USA debt default inevitable, and imminent

[sophia_h]

`



http://globalfire.tv/nj/09en/politics/dollar_collapse.htm


The Unparalleled Catastrophe Brought Upon Us by the Jewish Lobby



The reason why the Jewish lobby tries so fervently to impose the
holocaust lie on us as new religion is the fear to be taken to
account for their fraud in a galactical dimension against us.

They want to be worshipped as Gods (survivors) in order their
evil deeds would be sacrosanct. This is their formula.
I am a survivor, I am God, you can't touch me.




U.S. Debt Default, Dollar Collapse Altogether Likely


by: James West

February 03, 2009

The prospect of the United States defaulting on its debt is not just likely. It's inevitable, and imminent.

The regulatory black holes into which sanity and reason disappear on a daily basis are soon to collapse under the mass of their sheer size. The circle jerk going on among G7 governments has to end – the steady advance of gold, even in the face of a managed price, exposes the real value of the U.S. dollar, as opposed to its apparent value expressed in the dollar index.

Is 2009 the year that the United States formally defaults? And with that, will the dollar collapse be rolled back ten for one or more?

There are a lot of reasons to support that theory. To Wall Street economists, such an event is heresy and therefore unthinkable. Yet Wall Street is the very La-la-land that bred the idea of a perpetually indebted nation in the first place.

Number one among the indicators favoring this scenario is what is happening in the U.S. Treasuries auction market.

Last Thursday, an $30 billion auction in five-year notes failed to stir the interest of traditional primary dealers. The auction itself was saved by an anonymous “indirect” bid.

Buyers are discouraged by the prospect of what is expected to amount to $2 trillion total issuance for the full year of 2009. The further out the maturities on notes, the more bearish the sentiment towards them. The only way to entice buyers is through the increase in yields.

But with yields at 1.82 per cent, five-year notes were met with a demand for 1.98 times the amount offered - the lowest bid-to-cover ratio since September. A sell-off in treasuries began in earnest upon the conclusion of that auction.

The U.S. Federal Reserve suggested last week that it was going to step up its treasury-buying activity, and the mainstream media interprets this as a form of market support. What it actually is evidence of growing anxiety and desperation on the part of the Fed as the realization dawns that demand for treasuries is progressively evaporating.

The increased demand for gold as an investment witnessed throughout the last two weeks that has pushed gold to a 4 month high is further evidence that investors across the board are gravitating more towards gold and away from U.S. debt.

So what is the catalyzing event that will precipitate outright capitulation?

I think the spin-controlled version of events will make the collapse of the derivatives market the red herring that facilitates the aw-shucks-we-have-no-choice shoe-gazing moment possible, and that’s exactly the parachute the government needs to retain a veneer of credibility - at least in its own delusional mirror.

The announcement that the CFTC was about to become the target of a regulatory overhaul supports this theory. Consistent with his unfortunate proclivity to hiring foxes to guard chickens, Barack Obama’s choice for CFTC commissioner Gary Gensler was the undersecretary of the U.S. Treasury when the Commodity Futures Modernization Act of 2000 was passed, and is one of its architects. This was the piece of legislation that was put forth to appease the opposition to “dark market” trading in certain OTC derivatives first noisily derided by CFTC commissioner Brooksley Born in 1998.

Ignoring Born’s admonishments with this act, it exempted credit default swaps (CDO’s) from regulation, resulting in the somewhere between 58 and 300 trillion dollars in value presently under threat if the positions were to be unwound. Because of their unregulated status, counterparties in the largest transactions can simply “roll forward” contracts, instead of the losing party in the transaction covering their loss with a transfer of money. It is this massive “nominal” value that could be the Achilles heel of what’s left of the U.S. banking system, and by extension, the U.S. dollar.

I don’t arrive at this conclusion because I like making catastrophic outlandish predictions. Its merely the result of following certain logical paths to their most likely outcome based on what has happened in the past.

In discussions on this topic with editors of top tier financial publications, such speculation is dismissed out of hand, and the argument to refute the likelihood of such outcomes is never brought forward.

