Skip to comments.Why a U.S. Default Will be a Good Thing (or Why Default Terrifies Socialists)
Posted on 02/24/2012 9:36:31 AM PST by St_Thomas_Aquinas
....Future Credit Downgrades and a U.S. Default
The idea of a decline in the safety of U.S. Treasuries causing a flight to safety in which investors buy still more U.S. bonds is a sign that markets are truly irrational.
But if nothing effective is done, this game eventually will come to an end. As the U.S. credit rating is downgraded again and again, somewhere this side of BBB-minus (the lowest "investment grade" rating) the markets will finally panic and decide that U.S. deficits can no longer be supported. That will make it impossible to sell enough Treasuries to finance America's debt burden.
As in the case of Greece last year, this is likely to happen quite suddenly. And when it happens, the market's negative verdict will be irreversible.
Furthermore, since there is no kind Sugar Daddy such as the European Central Bank (ECB) standing by with its force of German taxpayers ready to bail out the U.S. Treasury, the U.S. will be forced to default.
That will be very painful in the short run, but in the long run will be a good thing.
After all, there is no reason why governments should be considered better credit risks than top- quality companies.
The Proctor & Gamble Co. (NYSE: PG) and The Coca-Cola Co. (NYSE: KO) make tangible products that people want to buy - and they do so at tightly controlled costs. So it's clear that companies like these can repay modest levels of debt under almost any circumstances.
The same is not true for a government - especially one that makes no money itself, produces few goods and services of value, and obtains money only by squeezing its unfortunate taxpayers.
Just imagine a world in which investors won't lend to governments: That's a world in which governments cannot overspend - they won't have the money.
That's a world in which resources cannot be diverted from the productive to the unproductive. That's also a world in which economic power is determined by success - and one in which the chairman of Coca-Cola has more credibility than the U.S. Treasury s ecretary.
Our leaders down in Washington may think that such a world is pure hell - a civil servant's version of Dante's Inferno.
But for investors like you and me, a world like that - where everything makes sense - is a financial Nirvana
Or when the word is mentioned, it is preceded by the word "disastrous" or "cataclysmic."
But the media has no problem with unimaginable debt, or even austerity.
Why? Because default means the end of Socialism, for at least a generation.
So "be not afraid." There is a pot of gold at the end of the default rainbow.
As credit rating decreases w/ increased spending the interest on the debt goes up substantially.
The only way to cover that interest is inflation via fiat "momopoly" money. This is stealing our savings
Welcome to Argentina!
I agree, It means we have to face our demons face on and while they print money many blind themselves to these demons and wish to hand the problem over to their offspring. Such a selfish act it is disgusting!
Let gird our loins and take what we have coming instead of making the problem bigger.
Just heard today that Proctor and Gamble will be cutting 5700 jobs to save $800M.
Fedgov, get a clue.
Default may scare socialists, but it doesn't scare the Marxists. Marxists want a default to create a crisis opportunity. Then they can nationalize every corporation they blame for causing the default.
—— The only way to cover that interest is inflation via fiat “momopoly” money. This is stealing our savings——
The alternative is default.
The reason why default is never mentioned as a possibility by the Socialist media, is because default will destroy U.S. govt credit, making it impossible for govt to borrow. It would force balanced budgets for a generation.
Socialists prefer inflation, which is disguised taxation, or even austerity. But a Keynesian’s worst nightmare is a government unable to borrow money.
The only adjectives the press uses when disasters happen under Oingo-Boingo-Bama are “surprising” and “unexpected”.
Of course lying every time they use them as they are living in the Big Brother Bizarro universe where Bama is always right and nothing he does ever fails because of him.
——Default may scare socialists, but it doesn’t scare the Marxists. Marxists want a default to create a crisis opportunity. Then they can nationalize every corporation they blame for causing the default.——
That’s true, and worth war-gaming.
My intuition says that in the post-default world, we can anticipate a fairly orderly restructuring, as in Eastern Europe post-communism.
Those living off of the taxpayer may riot for a brief period, but will lack the resources to do more, even with outside aid. See the Occupod movement. They will rapidly run out of resources, and will be busy looking for work and finding relatives to move in with.
Regardless, this is where we’re headed, like it or not.
Increasing the debt is stealing our savings too. Government has to eventually pay that, and that means all of us pay it.
In a fiat money system, and one that allows banks to create over 90% of their “money” out of thin air via fractional reserve lending, taxes are simply not needed. It’s totally a punitive system designed to control people and punish those doing well.
House of Cards that will eventually destroy itself. Along with most people under it. This regime is trying to make that self-destruction happen sooner rather than later.
Wilkommen in Wiemar Amerika!
...and followed by "the Republicans' fault"...
-—Any sign that the US government is not doing it’s utmost to fight inflation will also destroy US credit, as creditors watch the value of the debt owed to them evaporate.-—
That makes sense to me, but I don’t remember our credit rating being downgraded under Carter (13%,inflation)
Alternatively, I could see us going through an inflation/downgrade/inflation/downgrade/austerity/upgrade/inflation cycle indefinitely. This perma-depression seems like the worst possibility to me.
Irrational, self-cancelling headline.
If the socialists are so terrified, why do THEY TEMSELVES ALONE continue to make default inevitable?
Why default when we have a fiat currency?
We can print out enough bills to pay our debts tomorrow if we wanted.
It would cause massive deflation - but nothing as bad economically as a default would bring.
That reminds me...
During his "energy" speech, Hussein had the ***** to say that the Republicans don't miss an opportunity to exploit political schadenfreude?"
Didn't the "progressives" invent the concept?
Has there been a Freeper thread on that? Did I miss it?
Why borrow money when you can print it? QE1 & QE2 have done exactly that.
Default will never happen. First you & I will be paying $50 for a gallon of milk.
-—We can print out enough bills to pay our debts tomorrow if we wanted.
It would cause massive deflation-—
Wouldn’t that be inflationary?
-—but nothing as bad economically as a default would bring.-—
As to why, because it could be done gradually, and it would not be a breach of the promise our nation gives when we borrow money, which will count for a lot when we need to sell our goods overseas.
Moreover a default by us would trigger a default by everyone else. Welcome to worldwide depression!
-—If the socialists are so terrified, why do THEY TEMSELVES ALONE continue to make default inevitable? ——
It’s impossible to explain the irrational rationally, but I think it’s a combination of Keynesian theory, wishful thinking, and denial.
As the U.S. credit rating is downgraded again and again, somewhere this side of BBB-minus (the lowest "investment grade" rating) the markets will finally panic and decide that U.S. deficits can no longer be supported. That will make it impossible to sell enough Treasuries to finance America's debt burden.The sole reason that the Obama deficits might prove unsustainable is the Obama recession. Wealth isn't a fixed-size pie, although the left and their kissing cousins on the so-called extreme right believe that it is. Wealth comes from the transformation of materials (raw, or having gone through some steps or stages) into something useful and/or desired through the use of labor, technology, and energy.
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