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Will Sovereign Debt Defaults Bring the End of Socialism?
kitco ^ | Dec 21 2009 9:40AM | by James Turk

Posted on 12/22/2009 4:51:22 AM PST by dennisw

Socialism has come to mean many different things to many people, but regardless how it is defined, in the months immediately ahead it will be put to a rigorous test.  The test will be visible to everyone as countries around the globe run out of money and confront overwhelming debts that cannot be repaid as well as other wide-ranging financial promises that can no longer be met.  In short, the ideological bankruptcy of socialism will be laid bare by government insolvency.

It had to come sooner or later.  The reasons are not hard to understand. 

The ideological bankruptcy is neatly captured by British author and advocate for individual rights, Cecil Palmer: “Socialism is workable only in heaven where it isn’t needed, and in hell where they’ve got it”.  And government insolvency is explained by famed economist Frederic Bastiat, who made this levelheaded observation nearly 150 years ago about the nascent modern socialism then emerging.  “The State is that great fiction by which everyone tries to live at the expense of everyone else.”  More recently, Margaret Thatcher, being a sensible politician, put it pragmatically: “The problem with socialism is that you eventually run out of other people's money.”

Take Greece for example.  This past week yields on its 10-year bonds surged in the wake of downgrades by the bond rating agencies, which finally recognized that Greece does not have the financial resources needed to repay its debts, which now stand near junk levels.  Not far behind are Latvia, Spain, Ireland, the United Kingdom and almost every other country in Europe, even though they may still flog paper rated as “investment grade.”  The reality is that the rating agencies just have not yet come to grips with the breadth and depth of widespread government insolvency, or have willingly turned a blind-eye to it.  And don’t forget Iceland which of course has already collapsed.

How did we sink to this state of affairs?  Nobel Laureate Friedrich von Hayek provides the answer in his brilliantly insightful and prescient book, The Road to Serfdom, penned during the waning years of the Second World War. 

Hayek’s central theme is that wars expand the power of the modern state because the national planning to fight the war continues even during times of peace.  This perennial government planning then expands the social-welfare state over time, with harmful results.  Most importantly, economic activity is impeded by the growing state as people and resources become less productive.  In other words, because the government does not create consumable goods and services, it is an economic burden to the productive sector of the economy.

Then as the government grows, interest groups become increasingly numerous and powerful, leading to political corruption.  More wars or even foreign policy tensions and economic crises can propel demagogues and dictatorial leaders to expand further state powers to the detriment of each and every one of us.  In Hayek’s words: “Emergencies have always been the pretext on which the safeguards of individual liberty have eroded.”

Hayek noted that the subtle damage inflicted upon the productive economy and the visible growth of the state arising from socialism become evident only over time. We have now reached that stage. 

More people depend on the state than those who provide it with the money the state needs to meet its promises.  Most of Europe long ago passed the 50% threshold with more people depending on government than the private sector, but even in the United States – long reigning as the bastion of capitalism, free-markets and limited government – 58% of the population derives their income from government at some level. 
http://www.usnews.com/money/blogs/flowchart/2009/11/09/how-the-government-is-swallowing-the-economy

Consequently, we are now approaching a fork in the road.  One way leads to more socialism, more demagogues and eventually a dictator who promises that he will make socialism ‘work’.  The other leads to the capitalist society that America used to be, with free-markets, limited government and the unconditional rule of law. 

Hopefully, we will choose correctly.  If we don’t, we know from Winston Churchill what awaits us: “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.”



TOPICS: Business/Economy; Constitution/Conservatism; News/Current Events
KEYWORDS: debt; hayek; serfdom; socialism

1 posted on 12/22/2009 4:51:22 AM PST by dennisw
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To: dennisw

Obama style government is socialism and feeds off the productive private sector that actually does useful work. In nature parasites are careful not to kill their host or kill it too soon. Socialism is different and will kill the capitalists first

Or will socialist governments default first and go bankrupt first same as the USSR did in 1991?


