Posted on 08/23/2008 7:14:45 AM PDT by kellynla
The U.S. government, like so many creaky monarchies and dubious regimes in history, may be conspiring to repudiate its own debt, suggests a former vice president at the Federal Reserve Bank of Dallas.
U.S. Treasury debt obligations have long been considered the most secure and most certain of repayment in full, including interest. It's part of the reason the dollar has stayed strong, and why the United States has been able to borrow so much, so cheaply, for decades.
Increasingly, that trust is for the first time becoming questionable.
"Congress, with the complicity of the White House and the Fed, has arguably embarked on a stealth repudiation," warns Gerald P. O. O'Driscoll Jr., writing in The Wall Street Journal.
Although not predicting that the government will default on its obligations, O'Driscoll writes that U.S. debt will be met through what famed economist Adam Smith, author of The Wealth of Nations, called "pretend payments."
In other words, debts would be repaid through deliberately uncontrolled inflation, according to O'Driscoll, now a senior fellow at the Cato Institute. That means Uncle Sam will be paying back its borrowed money with debased dollars, the so-called "pretend payments."
In their successful fight against inflation, President Ronald Reagan and then-Fed Chair Paul Volcker were greatly assisted by "bond vigilantes," who bid up interest rates on bonds to 10 percent and more.
The high cost of money and low taxes during that era ignited an economic boom, says O'Driscoll, and beefed up the Fed's credibility. The message: In its efforts to control inflation, the Fed won't cave to political pressure.
Fed Chairman Alan Greenspan continued to keep a lid on inflation, although inflationary currents were mild during most of his tenure.
Now, Fed chief Bernanke pursues an "easy money policy with inflation already picking up," says O'Driscoll.
(Excerpt) Read more at moneynews.newsmax.com ...
Few remember that the final straw that ultimately took down the Soviet Union was a simple inability to pay employees. There just plain wasn’t enough money to back paychecks, so the government shut down, and the component states went their separate ways.
We risk the same. Once there’s not enough money to pay up, those expecting payment will simply stop cooperating, and there will be no government.
Read the article. It is about “stealth repudiation,” i.e. inflating your way out of debt.
Reports are that DeGaulle said just that before U.S. went off gold standard during Nixon’s term.
Two terms of an Obama Presidency should just about do it.
“We are approaching ten trillion in debt, and some people still think we are not broke?”
Yes, some people are crazy that way. They see a total debt of $10 trillion and an annual GDP of $14.5 trillion and come up with a different opinion than yours.
Now I’ll turn it back to the people who have absolutely no education or clue about basic economics, but who nevertheless look down their noses at the science. And, also, to the gold peddlers.
Coming soon, since our politicians can’t figure out that the money they spend to buy votes has to come from somewhere.
I guess they somehow believe we can pay off the debt at any time by using gdp? I'll never understand the crazies in power.
1933 & 34 acts. Yes.
The US also failed at the time of Woodrow Wilson, when our creditors could not be paid. Examining these old acts is telling. Sometimes they’re hard to find and hidden away on crackpot sites so you feel ridiculous reading about them. But they’re there, on the books. IIRC, one of the acts in the 191X’s (teens) was CHANGED after the fact. Here I thought only the dems of modern times had their staffers add amendment language, etc. after a bill was passed. Gives you a lot of confidence.
“- our free enterprise system.
- Capitalism.
- the productivity of our US workers.
- stability.
- a thriving middle class.”
Each of which is under direct attack.
Never, as long as the dollar remains backed by the full faith and credit of the United States Marine Corps. ;)
The USA’s assets should exceed 100 trillion dollars or more. It’s hard to assess the value of all of the government owned land and natural resources.
Did we spend it all yet?
“USA’s assets should exceed 100 trillion dollars or more. It’s hard to assess the value of all of the government owned land and natural resources.
Did we spend it all yet?”
Hardly and with a 14 trillion dollar GDP and a 10 trillion dollar debt; this whole mess could be turned around in 10-20 years if the clowns in D.C. would just STOP spending our money like drunken sailors on a weekend liberty...
balance the budget, pay down the debt, quit printing money and quit messing with the interest rates...it’s not rocket science.
Heck, if they would just let us drill for oil, build nuclear power plants and new refineries, we’d lower our energy costs which would allow for other manufacturers and businesses like the airlines & trucking to flourish and prosper; we’d keep the majority of that 600 Billion for oil we send overseas annually at home and we could/would not only generate more jobs but MORE GOOD PAYING JOBS!
Actually the US is, in fact, repudiating or welshing, on part of its debt. It has been doing that for seven years. That is the effect of inflation or “devaluation” as they like to call it now.By manipulating the interest rates the effect is enhanced because borrowing rates stay nominally low and actually extremely low. Real borrowing rates are close to 0% or even negative.
I’ve been a big fan of the idea of freezing spending totally and make the politicians choose what to cut if they wanted a new program.
No built in inflation budget adjustments allowed. Natural catastrophe? Better sharpen your pencils for the cuts if you’re going to ride to the rescue with government funds.
We would as you say grow out of our debt in 20 years or so.
What are people like us going to do when things finally do go kaput is what I’m wondering?
yup.
“What are people like us going to do when things finally do go kaput is what I’m wondering?”
Pray we’re still the bitter etc. types. Have hillbilly compounds.
Jus’ ‘member, wur hicks.
How true.
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