Gold exchange traded funds (ETFs) are now the largest holders of physical gold, and as a proxy for investors who don’t want to be encumbered with taking delivery of the physical, provide a simple way to participate in the gold market.


United States citizens should bear in mind, however, that should the banking system be brought down completely by the collapse of the futures market, proxies for gold such as ETF’s and bullion funds could theoretically be targeted by a government desperate for possession of value.

The risk from security in holding physical bullion is matched by the risk of confiscation by government in these volatile times. Don’t forget, the government confiscated and outlawed private ownership of gold in 1933 in support of an ill-conceived gold standard, which to some extent, was that era’s spin to halt the flight of gold (and real value) from U.S. soil.


Don’t think for a minute such drastic events are outside the realm of possibility. ...

http://globalfire.tv/nj/09en/politics/dollar_collapse.htm


.........

DONT BUY GOLD.

Stock up on powdered chocolate, coffee, soap, razor blades,
aspirin, small easily tradeable items.

logical.

.

[unusual_suspect]

I don't mean to be thick, but what will actually happen if/when they default and how will it affect the average citizen?

[sophia_h]

`

I don't mean to be thick, but what will actually happen if/when they default and how will it affect the average citizen?


unusual_suspect

not being thick if you never read what happens in other nations
thaht have defaulted, Argentina and Brazil in the last twenty years.

Now you know another reason TPTB dont teach HISTORY in
public schools.



chaos, riots, martial law, papers on demand, curfews,...

got water stored?
heat?
candles and kero lamps?
canned foods?
spare can opener?
battery radio?


YEP.

its coming..

not like we dont know.


.

[unusual_suspect]

Ok, right, I see what you mean now, tshtf. This is probably going to happen in the EU also right?

[sophia_h]

``


What Happened to Argentina?


By Mark Weisbrot and Dean Baker

January 31, 2002



Introduction

On December 20, President Fernando de la Rua of Argentina resigned, after weeks of rioting and looting that had left 27 people dead. Within 14 days the government was officially in default on its international debt, the largest default of a national government in recent memory.

As reported in the United States and the international press, the story was one of a profligate government that could not contain its spending, and make the necessary "hard choices" to build confidence among investors and lenders, including official creditors led by the International Monetary Fund. Indeed, the Fund precipitated the final crisis by refusing to disburse a scheduled $1.3 billion loan on December 5, 2001, because of "Argentina's inability to meet the targets under the zero deficit law."[1]

As millions understand it, Argentina's credit card was cut off because it ran up too big of a tab and couldn't pay its bills. But the official numbers tell a very different story. It is the story of debt, inherited from the past, that was perhaps manageable until—through no fault of the debtor—interest rates on the country's borrowing increased. Higher interest payments, not increased spending, led to higher deficits. Growing deficits in turn created doubts about the overvalued exchange rate, which pushed interest rates still higher, creating larger deficits, in a hopeless spiral that ended in default and devaluation.

As will be seen below, policy failures played a role in Argentina's economic collapse. The most important mistake was the fixed exchange rate, which tied the Argentine peso to the US dollar. But the immediate cause of Argentina's crisis was a series of external shocks that were beyond its control, beginning with the US Federal Reserve Board's decision to raise interest rates in February of 1994. The effect of each of these shocks was much worse than it otherwise would have been, because of the fixed exchange rate. But the commonly believed story that the government could not accept a sufficient dose of the painful medicine of austerity, or spent its way into a hole, is not supported by the data.posted by sophia in DIF


Fiscal Policy

Table 1 shows the Argentine government's revenues, spending, and interest payments for the years 1993-2000. If one looks only at the total budget balance, the numbers generally reported in the press, it looks as though there is a significant loosening of fiscal policy during this period. The budget goes from a surplus of $2.7 billion pesos[2] (1.2 percent of GDP) in 1993 to a deficit of $6.8 billion (2.4 percent of GDP) in 2000. This is a significant change in the government's fiscal position, although it is worth emphasizing that a deficit of 2.4 percent of GDP, the largest in this period[3], is still relatively modest for a nation in a deep recession, with more than 16 percent unemployment. For comparison, the United States ran a budget deficit amounting to 4.7 percent of our economy (or GDP) coming out of the last recession; 1983, at the end of a more serious downturn, the deficit was 6 percent of GDP.[4]

Nonetheless, even this modest deficit, and the shift from surplus at the beginning of the period, does not accurately represent the government's fiscal policy. To see this we must look at the primary balance—that is, the government's spending other than interest payments, subtracted from revenues. This appears in Table 1. The primary balance moves from a surplus of $5.6 billion (2.4 percent of GDP) in 1993 to $2.9 billion (about 1.0 percent of GDP) in 2000, a very modest deterioration.

