http://www.zerohedge.com/article/t-minus-two-months-500-billion-ticking-timebomb

 

"What people don't realize is that...unless the UST can roll its debt not on a monthly but now weekly basis in greater and greater amounts, the interest rate doesn't matter. All it takes is one semi-failed auction and it's game over as hundreds of billions in bills become payable." Enter the always forgotten maturing debt argument. And as a just released presentation by the Bipartisan Policy Center titled "Debt Limit Analysis" reminds us, aside from the actual deficit funding math, which is that in August there is a $134.3 billion cash shortfall that has to be funded with debt, there is a far greater risk. Or, put numerically, 467.4 billion far greater risks. This is the amount of debt that matures through August 31, and has to be rolled over or the US is bankrupt... in every sense of the word. Once again, America's politicians and media get broadsided by the definition of gross versus net. Because, in reality, the inability to issue more debt post August 3 means a halt to all new debt issuance. Which, unfortunately because it means Geithner's scaremongering is actually correct, would imply the end for the debt ponzi.

 

...

 

And their commentary, which recaps what we said 14 months ago:

 

Treasury must “roll over” almost $500 b in debt that matures during August 2011

New debt is issued and the proceeds are used to repay the maturing debt plus interest due

Treasury will require market access throughout August to avoid defaulting on maturing debt

About $380 b in short-term T-Bills maturing, plus $90 b in long-term securities

Quarterly refunding auction on August 15

 

And that's not it. On a Net basis, there is in addition another $134.3 billion in deficit that must be satisfied somehow. Alas, after August 3rd it will become impossible to plunder savings accounts going forward which means a game over in the kick the can down the road game.

 

 

 

Here we go... the US government must finally cut spending or suffer collapse. And I couldn't be happier!

Bush era tax-cuts to the uber-wealthy and increased spending (mostly with the military, wars, and resulting costs attributable to them) caused us to run a deficit after Clinton's administration had achieved a balanced budget. We could save a ton of money if we were to incentivise preventive health care, and bring back manufacturing to the US by having fair trade policies that protect our industries here, so that we have real income and jobs for the working class. (reverse NAFTA passed by Clinton). Shift military expenditures to infrastructure needs, retrofitting buildings with top-notch efficiency improvements, incentivise energy efficiency at all levels, and shift to a green, renewable, common elements economy.

Ultimately, when politicians use spin and TV ads to get elected, then do the bidding of the highest bidders behind the curtains, we get what we get. They're beholden to the biggest interest groups money-wise, not beholden to the citizens and to the nation as a whole; thus, they implement policies that favor short-term results and benefit enormously those who pay into their campaigns, at the expense of the country and the economic security of the world.

Which is why I am anxious to see us amend the constitution here, to place real limits on campaign donations and spending, and to level the playing field so that we may choose the best qualified representation, not the most connected and financed candidates who then in the end do the bidding of the gamblers that brought down the economy just a few short years ago, and who have decided to set us up for the perfect storm to topple the financial system.

(It is one thing to allow big interests and individuals with great wealth to advise with public oversight, but another when they are allowed to determine policy, head agencies, practically rewrite the laws for their benefit, and reward those in office with guarantees of lobbying positions and other benefits when out of office.)

[ame=http://www.youtube.com/watch?v=NblhUrcdrSc]YouTube - ‪Economic Armageddon and You‬‏[/ame]

all of this stuff is scary shit. Yet at the same time it seems as though there isn't much attention put towards it in the media.

 

I'd like to imagine we'd get out of this situation, but it doesn't look promising.

 

So for those that have read up and studied this stuff what do you think the solution is to this situation, if there even is one.

I wish I had all the pieces of the puzzle in front of me so I could provide semi-educated input.

 

As I side-comment, I do find the "entitlement" mentality a little frustrating (e.g., Social Security), since such programs contribute to the debt problem. People (like my parents) get upset about the idea of Social Security reform, but what most people seem to forget is that the original intent was to provide income in the last year or two of life. Life expectancies have increased dramatically since Social Security was first introduced, so now it's being paid out for 20 or more years instead of 2 at the most.