2 posted on 12/22/2009 4:54:53 AM PST by dennisw
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To: dennisw

Heck, here in the Obama US, full-bore socialism is on the road to becoming tres chic.


3 posted on 12/22/2009 4:55:40 AM PST by Jack Hammer
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To: dennisw

Just when the rest of the world fails due to socialism, Barack Hussein Obama will ride in on his WHITE HORSE and save them all with massive give-aways.

Then, when all industrialized nations fail, he’ll work with a new group of global leaders to establish GLOBAL SOCIALISM.

You see, it isn’t that SOCIALISM has failed. It has not yet succeeded because there are those WHO STILL RESIST IT.

Once you do away with ALL RESISTANCE and TRUST them with TOTAL POWER...then EVERYTHING WILL BE JUST FINE!!!

Trust them. That’s what they demand.


4 posted on 12/22/2009 4:55:47 AM PST by Ghost of Philip Marlowe (Prepare for survival.)
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To: dennisw

“Or will socialist governments default first and go bankrupt first same as the USSR did in 1991?”

I vote for this one.


5 posted on 12/22/2009 5:01:58 AM PST by stephenjohnbanker (Support our troops, and vote out the RINO's!)
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To: Ghost of Philip Marlowe

I think US should default on its debt. Its the quickest way to end socialism. When the politicians realize theres no one around in lend to them, they’ll will have to increase taxes or decrease their promises


6 posted on 12/22/2009 5:02:55 AM PST by 4rcane
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To: dennisw

“Or will socialist governments default first and go bankrupt first same as the USSR did in 1991?”

When that happens, I’m immediately decalring myself ‘Leader of Wisconsinstan’ and I’m kicking all the LibTards OUT Of my fine state!

It would be incredibly painful, unlike anything any of us have ever lived through, but terrific if we could get back all the rights our individuals States have lost at the hands of the Feds. Wisconsin would be among the first to default. We’re currently 5 BILLION in the hole!! :)


7 posted on 12/22/2009 5:02:55 AM PST by Diana in Wisconsin (Save the Earth. It's the only planet with chocolate.)
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To: dennisw

It is not the votes that determine the government but who counts the votes. Radical Democrats are very good vote counters. Bankruptcy will be blamed on someone like Geo W Bush. The solution will be dissolution, dissolution of the US Military. Sorry, can’t cut welfare, medical care, social security, government workers. There is nowhere left to cut and no more growth in wealth once Cap & Trade starts.


8 posted on 12/22/2009 5:04:42 AM PST by ricks_place
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To: 4rcane

Ppl buying into government bonds are just as guilty as pushing socialism. It’s what keeps it going. They should all go bankrupt


9 posted on 12/22/2009 5:04:48 AM PST by 4rcane
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To: dennisw

Sovereign debt could lead to the death of constitutional republics, and an extension of socialism as governments take ever more property to pay their debts.


10 posted on 12/22/2009 5:05:50 AM PST by Daveinyork
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To: 4rcane
I think US should default on its debt. Its the quickest way to end socialism. When the politicians realize theres no one around in lend to them, they’ll will have to increase taxes or decrease their promises

I'd love to see some counties and States lead the way by default and bankruptcy. The only way outrageous pensions and bennies can be renegotiated
If California went bankrupt they should kill the Air Resources Board first. California has millions of useless lard-butt employeees

11 posted on 12/22/2009 5:07:38 AM PST by dennisw
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To: dennisw

ppl who have lots of money in pensions, should be smart enough not to put it into government bonds. If they’re not, they deserve the lost


12 posted on 12/22/2009 5:10:30 AM PST by 4rcane
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To: 4rcane
Ppl buying into government bonds are just as guilty as pushing socialism. It’s what keeps it going. They should all go bankrupt

The short version is Federal borrowing under 0bama is crowding out private borrowing
The commies in the Federal government are starving out the private sector intentionally.
More dough for the apparatchiks hare brain schemes (like 0bama-care) and less for the private sector producers

13 posted on 12/22/2009 5:11:06 AM PST by dennisw
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To: dennisw

They can not be forced in to actual bankruptcy as long as they have the power to print Fiat Currency. Never forget that to a Socialist the answer to the failure of Socialism...More Socialism.