Furthermore, none of this deterioration occurred on the spending side. Government spending, excluding interest, was essentially flat over the period. It was 19.1 percent of GDP in 1993, and 18.9 percent of GDP in 2000, despite the severe recession of the later years, as shown in figure 1. All of the deterioration occurred on the revenue side, as tax collections fell off during the recession, a normal and economically desirable development.

In light of this path of spending, it is difficult to argue that Argentina's government contributed to the economic crisis through overspending. Nor it is likely that, even if it were politically possible, the government could have averted the default and devaluation through further fiscal tightening throughout the recession.


Interest Payments

As can be seen from Table 1, it was increasing interest payments on the debt that drove the government's budget from surplus to deficit. Interest payments rose from $2.5 billion in 1991 to $9.5 billion in 2000, or from 1.2 to 3.4 percent of GDP (see Figure 2). This by itself is a significant drain on the economy, since almost all of these payments are in foreign currency, and most of the money goes out of the country. But in the context of Argentina's fixed (and then overvalued) exchange rate, the effect of these rising interest rates is much more damaging to the economy. The budget deficit caused by these increasing interest payments increased uncertainty in financial markets about the viability of the exchange rate. Such uncertainty drives interest rates even higher. The government's attempts to eliminate the deficit, by cutting primary spending during a recession, worsens the economic situation: first by directly reducing demand, and also by causing political instability and uncertainty, which fed fears of devaluation and/or default.

( Bama on wrong track ! S)




It must be emphasized that the whole downward spiral that led to Argentina's economic collapse occurred without any new borrowing by the government to finance primary (non-interest-payment) spending. In other words, the increased interest rates, and consequent increasing interest payments and debt, resulted from a combination of external shocks, and the dynamics of the fixed exchange rate system itself.

The long slide began when the US Federal Reserve Board began a series of interest rate hikes in February of 1994, which would double US short-term rates (from 3 to 6 percent) over the next year. Argentina was hit immediately with the first rate increase, because of the uncertainty it created in emerging financial markets. Thus the cost of the government's borrowing, simply to roll over past debt, increased by both the Fed's 3 percentage points, as well as the increasing spread between Argentine government bonds and US Treasuries of the same maturity.posted by
sophia in DIF

The situation worsened drastically with the devaluation of the Mexican peso in December of 1994.[5] Within weeks, the Argentine banking system lost 18 percent of its deposits. The economy, which had grown at an average annual rate of 8 percent from the second half of 1990 to the second half of 1994, fell into a steep recession. Gross Domestic Product contracted by 7.6 percent from the last quarter of 1994 to the first quarter of 1996. As can be seen in Table 1, the government's interest burden increased by more than 50% from 1994 to 1996. There was a massive capital outflow and shrinkage of foreign exchange reserves.

Recovery began in the second half of 1996, and capital inflows, both public and private, resumed. But it was not long before the economy was hit with the Asian financial crisis, which began with the slide of the Thai baht in August of 1997. This sent Argentina's risk premium and cost of borrowing up again. Throughout this whole period, at least since the Fed's interest rate hikes of 1994, the Argentine peso also became increasingly overvalued—since it was tied to the US dollar, which also became overvalued (leading to rapidly expanding US current account deficits).


