triangle.

OriginalEmily1

LOL agreed….and oddly enough both General Butler and General Eisenhower told the US long ago exactly what and where the hole is.
s_c_f

Geithner is fear-mongering. Not raising the debt ceiling is not the same as default. The US can easily avoid defaulting on debt by simply cutting out new spending while continuing to pay bond-holders.

noob_goldberg

No question that Geithner is fear-mongering. However, the market is extremely skittish these days. While there wouldn't be a direct link between this budget issue and quantitative easing, I'm sure many traders would be worried that the lack of fiscal direction might negatively impact the bond market and cause yields to rise, thereby negating the impact of keeping the target rate so low.

s_c_f

The target rate is too low to begin with.

What you are describing is unfortunately true. The fed should not be dictating their policy based on the government's fiscal standing. The fed should not be holding interest rates low to appease the government. This can harm the rest of the economy.

There should be no link between quantitative easing and the budget. If there is any link whatsoever, then it is clearly true that the fed is printing money to appease the government, which is what they surely wish to deny.

The whole situation is developing into a boondoggle of epic proportions.

If a private debtor fails to pay his debt, the fed does not come along and slice the debt in half by devaluing the currency the debt is held in. But that's what quantitative easing is doing for the govt. It's not only doing it indirectly by injecting excess money into the economy, it's doing it directly by choosing to focus exclusive on public debt, US treasuries. So in essence, the fed is teaming with the government to devalue government debt, while simultaneously devaluing the savings of all American savers and all holders of American government debt.

This is the real problem, and it's exactly the opposite of the problem Geithner exclaims. Geithner should get his head in gear and focus on the big picture. But of course he's never done that before, so why would he start now? Geithner and Bernanke have become the tag-team of economic incompetence, and Obama is the sorriest leader because all he does is choose to make the problem worse.

noob_goldberg

There are not enough thumbs in the world to stick "up".
modster99

my thumb is up
ColdStanding

I'm going to call the core of your thesis: "Geithner is misinformed"(reference your "Geithner should get his head in gear…"). How is it that you can account for Geithner's actions as stemming from him being misinformed? He spends every day at the helm of the most information rich location of the information chain. It just doesn't make sense that you would be capable of giving a generating a deeper level of analysis of the situation, given that your significantly less informed than him. I believe that he is acting with a sufficient degree of competence as he has been deployed within the system as it is so construed. Which means that there is a significant degree of subterfuge, intentionally misleading, and purposely fragmented reportage.

Any solution to this crisis that does not involve bankruptcy re-organization of the FED is no solution at all. The problem is that the FED is not doing it's job. The fact of the FED existing at all is the problem.*

*When I say that the FED is the problem, I of course mean that it is a problem for what used to be called the common man. It clearly is not a problem for the people that actually are the owners of it, as it is performing as intended.

s_c_f

I agree, he's not misinformed. He simply refuses to acknowledge the real problems at hand.

What I meant is, he's not addressing the right problem. He's going on about the debt ceiling when he should be going on about the debt. He doesn't have the courage to tell it like it is. Paul Ryan is taking the lead in this regard. He could very easily take a different tack, and instead of screaming that the sky is falling because the debt ceiling needs be raised, he could be telling investors that they are reducing their spending in order to safeguard investors' existing investments in government securities, not threaten them. What investors really want to know is that they'll be paid back, and to prove it to them, the government needs to reduce their spending and liabilities, not scream that they need to increase their spending and liabilities.

When someone owes you a lot of money, and you're a little concerned, it doesn't help for you to see the guy piling on a gargantuan amount of new debt.

Instead of working with Congress to solve the real problems at hand, he's working against Congress to make them worse.

It's just like during the financial crisis, when he was too cozy with the banks, and because of that he's allowed them to convert billions in taxpayer money into their own personal piggy banks. None of the problems on wall street have been solved by his interventions. The banks are still too big to fail, their profits are obscene, again, and he's lost all the leverage he had to break them up and to reform the banks, which on wall street behave much like a cartel these days.
Leo

What pi$$es me off is that the banksters are getting off so lightly.

"Former Countrywide chief Angelo Mozilo agreed to a settlement of $67.5 million to resolve charges of duping the home lender's investors while lining his own pockets, but Bank of America Corp will pick up two-thirds of the tab."
http://www.reuters.com/article/2010/10/15/us-sec-…
ColdStanding

There is no disputing your indignation. But, to borrow from one of the '80's super groups, tears are not enough. I recall one City of London wag saying "We were greatly surprised to find that common people repaid their debts." I might be paraphrasing. At any rate, you deride Mr. G. for being too cozy with the banks. You do know that that is who he works for, don't you?