Well Social Security isn't real savings.

 

Think about why people save money, rather than spend it immediately - they know they get a return (interest). Other people borrow the money and use it to start businesses, hire people, buy equipment, etc. Savings are used to increase production.

 

Social Security, on the other hand, is used to buy US Treasury notes - government debt. Government doesn't produce anything with the money it borrows (except wars, poor educational systems, prisons, etc).

 

So savings incentivizes production, Social Security incentivizes waste.

 

The solution will be to return to the original, "blank slate" economy - no legal tender laws. People will choose which currency they want to accept as payment. Some people will choose dollars, but eventually the most stable currency will win - whether it be Swiss Francs or Silver or anything in between.

 

The US people used to use Spanish coins as currency. You don't hear about that much in history books, though.

 

The government will attempt to salvage its dollar-system, though. They'll claim it is necessary to move forward, when in fact it's a ball-and-chain holding production back.

 

[ame=http://www.youtube.com/watch?v=vvBKR5GPCWc]YouTube - ‪Alan Watts - Money‬‏[/ame]

 

[ame=http://www.youtube.com/watch?v=Gizetn5VuA0]YouTube - ‪What Is Money?‬‏[/ame]

 

Skip to 7:26 on the second video to see some detailed explanations by an Austrian economist on the possible outcomes of the current economic credit expansion.

So the problem is that money the USA borrowed from say Country A is coming upto repayment time, however they don't have the money to repay A so they will try and borrow some more money from Country B to repay Country A, and they might not be able to get the money from B to repay A in time?

Right David, but it's not split up in different countries differently - all US bonds are the same, whether Japan owns them or China or the UK.

 

So what happens when the US can't meet its full interest payment is "contagion". These countries (and individuals) who own the bonds will suddenly realize they hold an asset that is depreciating. What do you do when an asset is going down in value? You sell it.

 

So the insiders will sell first, then the value of the bonds will fall (just like a selloff in stocks). This will trigger more people to sell, and as the price falls the interest rate will increase dramatically (to try to keep people from selling).

 

As the interest rate increases, the government will be forced to pay more and more and more to each remaining bondholder. This will necessitate the issuance of even more debt.

 

The root of all this was asking people to pay interest on printed money (when the interest didn't even exist as money in the economy yet). It's a bit tricky to wrap your head around, but once you do it's startlingly obvious.

For me I just can't fathom how much debt the country can get into and how it's been acceptable to do so. I mean a normal person doing this to a credit card would eventually be probably rejected to keep using that credit card. From a personal standpoint I hate the idea of debt and having something like that over your head. I understand there's government programs and things are different, but I just don't see how we could let this get so out of control.

 

To be honest I wouldn't have a problem paying higher taxes to help pay off the debt. I think of course the richest people in the country should pay the most but if in the end it'll make things better then why not? Yes it might be a huge pain in the ass and I'm sure most people would be pissed off at their elected officials, but wouldn't people rather see things get better rather than it getting really terrible?

 

 

Saffire... if hypothetically the US was to end it's wars around the world, cut back on defense budget, raise taxes, balance the budget, and cut wasted government programs do you think the problem could be solved?

 

I guess I just feel I'd rather do whatever is necessary to prevent the country from going under and there leading to mass riots and chaos even if that meant struggling.

The solution will be to return to the original, "blank slate" economy - no legal tender laws. People will choose which currency they want to accept as payment. Some people will choose dollars, but eventually the most stable currency will win - whether it be Swiss Francs or Silver or anything in between.

 

Wouldn't a real "blank slate" be more of a barter/trade type of scenario?

I'm not sure there would really be any such thing as a "most stable" currency that could eventually win over all others. If in theory that happened, it would have to all be produced in the same place, right? Then shipped to the rest of the world. But then people would be like oh hey lets just make the same currency here, but we'll make a notation as to where it was made, subtle differences will develop which will compound over time, and then you're back in the same spot again. People will for whatever reason prefer the currency that is produced in a certain area even if it may not make sense to prefer it.

 

I'm kind of rambling, it may not make much sense, but hopefully you'll see the general sense of what I'm getting at.