The overvalued peso damaged the economy by further undermining confidence in the exchange rate regime, and also by worsening the current account, especially in services. It is worth noting that Argentina's increased interest payments from 1993-2000 also showed up in the current account, leading to deficits there as well. For example, in 1998, the current account deficit peaked at $14.6 billion, or 4.9 percent of GDP; over half of this deficit was due to interest payments. posted by sophia in DIF

The Asian economic crisis spread first to Russia and then to Brazil, where it led to the collapse of the Brazilian real in January of 1999. By this time the collapse of Argentina's fixed exchange rate was inevitable, and it was only a matter of how long it would take, and how much more the economy would be sacrificed in order to avoid devaluation and/or default. The economy lapsed into recession in the second half of 1998 and never recovered. Repeated attempts to restore confidence in the overvalued peso through spending cuts, and loans arranged through the IMF—including a $40 billion dollar loan package in December of 2000—could not reverse the downward spiral. In 2001 there were accelerating withdrawals from the banking system, leading to riots, political crisis, the collapse of the government, default, and devaluation.

Conclusion

This paper has focused narrowly on certain macroeconomic aspects of Argentina's economic collapse, in order to correct a widespread misunderstanding of its causes. There are other structural and economic changes in the 1980s and 1990s that critics have cited as contributing to Argentina's problems.[6] But even within this narrow focus of this paper, there are certain conclusions that may be drawn.

Many will undoubtedly infer that the main problem was the fixed exchange rate, and that fixed exchange rates are inherently flawed. posted by sophia in DIF.Argentina's experience certainly makes a strong case for this argument. The Argentine economy's extreme vulnerability to the Fed's interest rate hikes in 1994 is a classic reason for not choosing a fixed exchange rate, and leaving so much of the economy in the hands of a foreign central bank.

It is also worth noting that the other shocks to Argentina's economy during this period came from the global financial system, and were not directly connected to any real factors in Argentina's economy. This is true of the "tequila effect" of the Mexican peso crisis, and perhaps even more strikingly, the transmission of the Asian financial crisis to Russia, and then Brazil and Argentina. In these instances investors responded to a particular crisis by fleeing emerging markets generally, often simply because they assumed other investors would do the same. Argentina's fixed exchange rate made all of these shocks much worse, because it made adjustment difficult or impossible, and attempts to maintain the exchange rate ended up sacrificing the economy. But Argentina's experience—including the considerable amount of capital flight during this period—does raise questions about the functioning of international capital markets without controls at the national level. It raises the question of how much any country would want to put itself at the mercy of such volatile international markets. posted by sophia in DIF.


The role of the IMF and international lending agencies is also important here. The Fund supported the fixed exchange rate policy[7] all the way into the abyss, absorbing, together with other official creditors, an increasing share of Argentina's burgeoning debt. From December of 1995 to September 2001, these institutions' Argentine debt more than doubled, from $15 billion to $33 billion dollars. Throughout the period, the Fund insisted that more fiscal tightening was the key to restoring confidence and economic recovery. But it is clear that no amount of budget cutting, or tax increases, could have saved Argentina from the inevitable default and devaluation. And as noted above, the austerity policies almost certainly hurt the economy.

This should be kept in mind as new agreements are negotiated amid renewed calls for budget austerity. Although the fixed exchange rate is gone, austerity is no more likely to help Argentina's economic recovery now than it did in the past. And the government will need to cancel enough debt so that it never falls into the situation that it faced in recent years, in which rising interest rates and payments produce a debilitating debt spiral from which there is no escape.
more:

http://www.cepr.net/documents/publications/argentina_2002_01_31.htm

.

[sophia_h]

`

Ok, right, I see what you mean now, tshtf. This is probably going to happen in the EU also right?



This is probably going to happen in the EU also right

GLOBAL.

In many third world nations it wont make much difference.


For all who are used to going out to work or store or any reason
at will it will be a shock .


for all who cant buy a weeks food without stamps and ID
it wil be a shock.

when most shelves are empty and good coffee is more expensive
than diamonds people will surely feel SHOCK !


For all who believe they have FREEDOM it will be a SHOCK to
realize we lost all our freedoms when WW2 ended and the
communist/bolsheviks roared from the steps of the
Capitol Building in DC.

"NOW WE OWN AMERICA!"

1945 !

60 years of rising ZOG and many will finally wake up and
feel very great SHOCK

THEN the Historical Revisionists will be HEARD by the masses.

This is the crux of a 12,000 year old WAR.

The Final Battle.

