Economic Triage - When It Comes Time to Not Pay The Debt, Who Gets Hurt?

MsMorrisine

Bloomberg had a guest talking head this am, Barry Ritholtz.

He was talking trillions of debt and the need for battlefield triage: who do we save and who do we leave on the battlefield (I'm sure he'd have brought them home if he ha mil knowledge.)




As far as my "solution goes" .... good question.


my solution is the not a real solution. I think the lame politicians will eventually decide to really lame out and pull a Greece. Don't default, but don't pay all the debt off.


Who gets hurt in this situation?

Too Big to Fail? Oooops, can't let them fail and BoA is two notches above junk right now, right?

China? A very popular anti-payback bet but they also are the leading sucker nation. Can we afford to hurt them?




So, who can we afford to hurt by not giving them all the debt principal back????
(I'm not sure a little here and there will do us either with 15tril and climbing .. and the deficits! and the trade deficits!!)

DrBuster

Could wipe out the debt to ourselves, but at what cost to the social engineering programs that run off that balance? Something has to give and it won't be pretty.

derryb

debt is nothing more than a promise. Nations break them all the time - with other nations and with their own citizens. the debt is currently being watered down via currency debasement. This hurts the citizens who depend on the currency for income and savings. Look for the debasement trend to continue indefinitely right along side the money creation. History has shown that debasement is how nations think they can escape their debt. It only allows them to temporarily prolong it. I suspect the worldwide explosion in economic uncertainty has put a big damper on the "one world economy" globilzation effort. Probably in eveyone's best interest if that experiment is just allowed to fail, right along with it's little sister the European Economic Union. I see a reversal coming to what the economic globalist have been striving to accomplish the last two decades. there are those who believe there is a large, powerful counterforce to globalization coming out of the east - who knows, we can only hope so. Look for nations to circle their own wagons and pursue their own economic interests via trade wars, import taxes and embargos. Unfortunately, economic war has been known to lead to armed conflict among former trading partners. The time's they are a changin'.

jmski52

Someone always has to pay. The question is, who?

It appears that if obama is re-elected, it will certainly be anyone who owns bonds. If Romney is elected, that could mean anything. I truly think that the country is headed for big trouble in many ways, regardless of the "election" results.

In either case, it appears that the banks will get a free ride. By the process of elimination, that appears to mean that everyone except the big bankers (and their beneficiaries) and the illustrious politicians in our federal government (and their beneficiaries) will get hurt.

If you have a strong political connection to big government, your lobbyist in DC might be able to ease some of the excess in your direction. Otherwise, you're screwed too. If you are a small business or a self-employed individual, forget it.

tneig

Its always been a house of cards. Hasn't it. It appears to me that the bailouts and allowing failures in other areas is all part of the balancing act to keep a system in place. I'm sure those bailouts thinned out the dollar. Just because we have it relatively stable in the last set of generations, doesn't mean anything.

Derryb, Yep, faulting on the debt is already a done-deal, and the consequences of what will come of it. The question is are the planning for
it at all and have scenarios, or will just wing it at the time.. Same question for the individual and if you are prepared and flexible enough.
PMs are one of the key ways.

(ps. When we think the government is out of control, remember they are in much more control of the people than you think.)

jmski52

The other major losers will be the folks who can't support themselves already, whether it is by choice or circumstances. They won't be able to keep up with their loss of purchasing power, either through low-paying jobs or through government subsidies.

The best antidote has always been a good education in hard sciences and math, but the educational system was taken over decades ago by ideologs who don't believe in empirical truths. My opinion.

cohodk

if obama is re-elected, it will certainly be anyone who owns bonds

Why? The bond market in Japan has been very stable.


In a global economic collapse, the USA will come out smelling like a rose.

jmski52

The bond market in Japan has been very stable.

ZeroHedge just had a piece describing just how screwed Japanese bondholders are. It was at the top of stories across the page, but it's gone now. Their Treasury is promising to pay bondholders "responsibly" but not in full.

"Dead" isn't the same as "stable", or at least not the kind of stable that anyone would prefer.

pf70collector

Japan has been devaluing the yen for decades. We have been doing for over a century. Maybe a few more decades left in the Federal Reserve scheme of QE to infinity. At least 10 more years I think. Probably how long the Fed can keep up the juggling of their balance sheet.

cohodk

<< <i>The bond market in Japan has been very stable.

ZeroHedge just had a piece describing just how screwed Japanese bondholders are. It was at the top of stories across the page, but it's gone now. Their Treasury is promising to pay bondholders "responsibly" but not in full.