 

 

 

Back on the original topic, it almost seems as though what happened in the housing market is what's going to happen to the U.S. debt scenario.

 

(On a side note re: the housing market downfall, I recently watched a program on it and some guy who basically predicted the whole thing and told people, they didn't believe him, and he ended up buying all these insurance policies betting against the banks/mortgage companies (betting that it would all backfire). He's a billionaire or something now because of those insurance policies that got paid out to him because he was right.)

Saffire... if hypothetically the US was to end it's wars around the world, cut back on defense budget, raise taxes, balance the budget, and cut wasted government programs do you think the problem could be solved?

 

I guess I just feel I'd rather do whatever is necessary to prevent the country from going under and there leading to mass riots and chaos even if that meant struggling.

 

Yes, the deficit could easily be gotten under control if we cut the size of the military in half, raised taxes, and raised the retirement age - but then the economy would get worse (ie our quality of life would drop and people would flee the country).

 

So it can be done. There are ways to transfer more money from the productive part of the economy to the government.

 

It just can't happen politically... Americans are very anti-tax, and anti-cutting-benefits. So anyone who attempts to pull this off will need to use teargas, tanks, and rubber bullets to make it happen.

 

And even then, once the government gets its hands on the necessary money... what do you think it will do? It will go on spending like nothing happened.

 

What do you do when your kid blows all his allowance money on toys and candy? Do you give him even more? Remember the purpose of money is to communicate scarcity of resources. When governments feel they aren't subject to physical reality (scarcity), things get really dangerous. It's like a kid sticking his fingers in his ears, closing his eyes, and singing. Only it's not a kid, it's your dad. And he's blowing the family's money on alcohol instead of buying food.

 

 

Wouldn't a real "blank slate" be more of a barter/trade type of scenario?

I'm not sure there would really be any such thing as a "most stable" currency that could eventually win over all others. If in theory that happened, it would have to all be produced in the same place, right? Then shipped to the rest of the world. But then people would be like oh hey lets just make the same currency here, but we'll make a notation as to where it was made, subtle differences will develop which will compound over time, and then you're back in the same spot again. People will for whatever reason prefer the currency that is produced in a certain area even if it may not make sense to prefer it.

 

I'm kind of rambling, it may not make much sense, but hopefully you'll see the general sense of what I'm getting at.

 

No I see what you're saying, and it's a great point.

 

Think of the differences between force and voluntary trade. When people can choose which currency to use, or to accept, you'll have a whole collection of different trades going on. Not everyone will be using the same money, but that's not a huge deal - you can always find a place where you can trade your money for an alternative money. It could be done very quickly and simply using internet and smartphone technology.

 

In this scenario, money is fluid. Value flows between currencies effortlessly. But in a scenario with legal tender laws (what we have today) value is trapped in a forced-currency. So the dollar should be worth much less than it is today, but it still holds its value because the government imprisons anyone who refuses to accept dollars as a form of payment.

 

Laws that affect economics are like pressure cookers. You can't really hear the pressure building up inside, but eventually they explode and it's really painful and messy when they do. If you don't have these laws, it's like a steady release of steam and the system never needs to be reset.

 

(On a side note re: the housing market downfall, I recently watched a program on it and some guy who basically predicted the whole thing and told people, they didn't believe him, and he ended up buying all these insurance policies betting against the banks/mortgage companies (betting that it would all backfire). He's a billionaire or something now because of those insurance policies that got paid out to him because he was right.)

 

Right, you're thinking of John Paulson. That was one of the best trades in history, because he got the timing exactly right.

 

The whole school of Austrian economists predicted the housing market would crash, too, but they just couldn't peg down exactly *when* it would happen.

 

There are other markets that are set to crash - for instance, housing still has another 15 to 20% to fall, and the cost of college education is in a bubble, too. The cost of medicine/healthcare is in a bubble also, but that's mostly the result of regulations and insurance - hopefully that bubble will pop when the government allows more people to become doctors.

http://hosted.ap.org/dynamic/stories/U/US_DEBT_SHOWDOWN?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2011-07-25-12-14-43

 

The US won't default at this point because the president and treasury will just cut spending unilaterally in other areas (probably Social Security or something that hits close to home, sparing the military industrial complex) in order to pay the interest installment.