14 posted on 12/22/2009 5:11:08 AM PST by screaminsunshine (!!)
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To: dennisw
"as countries around the globe run out of money and confront overwhelming debts that cannot be repaid "

Doesn't this kind of thing lead to WAR?

15 posted on 12/22/2009 5:15:40 AM PST by Falcon4.0
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To: dennisw

One of thje first steps toward communism is the collectivization of wealth. Once all capital belongs to the state, it can disburse it as it sees fit.

There is certainly adequate wealth in the US to honor our debt. However, there is far too little in GOVERNMENT hands to do so.

The solution: nationalize assets. Like auto manufacturers, banks, health insurance ...


16 posted on 12/22/2009 5:18:53 AM PST by IronJack (=)
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To: FromLori

Ping!


17 posted on 12/22/2009 5:19:21 AM PST by JDoutrider
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To: dennisw

“If California went bankrupt they should kill the Air Resources Board first. California has millions of useless lard-butt employeees”

Speaking of California, 5 weeks ago a friend requested a copy of her birth certificate from California. She just received a post card response that said that their normal delivery time from receipt of request to delivery is 18 weeks.


18 posted on 12/22/2009 5:22:15 AM PST by mouske
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To: dennisw

Socialism ushers in the end of human progress. I guess we have advanced far enough. Stagnation time.


19 posted on 12/22/2009 5:24:14 AM PST by central_va ( http://www.15thvirginia.org/)
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To: Falcon4.0
Doesn't this kind of thing lead to WAR?

That was kind of my take on it, but then wars are expensive. How do you pay for them if you can't borrow money? That's the tangle I get into when I look at that issue.

20 posted on 12/22/2009 5:35:28 AM PST by Hardastarboard (Maureen Dowd is right. I DON'T like our President's color. He's a Red.)
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To: Ghost of Philip Marlowe
The antidepressant manufacturing industry is going to explode, along with the rose colored glasses market.

Lawyers, banksters, educators, the triad to Tyranny.

21 posted on 12/22/2009 5:38:57 AM PST by justrepublican (Al gore, reading the entrails of an animal sacrifice.)
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To: dennisw; rabscuttle385; TigerLikesRooster; FromLori; FerFAL308
Consequently, we are now approaching a fork in the road. One way leads to more socialism, more demagogues and eventually a dictator who promises that he will make socialism ‘work’.

This is guaranteed. Bank on it.

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

~~Ludwig Von Mises

22 posted on 12/22/2009 5:59:13 AM PST by Travis McGee (---www.EnemiesForeignAndDomestic.com---)
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To: dennisw
Or will socialist governments default first and go bankrupt first same as the USSR did in 1991?

If they do, the results will be chaos and full blown despotism. Not a return to free markets.

That is what I expect here.

23 posted on 12/22/2009 6:05:16 AM PST by ChildOfThe60s ( If you can remember the 60s........you weren't really there)
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To: dennisw
Winston Churchill: “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.”
24 posted on 12/22/2009 6:05:55 AM PST by broken_arrow1 (I regret that I have but one life to give for my country - Nathan Hale "Patriot")
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To: central_va
Socialism ushers in the end of human progress.

Most human evolution occurs suddenly and definitively during tribal warfare. Socialism is motivated by runaway envy and has an unsurpassed track record leading to war.

25 posted on 12/22/2009 6:12:34 AM PST by Reeses
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To: dennisw

Eventually, without a healthy manufacturing base, money has no value. Real products are needed for sustainable trade. So the argument saying that the government will simply print more money to stay in power instead of defaulting is itself, without value. We don’t have enough of the necessary tools and facilities for production necessary to sustain a big government after default.