Your characterization of the problem ("He simply refuses to acknowledge the real problems at hand.") simply doesn't come up on the radar. What is a problem to you, is profit to the interests he works for.
s_c_f

He used to work for the fed. Now he works for the government. As far as I know, he has never worked for a private bank. But he's been working in their circles for a long time.

"What is a problem to you, is profit to the interests he works for. "

That may be true, unfortunately.

madeyoulook

So in essence, the fed is teaming with the government to devalue government debt, while simultaneously devaluing the savings of all American savers and all holders of American government debt.

Yes, and it blows my mind that anyone would be foolish enough to (A) lend any government in the USA anything at all, and (B) hold on to US dollars. When the American s–t hits the creditors' fans, Paul Krugman will come along with some soothing words: "Economics is not a morality play. Suckers."

Oh yes, Krugz, economics most definitely is a morality play. We just now see what your particular moral choices are. And they are despicable.
http://ragingranter.blogspot.com Raging_Ranter

All the low fed rate does is give the government the room it needs to be even more irresponsible. Western economies, the US and elsewhere, are in the perverse situation where debt levels, both personal and government, are so high, central banks must keep real interest rates negative and credit expanding just to keep the economy from toppling. If that sounds completely unsustainable, that's because it is.

It's almost like the junkie who has grown so tolerant of the heroin he shoots up that he must risk a deadly overdose just to get high. We're overdosing on credit, and it's going to get really ugly. When? I have no idea. But the Fiscal "Crisis" of 2008 is going to look like a minor correction.

Central banks have been enablers of profligate governments for as long as they have existed. In fact, that's why they exist.

Thwim

I think we might have differing definitions of "simply"

s_c_f

When the government claims they cannot afford to cut cowboy poetry festivals at the same time they are driving themselves into a financial ditch, then you know there is a problem. And yes, it is simple to cut a million programs like that one. http://washingtonexaminer.com/blogs/beltway-confi…

madeyoulook

I think the ruling class in the USA has quite ably demonstrated that it is actually NOT simple for them to cut cowboy poetry festivals.

Even the debate about cowboy poetry festivals misses the fundamental point that the MAJOR killer of the USA will be the insatiable military and the even more insatiable entitlements. They just don't have a clue.

http://ragingranter.blogspot.com Raging_Ranter

Sorry, but if the US cannot raise the debt ceiling, they cannot issue new debt. If they cannot issue new debt to roll over existing obligations, they will be in default almost instantly. That's the problem when you use your Visa to pay your Mastercard. You hit the limit on your Visa and you're in default. No way around it.

madeyoulook

No problem. I paid my MasterCard with my Visa. Now I can pay my Visa with my MasterCard.

And if MasterCard catches up with me and won't play ball, my brother-in-law says he knows this nice fellow named Luigi who enjoys helping out people in a spot of trouble.

And (leans in, whispers), don't you tell a soul, but I figure I can string Luigi along for a while until I tell him after some sob story that I can only pay back ten cents on the dollar. What could go wrong?

waynebernard

Why is no one seriously discussing the looming $100 trillion debt problem related to unfunded entitlement programs like Social Security and Medicare? In the best-case scenario, the debt added by these unfunded programs will result in a debt-to-GDP ratio of over 400 percent by 2050 as shown here:

http://viableopposition.blogspot.com/2011/04/hidd…

A cut of $6.2 trillion over a decade is absurdly insignificant.

BGLong

SS is fully funded to 2037. Medicare is a real problem … but, as a service, it is much
cheaper and efficient than any known alternative.

madeyoulook

SS is fully funded to 2037.

In the USA? Really? Care to back up that assertion?

http://ragingranter.blogspot.com Raging_Ranter

I believe it is "fully funded" as a pay-as-you-go system, after which point it will be in deficit. It certainly is not "paid up" until that point. But expected revenues will meet expected redemptions. Or pretty close. What happens after that is a little scarier. A lot scarier.

madeyoulook

Nope. Scary starts now.
http://reason.com/blog/2010/08/05/dont-trust-the-…
madeyoulook

Here's where the mythical 2037 gets its legs: But neither of these potential problems is a clear and present danger. Social Security has been running surpluses for the last quarter-century, banking those surpluses in a special account, the so-called trust fund. The program won’t have to turn to Congress for help or cut benefits until or unless the trust fund is exhausted, which the program’s actuaries don’t expect to happen until 2037 — and there’s a significant chance, according to their estimates, that that day will never come.
http://www.nytimes.com/2010/08/16/opinion/16krugm…