But the reason Obama is so intent on getting a much higher debt ceiling is because he doesn't want to have to revisit the issue again before his first term is up. He'd like the ceiling to be high enough that the Federal govt won't grow out of it for a couple more years.

http://www.reuters.com/article/2011/07/25/businesspro-us-gold-idUSTRE76N2YS20110725

 

Gold at record high again.

http://www.reuters.com/article/2011/07/25/businesspro-us-gold-idUSTRE76N2YS20110725

 

Gold at record high again.

I saw that a couple of days ago, it's crazy. I should see how much old jewelry I can scrape up and mail in to sell right now.

lol, sell your gold? No, don't do that. It'll be worth double that in another year.

 

Plus you won't get a good deal on it (usually those "we buy gold" companies offer you well below the spot price).

 

I own mostly silver right now, but I'm considering getting more gold soon.

lol, sell your gold? No, don't do that. It'll be worth double that in another year.

 

Plus you won't get a good deal on it (usually those "we buy gold" companies offer you well below the spot price).

 

I own mostly silver right now, but I'm considering getting more gold soon.

It really does depend on where you sell it. Those stores in the mall offer you crap, I took something there out of curiosity and was appalled by what they were going to offer. A few years ago I sold some gold to a much more legit place with no middle-man, and got an excellent return. They give you really close to the spot price the more gold you send in (there was a chart of percentage of spot price based on weight ranges). The crappy thing is that some of my stuff has little gemstones in it, and they don't give you any money for that (and don't send back the gemstones either). I wouldn't sell anything with diamonds in it, partly because I'm still awaiting final decision on that DeBeers class-action lawsuit from several years ago.

 

But if the government "deal" goes through, wouldn't the gold prices stabilize and head down, not double in the next year? The whole thing behind the gold prices going up so much is fear of worthless currency, so everybody's snatching up gold; if the currency isn't worthless (deal goes through), then not as many people will insist on having stashes of gold for security.

An austrian economist is finally being respected and listened to on here! Bravo, Jay!!! :clap:

But if the government "deal" goes through, wouldn't the gold prices stabilize and head down, not double in the next year? The whole thing behind the gold prices going up so much is fear of worthless currency, so everybody's snatching up gold; if the currency isn't worthless (deal goes through), then not as many people will insist on having stashes of gold for security.

 

Good question.

 

Gold will go up regardless of whether the deal goes through or not:

 

1. Deal goes through (debt ceiling raised), gold will go up. The deals they're discussing don't really cut enough from the budget to make a difference (you'd need to slash the total Federal spending by 50% just to sustain the currently $14 trillion debt level we currently have).

 

2. Deal doesn't go through (bond market collapses), gold goes up.

 

The only way gold won't hit $3000 is if Ron Paul is elected Supreme Dictator of Earth, and the odds of that are insanely low. Until then, hold on to the physical coins and jewelry, because it'll be a wild ride. And owning silver is a great idea too. Citigroup (yes the bank) recently released a report from a couple of their analysts saying silver could hit 100 bucks soon (currently at 40).

Anybody want to buy one of my gold bars?

 

 

They make good door-stops

I hear central banks all over the world are loading up on gold now, David:

 

http://www.zerohedge.com/article/central-banks-purchase-127-tons-gold-q1

 

They must have a lot of doors to hold open! ;)

I think I am going to move.... :laugh3:

 

[ame=http://www.youtube.com/watch?v=EoS52fVtVQM]‪Remy: Raise The Debt Ceiling Rap‬‏ - YouTube[/ame]

[ame=http://www.youtube.com/watch?v=RvL_Dm2d99A]‪Gold: Independent Money‬‏ - YouTube[/ame]

http://www.realclearpolitics.com/video/2011/07/28/clyburn_likens_executive_order_to_raise_debt_ceiling_to_emancipation_proclamation.html

 

Thy will be done!