26 posted on 12/22/2009 6:15:53 AM PST by familyop (cbt. engr. (cbt), NG, '89-' 96, Duncan Hunter or no-vote)
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To: dennisw
Socialism and Communism ALWAYS fail eventually.

The better government takes care of the poor... the more poor will be created, until the system collapses. Very few people, if given everything in life they really NEED, will get up off their butts and do something extra to get what they want.

In other worlds, as soon as the majority figures out it can vote to give itself a countries treasury the government will collapse.

The poor should never be given the right to vote. Voting should be a privilege that you have to EARN.

27 posted on 12/22/2009 6:33:09 AM PST by TexasFreeper2009 (Obama lied, the economy died)
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To: JDoutrider

Thanks for the ping I have to agree with Travis McGee

“Consequently, we are now approaching a fork in the road. One way leads to more socialism, more demagogues and eventually a dictator who promises that he will make socialism ‘work’.
This is guaranteed. Bank on it.”

UNFCCCP: Communism red in tooth and claw at Copenhagen

But the most interesting thing about the demonstration was the counter-demonstration. Hundreds of chanting enviro-zombs turned out, carrying hammer-and-sickle flags and singing the Internationale. Yes, the hated and now-discarded symbol of Communist tyranny is back

http://sppiblog.org/news/unfcccp-communism-red-in-tooth-and-claw-at-copenhagen#more-344

Socialism/Communism whats in a name they are all forms of totalitarian control and though obama seems to be a Fascist to me since he has been paid off by the banks and corporations like GE the only real differences between any of the ism’s is the amount of force used to implement them.

I am sure that force can and will if necessary get worse. Remember the Rand article about a police stability force in the US I posted I am still wondering what their duties will be.


28 posted on 12/22/2009 8:39:59 AM PST by FromLori (FromLori)
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To: Travis McGee; dennisw; rabscuttle385; TigerLikesRooster; FromLori; FerFAL308

Did you see the Faber video Blam posted last night?

http://www.marketoracle.co.uk/Article15978.html


29 posted on 12/22/2009 8:43:34 AM PST by FromLori (FromLori)
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To: Hardastarboard

My guess: China will start taking what they want - Taiwan, maybe Hawaii, and they will tell us to sit down, shut up, or pay them what we owe them.

OR, maybe we’ll default on China, and they’ll attack us.


30 posted on 12/22/2009 8:48:43 AM PST by ichabod1 ( I am rolling over in my grave and I am not even dead yet.)
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To: 4rcane
When the politicians realize theres no one around in lend to them, they’ll will have to increase taxes or decrease their promises ------------------------------- LOL, can you just imagine politicians decreasing their promises? Increase taxes? On who? Government's union employees? They are very likely to be the only ones left working. We're reaching the point when government has no options left but to tax itself to ruination. Buy lot's of non perishables, guns and ammo. It's going to be a tough road ahead.
31 posted on 12/22/2009 9:00:59 AM PST by Joan Kerrey (The bigger the government = The smaller the people)
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To: Diana in Wisconsin

Inside Wisconsinstan, there is a mini-state called Madisonistan, compared to which Wisconsinstan is pretty lame.:-)


32 posted on 12/28/2009 7:35:18 PM PST by TigerLikesRooster (LUV DIC -- L,U,V-shaped recession, Depression, Inflation, Collapse)
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To: TigerLikesRooster

It’s ‘The People’s Republik of Madistan.’ I know it well. I live 10 miles outside of it, but drive into the fray for work each day.

I’m surrounded by idiots and LibTards all day long.

As soon as the parents pass away and the old dogs die, we’re outta here. ;)


33 posted on 12/29/2009 6:13:47 AM PST by Diana in Wisconsin (Save the Earth. It's the only planet with chocolate.)
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