Inquiring minds might like to look at the "special account, the so-called trust fund," to understand the nature of the quarter-century of surpluses. Our favourite Nobel laureate left out one little detail about the investment portfolio of that special-account trust fund. It's special, all right.
http://ragingranter.blogspot.com Raging_Ranter

That NYT snippet is such a complete crock of hooey I don't know where to start. Leave it to the venerable NYT to get it that wrong. Even in the surplus years of the Clinton Administration, Paul Krugman was penning articles in the NYT defending the practice of treating Social Security funds like any other source of revenue. So they weren't setting aside the Social Security revenues even when they were running surpluses. His argument went even further. He felt that the interest saved by not having to borrow as much (because you're using Social Security as regular tax revenue) should be considered an "asset" (his exact word) and this "asset" should be accounted for in another phantom ledger.

Got that? The mythical interest "earned" on a non-existent "special account" is to be accumulated in a separate "phantom ledger" to fund future liabilities. Krugman didn't even pretend to hide the fact that this wasn't real money we're talking about. At least he was that honest. But in his mind, this "asset" needed to be tracked, and could be drawn on (presumably borrowed against) in the future if needed. The fact is, the "special account" is an accounting ledger, nothing more. It's like the supposedly massive EI surplus. So huge it doesn't exist, except in the minds of uninformed journalists and crackpot economists.
madeyoulook

But while we are on the crock of hooey theme:

You will want to note that it is the existence of this special fund that gets people like BGLong to blurt out such sage observations as "SS is fully funded to 2037."
http://ragingranter.blogspot.com Raging_Ranter

You need another set of quotations marks around "fully funded".
madeyoulook

Actually, I think I have a better idea:

BG Long: "SS is fully funded (sic) to 2037."
http://ragingranter.blogspot.com Raging_Ranter

Allow me to summarize the Krug's hypothesis. Say government needed to borrow $1 trillion this year, but by using SS revenue the deficit was only $800 billion. He thinks that $200 billion you didn't borrow is an "asset", and should be accounted for in a "special trust". Not only that, but the phantom interest "saved" on that non-existent debt should "accumulate" in this phantom ledger. It's impossible to write about this crap without wearing out the quotation key on my keyboard.
BGLong

It has nothing to do with the gibberish you're spouting. SS surplus is
in US bonds. If that was a problem, the world would not be buying
US bonds. If you don't like journalism that offends you, then go to the
annual reports of the SS administration. Or, alternatively, you and myl
can make things up as you go along. Enjoy.
madeyoulook

SS surplus is in US bonds.

And if that doesn't scare you, and it seems not to trouble you, then you haven't thought about it much. So let me try to help.

A government that is barreling at high speed deeper and deeper into unsustainable debt considers as a massive asset in its social security trust fund the money it doesn't have but owes itself. People who are counting on Social Security for income security in the next ten to twenty years are the ones making things up as they go along.
http://ragingranter.blogspot.com Raging_Ranter

The irony that they have taken the SS money and lent 100% of it to themselves is not lost on me. That's like taking the CPP and lending it to government – oh wait, that's exactly what used to be done with it. But even then, the feds had the decency and morals to realize that lending it to themselves was a HUGE conflict of interest. So they lent it out to the provinces – at below market interest rates. The CPP contributors still got screwed, but at least the feds didn't dip into it themselves. The US government has no such scruples apparently.

Now, the question is, have they actually purchased US government bonds with the money? Or have they "purchased" US government bonds with the money. The difference seems trivial, but it isn't. Purchased bonds earn interest, while "purchased" bonds "earn interest".

modster99

Emily,

I understand that you don't like the American military, but you are missing the point. The whole idea of new workers paying for the older workers didn't work in the past (deficits) and certainly won't work in the future. Nobody wants to see people in the streets, but that is where we will end up without all social services being reformed. Military or no military, the spending spree cannot go on forever.

OriginalEmily1

This has nothing to do with the US 'military'…it has to do with the US attitude. They don't run the world, and they are not it's policemen….and all they've done is get themselves hated and killed because of it….and also ruined their own economy.

It's called 'imperial overstretch'….Rome did it, Britain did it….it's the downfall of every empire.

New workers paying for old workers is a relatively recent idea in the world…and it's worked just fine everywhere else. It's only the US that's having a major problem with it….because they're spending their money on war, not on their own people.