"Dead" isn't the same as "stable", or at least not the kind of stable that anyone would prefer. >>



I've heard that arguement for a generation now.

jmski52

I've heard that arguement for a generation now.

Are you buying Japanese bonds? Just askin'.

cohodk

<< <i>I've heard that arguement for a generation now.

Are you buying Japanese bonds? Just askin'. >>



You know my holding period is measured in days, not years so NO I personally have no interest (pun intended) in Japanese bonds. However I have traded the YEN and I believe the Japanese stock market is the cheapest in the world. You like buying fundamentals, so did you know the Nikkei as a whole trades for just about book value while many stocks trade substantially under book?

MsMorrisine

most trade near book? mostly, what are their growth rates?

RedTiger

It is extremely foolish to look at these kinds of questions in isolation. When the U.S. Federal government actually defaults, the most likely cause will be a loss in World War III.

So to answer the question posed, who gets hurt when a country loses in World War III? Just about everyone in that country. A better set of questions might be what is the probable year for the start of the next world war, and what are the likely sides going to be?

To those that think I am crying wolf, think back to the economic panic of 1907, when JP Morgan (the man) basically bailed out the country. Did American citizens think that ten years later the U.S. would be in a world war when the mood of the country was extreme isolationist? After the 1929 crash, war was likely near the bottom of American concerns. Yet ten years later, German tanks were rolling in from one side, and Russian troops from the other, to crush Poland, and in two more years the Japanese attacked Pearl Harbor. Given those two cases, ten years might be a good time frame to use as an estimate. Another question is, did the clock start ticking in 2008 with the fall of Lehman, so 2018? What might be different this time is that the U.S. might lose, and end up with the losers share of the suffering instead of the winners share.

cohodk

While I agree with you RT, I would challenge that if the USA loses WW3, then the entire world loses. And since the USA is one of only 3 self-sustainable countries, I would suggest that the USA will not lose anytime soon.

derryb

<< <i>While I agree with you RT, I would challenge that if the USA loses WW3, then the entire world loses. And since the USA is one of only 3 self-sustainable countries, I would suggest that the USA will not lose anytime soon. >>


WWIII is currently underway via the petrodollar/currency war - winner remains to be seen. Three frontrunners are Gold, Yuan and US$. The Saudis, Mexico and Canada are selling out to China. Look for the Yuan and gold to benefit.

gsa1fan

Unemployment was high world wide too at those times WW1 & WW2 if my history is correct.

IMO, only thing keeping Arabs from all out war( among each other) is the combined hatred of an American army presence.

MsMorrisine

<< <i>

<< <i>While I agree with you RT, I would challenge that if the USA loses WW3, then the entire world loses. And since the USA is one of only 3 self-sustainable countries, I would suggest that the USA will not lose anytime soon. >>


WWIII is currently underway via the petrodollar/currency war - winner remains to be seen. Three frontrunners are Gold, Yuan and US$. The Saudis, Mexico and Canada are selling out to China. Look for the Yuan and gold to benefit. >>





as mentioned in another thread(s), if china were not asset seizing communists, I'd have all my cash in RMBs. Eventually they will figure out it is better to lose the peg once their export growth to the us generally flattens month-to-month on an ongoing basis and/or the exports to the ROW pick up over the us exports.

pf70collector

t is extremely foolish to look at these kinds of questions in isolation. When the U.S. Federal government actually defaults, the most likely cause will be a loss in World War III.

So to answer the question posed, who gets hurt when a country loses in World War III? Just about everyone in that country. A better set of questions might be what is the probable year for the start of the next world war, and what are the likely sides going to be?

To those that think I am crying wolf, think back to the economic panic of 1907, when JP Morgan (the man) basically bailed out the country. Did American citizens think that ten years later the U.S. would be in a world war when the mood of the country was extreme isolationist? After the 1929 crash, war was likely near the bottom of American concerns. Yet ten years later, German tanks were rolling in from one side, and Russian troops from the other, to crush Poland, and in two more years the Japanese attacked Pearl Harbor. Given those two cases, ten years might be a good time frame to use as an estimate. Another question is, did the clock start ticking in 2008 with the fall of Lehman, so 2018? What might be different this time is that the U.S. might lose, and end up with the losers share of the suffering instead of the winners share.

We are self sufficient and really don't need any of the world's resources or problems. Isolationism is not a bad idea. We would stop exporting our wealth to China, the Middle East and overseas.

rpw

The last round of musical chairs always ends badly.