~

[bobhodge]

when a country defaults it means that it cant pay its bills. what happens then is that bond ratings agencies downgrade the bond, which makes investors sell them. this forces interests up really high. inflation starts to get out of control, people cant afford to buy anything especially when the country does not produce that much. eventually, the central bank has to beg for a loan from the IMF who usually impose shock therapy. this is means that central banks will set interest rates. but this starves the economy of money and stagnation happens (high inflation and stagnant economy). obviously the global economy is in chaos...but people who will be hit the hardest are people who are used to high standards of living like the US.

[sophia_h]

`

Just how creditworthy is the United States of America?




Gauging Uncle Sam's credit risk

Tom Petruno, Market Beat
February 7, 2009


Just how creditworthy is the United States of America?


Right now, in the eyes of the official arbiters of credit grades -- Standard & Poor's and Moody's Investors Service -- Uncle Sam still deserves the highest rating of AAA.


But as the government's costs to bail out the economy and the financial system mount, S&P and Moody's in the last month have had to address the unthinkable: whether America might warrant a debt downgrade.


If the U.S. were to fall to, say, AA-plus on S&P's scale, we'd be rated the same as Belgium. At A-plus, we'd be in the ranks with Italy.



And at just plain A, the U.S. would be on the same level as its largest state, California -- whose debt rating S&P cut this week to the lowest of any state because of the continuing budget impasse.


So far, the raters don't see a U.S. downgrade as imminent. But they're raising the same questions that are on the minds of millions of Americans: Can we afford these bailouts? Are we choosing short-term fixes that will hurt us in the long run?


In a report this week, Moody's said its AAA rating on U.S. Treasury debt was based on the "very high degree of economic and institutional strength" the U.S. has enjoyed historically.


Still, the firm noted that federal finances "have been substantially worsened by the credit crisis, recession and government spending to address these shocks."

S&P, which affirmed its AAA rating on U.S. bonds last month, conceded that the risk to the nation's fiscal health had "noticeably increased" but said America retained its core appeal as a "high income, highly diversified, exceptionally flexible economy."


Of course, S&P and Moody's are the same folks who failed to see the housing bust coming and affixed top-scale credit grades to mortgage securities that now trade for pennies on the dollar.



The derisive view of the debt raters is that they may be the last to know if America no longer is truly a AAA borrower.


Chances are, the marketplace would make that judgment before S&P and Moody's would. It would be evident in surging interest rates on Treasury bonds, if investors judged that they should be paid significantly more to compensate for greater risks entailed in lending to the U.S.


At the end of last year, no one cared to question America's AAA rating. Yields on Treasury securities were at generational or all-time lows -- a function of the extraordinary level of fear in financial markets amid the global credit meltdown.


Many investors didn't care what government bonds paid; they just wanted absolute safety of principal, and that's what Treasury issues offered. So money poured in.



This year, the market's mind-set has shifted notably. Yields on longer-term Treasury bonds have jumped. In part, that suggests a lessening of fear, which is good news. But it also reflects investors' growing concern about the Treasury's need to borrow as much as $2 trillion this year to finance the rescue of the economy and financial system.


The yield on the 10-year Treasury note, a benchmark for mortgages and other interest rates, reached 2.98% on Friday, up from a recent low of 2.06% on Dec. 30.


A 2.98% yield on a 10-year note still is a very low rate, historically. Even so, the simple message from investors to the Treasury has been, "If you want our money, you'll have to pay more for it."



But is that because the U.S. is perceived to be a riskier borrower -- something less than AAA?


The risks involved in lending to a country are different from those in lending to businesses. A company can run out of money to pay creditors. Sovereign nations, on the other hand, always can print cash to cover debts.




The latter option, however, creates another risk: By borrowing excessively, then running the presses to pay those debts, a nation can fuel an inflationary spiral -- the classic case of "too many dollars chasing too few goods and services."




Inflation is the scourge of investors who own fixed-rate bonds because it devalues those securities, particularly if the bonds' fixed yields are low to begin with, as Treasury yields are today.

That's the risk signaled by the snap-back in government bond yields this year, said Paul Kasriel, chief economist at Northern Trust in Chicago. "The real question is how much of investors' purchasing power will be lost" if inflation rises down the road, he said.