ColdStanding

A sovereign nation is not the same thing as private individual or corporation in its relationship to debt. Japan has very high levels of debt to GDP. Japan, despite on going efforts to privatize it, still has a publicly owned banking system. Interest paid on money borrowed gets paid back to the government. I was reading, the G & M I think, that the B of J, under some circumstances actually gives dollars to other central banks to sell!!! The Yen has struggled NOT to gain value.

Many people are (unreasonably) fearful of such an arrangement as they are mistrustful of government. It should be pointed out that the failures of the private system have wasted untold trillions of dollars and slashed values of assets to such a degree as to put the most lavishly spending dictator to shame.

http://ragingranter.blogspot.com Raging_Ranter

Yes, but that ability of government to issue debt to itself without limit is precisely what causes debt loads to get so far out of hand. Regardless of who owes money to whom, debt carries with it obligations, and those obligations must be met, or a country is in default. Countries aren't individuals, it's true. When countries default (and they do) the entire population suffers.

madeyoulook

No they don't. Germany just comes along and pats them on the head. Some EU muckety-muck earlier today was praising Portugal's government (whose domestically rejected austerity measures led to a parliamentary defeat) for taking the logical choice of accepting his billions of (German) euros…

http://ragingranter.blogspot.com Raging_Ranter

OK. So the populations of more than one country will suffer. I didn't say they'd suffer right away. But they will eventually. Both Portugal and Germany will pay for Germany's generous offer of help.

madeyoulook

Portugal will not have suffered as much as it deserves. Germany will have suffered more than it deserves.

I'm feeling the need for a Krugman fix: http://krugman.blogs.nytimes.com/2010/09/28/econo…
http://ragingranter.blogspot.com Raging_Ranter

Ah yes, another variation of his theme that "World War II ended the Great Depression". I wonder if he actually ever talked to anyone about what things were like on the home front during WWII. It was not a time of economic prosperity, not by a long shot. It was a time of rationing, austerity, and shortages of nearly everything.

ColdStanding

Right you are. If debt obligations can not be met & the debtor goes into default then there has to be bankruptcy proceedings. This should have happened many years ago, so that all the funny money & paper non-assets could be flushed from the system. Obviously there are significant interests opposed to such measures. As long as these anti-assets are allowed to continue, they will have to suck supporting capital from somewhere, and the last somewhere available is the credit of a given nation.

Having said that, it is still a fundamental pillar of sovereignty that the government of a nation manages the creation of money as a strategic interest, and construed as a utility-grade function of the economy. Banking must be dominated by publicly owned institutions. Granting, R_R, that such an arrangement is not problem free, but it is at least much more resistant to plutocratization as the interests of the bourgeois are much more widely held.

BGLong

An interesting perspective from someone on the ground …

http://www.theatlantic.com/international/archive/…

http://ragingranter.blogspot.com Raging_Ranter

That's an interesting article, but the author makes a few errors. A trade surplus is not itself a source of wealth. It is merely the buildup of foreign exchange reserves. Nothing to sneeze at, but unless you use that foreign exchange to actually import stuff, you aren't making yourself any better off. A country that does not import nearly as much as it exports because its economy is suffering and people aren't buying anything is not a healthy economy. (And of course the converse is true, as in the massive trade deficits run by the US as consumers bought everything in sight. It only felt like an economic boom, but it wasn't. Credit can only take a country so far.) Second, the author doesn't seem concerned with the massive public debt now hanging over Japan. But his overall point could be right. Japan may not be nearly the basket case that western commentators have made it out to be.

ColdStanding

Does this article help to bolster my case? When I say the B o C should be issuing money, it isn't a debt. It is a credit – provided that it is put into the development of the productive economy. I hold that this is what Japan has done through the B o J in borrowing from the Postal Savings Bank. Those credit have been plowed into making Japan more competitive. The benefit is widely distributed because the infrastructure projects improve the citizen's life and make business easier to do.

When government debt for Japan is listed as being 200% of GDP, it looks like a bad thing in comparison to other nations debt to GDP levels. It would be if Japan was operating under the same banking scheme as, say the USA. They are not. This distinction is of the utmost importance.

ColdStanding

Sorry I didn't see this sooner. Very interesting. Thanks.

Thwim

Well.. since war outside the country doesn't pay anymore, perhaps they'll try war inside.

They have the precedent, after all.
OriginalEmily1

Yeah, it's how they started….might be the way they end.
http://www.manhattancalumet.com james moylan

I have a web site where I give advise on penny stocks and stocks under five dollars . I have many years of experience with these type of stocks. If theirs anyone thats interested in these type of stocks you can check out my web site by just clicking my name. I don’t know where all this absurd spending will end. what I do know is that this whole thing will not end well.