Asia Times: US debt on default path

[marmar]

US debt on default path
By W Joseph Stroupe


Big government rescues on Wall Street and elsewhere, domestic stimulus plans, toxic asset replacement plans, and new government programs to address a wide range of other longstanding problems are causing the United States budget deficit to skyrocket.

More than US$12 trillion has already been committed and/or spent in this crisis, with the current year's budget deficit projected to reach, or exceed, nearly $2 trillion. The US Treasury is flooding the market with new issuance of debt, while the chances appear increasingly slim that the huge and ballooning deficit will be brought under control anytime soon. With all this spending, we're guaranteeing that huge and persistent tax increases will be enacted down the line to pay for it all. That will trounce economic growth and is an enormously ugly prospect.

The US dollar will inevitably bear the full and ferocious brunt of the decidedly hyper-inflationary policies of Washington, notwithstanding the Federal Reserve's empty promises to reverse such policies swiftly to protect the currency when inflation inevitably rears its ugly head again.

All the while, the strongest evidence indicates that when economic recovery finally arrives, it will be feeble at best for years to come. So the financial and economic sectors won't be able to withstand any promised rapid reversal of Washington's hyper-inflationary policies. But nor will the dollar be able to withstand the option of leaving such policies in place. Washington is therefore setting up the most colossal catch-22 imaginable for the dollar and for the US economy. With the Fed then hamstrung by its own shortsighted and reckless policies, we could well see the arrival of hyper-stagflation. The dollar cannot survive such a scenario intact. .........(more)

The complete piece is at: http://www.atimes.com/atimes/Global_Economy/KE07Dj02.html

[NewJeffCT]

1. As a percentage of GDP, a lot of countries have more debt

including Japan, Italy and other 1st world countries. Japan has $1.75 in debt to every dollar of GDP. The US is approaching $1.00 in debt to every dollar in GDP.

When Bush took office, it was closer to 50 cents in debt to every dollar of GDP.

[leveymg]

2. Exactly. The result - over a decade of stagflation in Japan.

I think you just made the same point.

[NewJeffCT]

4. However, it doesn't mean we're on the road to default, either

we'll just to have to raise taxes.

[Deja Q]

5. Or increase the job pool's amount of jobs so the lower taxes can be sustained.

Other countries will whine one way or the other, because they want things both ways. Best of luck to them too.

[Zynx]

7. Japan has had two decades of deflation, not stagflation.

That is exactly the opposite of the predicted result of high government spending. Japan has some other afflictions. High government debt is not the problem.

[tocqueville]

11. yep but there are differences

from the same article

"Unless you've been hiding out in a cave somewhere, you know that the big financiers of the US Treasury, namely China and its Eastern partners in Asia and the Middle East, have soured on the dollar's future beyond the short to medium term. They've entirely lost faith in the ability of the US to really get its monetary, financial and economic houses in order before the repercussions of shortsighted policy come home to roost with a vengeance. They're preparing new solutions that will take two or three more years to fully enact but which will shove the dollar aside toward the margins of international finance and international monetary policy. The handwriting is therefore on the wall for dollar-denominated financial assets."



picture from :
http://www.economist.com/displaystory.cfm?story_id=13610197&CFID=54799258&CFTOKEN=40537636


because there is a great difference if Italy's economy goes down the sewer compared to the US one. The Euro or the Yen aren't the international reserve currency



"in fact, everyone knows what prisoners dream of? They dream of escaping of course, of getting out of prison. LEAP/E2020 has therefore no doubt that Beijing is now (3) constantly striving to find the means of disposing of, as early as possible, the mountain of « toxic » assets which US Treasuries and Dollars have become, keeping the wealth of 1,300 billion Chinese citizens (4) prisoner. In this issue of the GEAB (N°34), our team describes the “tunnels and galleries” Beijing has secretively begun to dig in the global financial and economic system in order to escape the « dollar trap » by the end of summer 2009. Once the US has defaulted on its debt, it will be time for the « everyman for himself » rule to prevail in the international system, in line with the final statement of the London G20 Summit which reads as a « chronicle of a geopolitical dislocation », as explained by LEAP/E2020 in this issue of the Global Europe Anticipation Bulletin.

In this issue of the GEAB, our researchers anticipate the different forms a US default will take at the end of summer 2009, a US default which can no longer be concealed concealable from this April (most taxes are collected in April in the US) onward (10). The perspective of a US default this summer is becoming clearer as public debt is now completely out of control with skyrocketing expenses (+41%) and collapsing tax revenues (-28%), as LEAP/E2020 anticipated more than a year ago. In March 2009 alone, the federal deficit has nearly reached USD 200-billion (way above the most pessimistic forecasts), i.e. a little less than half of the deficit recorded for the entire year 2008 (a record high year) (11). The same trend can be observed at every level of the country’s public organisation: federal state, federated states (12), counties, towns (13), everywhere tax revenues are vanishing, suffocating the whole country with spiraling debts that no one can control anymore (not even Washington)."

http://www.leap2020.eu/GEAB-N-34-is-available!-Summer-2009-The-international-monetary-system-s-breakdown-is-underway_a3129.html

the GEAB has'nt been wrong so far. They predicted the crisis in detail.

[ixion]

3. This is the sound of the second shoe dropping

and a topic that no one in the MSM seems willing to even acknowledge, much less discuss.

[ThomWV]

6. Anyone who can not see the massive inflation that is coming is blind as a bat

Too much money chasing too few goods - we've already dumped in the money and we are rapidly decreasing our ability to produce goods.

How to combat it? Ask Volker, he knows how, just ask Jimmy Carter; raise interest rates through the roof - near 19% last time around. What does that do to productivity? Squashes it like a fucking bug, that's what it does. How about unemployment, what happens to jobs when rates go nuts? You don't have to look very far back to get an answer to that question either.

[Zynx]

8. It's hard to have an outbreak of massive inflation with industrial capacity and labor markets

as slack as they are.

[ThomWV]

10. Why do you think that?

When the number of goods and services being produced decreases ("with industrial capacity and labor markets as slack as they are" as you put it) and the amount of money in the economy is increased by trillions of dollar do you not think that more dollars will be required to purchase the resultant goods or services?

You see, here is how it works in simple terms. Where there is almost no money and lots of shit to buy, then shit doesn't sell for much money because there is so very little money to buy it with and there is so much shit to be had.

However when every turd-eater in the country has a wad of cash in their pocket but nobody is shitting out new product the cost of a basket of shit increases considerably. We call that inflation.

[Zynx]

9. This is an opinion piece. It is not really an analysis.

When Paul Krugman and Roubini forecast hyperinflation, then I'll be worried. Neither do. They predict continued deflation because we aren't doing enough. Macroeconomic indicators so far agree with them.

[sendero]

12. This sort of thing....

... is very very difficult to predict. Right now, the forces are all DEflationary. Wealth is being destroyed (via reductions in the values of assets, like housing) faster than new money is being put into circulation.

But, this could reverse itself on a dime, and there are many who worry that the Fed's ability to control things should that happen is shaky at best.

[Davis_X_Machina]

13. Conflates...

...money spent, and money committed.

Further conflates stimulus money spent that was just spent, and money spent acquiring interest in financial institutions and other assets, and then further assuming they are all worth zero $, a dead loss to taxpayers. (The process won't turn a profit over time, but it won't be a wipe-out, either.)

Thinking this fuzzy is either propagandizing, in which case you don't have to take it seriously, or simply fuzzy thinking.