For the moment, the Obama administration and Congress -- and many Americans -- believe there's no alternative but to borrow heavily and spend on the bailouts. [B]If the fixes work, and the economy recovers, inflation is likely to be the government's next battle.


But for bond investors, that risk has to be factored into the fixed yields they're willing to accept today.

From the rating companies' viewpoint, whether the U.S. can hold on to its AAA credit grade in the next few years may come down to some standard measures of sovereign debtor risk -- for example, total government debt held by investors compared with the size of the economy.

That ratio was 40.8% for the U.S. at the end of the last fiscal year. With the bailout borrowing, Moody's projects that the ratio will jump to 62.4% by the end of fiscal 2010.

Can we afford that? Maybe. But at a minimum, if there is anyone left in Washington in a few years to care about fiscal discipline, ballooning debt could hamstring the government in its ability to deal with future crises in the economy.

And anything that threatens the long-term health of the economy also threatens the nation's credit standing, as the rating firms judge it. A crippled economy, after all, would undermine the tax revenue that supports the government.

In its January report affirming the United States' AAA rating, S&P warned that "the focus on managing the current crisis is likely to distract needed attention from longer-term but very large and growing fiscal imbalances posed by U.S. entitlement programs," namely Medicare and Social Security.

It's just a reminder, Kasriel notes, that although we all want this painful recession to end, "there is no such thing as a free government bailout."

tom.petruno@latimes.com


http://www.latimes.com/business/la-fi-petruno7-2009feb07,0,4478238.column

.

[knightbk]

Yes, things are bad, but you fail to consider that the US is not "Argentina". Argentina had many many problems before they collapsed. There are some really good articles online about why Argentina shouldn't be directly compared to the US and you should search them out and read them.

The United States has basically built all the institutions (like the IMF) that govern the world since the end of World War 2. That is a simple fact. Most of these institutions are also to the US's advantages which is why it has enjoyed 60 years of unsurpassed growth and high standard of living. When you have such a large hegemony, you are obviously going to benefit from it.

Now, are things rosy? No. Of course not, the US faces deep issues that WILL be painful for its citizens, but that doesn't mean they are going to collapse into a Mad Max world.

On top of that, the US also has resources and benefits that no other countries in the world have enjoyed in the past. For example:
-The world currency is essentially the US dollar.
-The entire world economy IS driven by the United States and like it or not, every country in the world, even those who hate the US, have some interest in seeing it recover. The myth of US Decoupling has been proven to be false and China for one, has a HUGE interest in seeing the US recover, at least for the next 10-20 years until they create their own self-feeding economy.
-American Citizens actually have a lot of money saved in the bank... more than $10 Trillion in cash right now. Yes, I know they have debt, but this cash can not be disregarded either.
-America has the Public Relations engine that no other country in the world has ever had and this is very very important.


What does this mean? It means that taken all together, we are in totally uncharted waters and using arguments like "Argentina collapsed and Germany had hyper inflation" are null and void. They have no bearing on the US because the US is a totally different ball game. For example, the US has been printing cash like crazy ever since the 1930's and the world STILL uses it. The US has also been essentially "bankrupt" since then as well, and the world still supports it.

Now, obviously change is in the wind due to Globalization, but the US is still the dominant player in the world.


As for Debt, there are many ways to get rid of it. The government can inflate its way out of it. It could do a mass Debt Forgiveness. It could change the currency and revalue it. It could come up with some secret deal with other countries to support it. etc, etc.

What people always seem to forget is that the American Government does NOT operate using the same rules that govern mere mortals. It makes up rules as it goes along and it will do everything in its power to maintain the status quo.


People would be very foolish to just assume that "America is done". America does not operate in a vacuum and there are very smart people working on how to keep the prosperity going for another 100 years and they will probably be successful in the long run.


That all being said, nobody should be fooled into thinking there will not be any pain. There will be. The US living standard will further erode and more people will end up under the poverty line for the long term.

The dirty little secret is that the US already has 30 MILLION people living in poverty, that will no doubt rise to 50 Million, which is a HUGE number, just conveniently ignored by the politicians and other Americans as "part of life".