Skip to comments.What you must know about bankruptcy of the United States
Posted on 02/02/2010 4:24:25 PM PST by FromLori
Nobody likes bad news.
A few years ago, I got in hot water by insisting General Motors was bankrupt. Supporters of the company (whether investors or unionized employees) got mad at me and said I was exaggerating. They rightly pointed out GM was still servicing its debts and was still owned by its equity holders. Thus, technically at least, GM wasn't bankrupt.
In order to avoid any unnecessary litigiousness, I began to write in parody, pretending to be the chairman of General Motors and warning of the company's impending bankruptcy. One of the few ways you can still speak unpleasant truths in America is by using - or pretending to use - humor. That's why, for example, Chris Rock and Bill Cosby are our most poignant commentators on race relations and why John Stewart is perhaps our most insightful news commentator.
Meanwhile, the bankruptcy of General Motors was far from a laughing matter.
GM had no conceivable way to repay its debts. It was even borrowing money to pay for the interest expense on its existing debts.
Monitoring the company closely between 2006 and 2009 taught me quite a bit about willful self-deception. Here are the three key traits I look for now in companies facing major financial stress...
No. 1. There's never any real tally of the total amount owed. GM used byzantine accounting to hide the truth of its deteriorating fiscal condition for nearly 20 years. It was impossible for any outside analyst to get an accurate, consolidated account of GM's total debt.
No. 2. None of the company's "turnaround" plans include any efforts to actually repay principal amounts owed.
No. 3. The company's spending is out of control. In GM's case, it was also rife with fraud and absurdity - like, for example, its jobs bank where people were paid not to work.
If you don't know how much you owe, if you make no attempt to ever repay your debts, and if your spending is out of control, there's no way to avoid bankruptcy. In retrospect, these facts seem so plain and obvious. But who else was warning about GM? No one.
I bring this up to you today because the exact same things are now true about the United States of America.
We don't know how much we owe. We don't have any plan to repay our debt. And our spending is still completely out of control...
OBAMA! has sent a new budget to Congress. It contains several provisions that will make people unhappy. Taxes are going up on the rich. They're going up on private-equity firms and hedge funds. They're going up on oil and gas companies. And they're going up on multinational companies.
These new taxes are what you'll see people arguing about. They are what the politicians will complain and campaign about. Nobody wants to pay the costs of government, so that's the easy sell. But the taxes aren't the real problem with OBAMA!'s budget...
The real problem is that government spending is literally out of control.
The government is going to reduce its so-called "discretionary" spending by a grand total of $200 billion. Only about $1.4 trillion of the government's $3.8 trillion budget is discretionary. The rest is legally required, thanks to unfunded entitlement programs, like Medicare. So right now, far less than half of the government's annual budget can legally be restrained.
Meanwhile, there's no accurate tally of the government's debt. Supposedly, we owe around $12 trillion. This number is so large that it is meaningless. What does it really mean? According to the IRS, almost 143 million people filed tax returns in 2007 (the most recently reported year).
Of these people, roughly 96 million paid something in taxes - even one penny. Thus, technically, you could say there are basically 100 million taxpayers in the United States. Dividing the total debt ($12 trillion) by the number of taxpayers, you can see our total debt is actually $120,000 per taxpayer. How many people do you know can afford an additional $120,000 in debt?
And the truth is, the $12 trillion figure is only a down payment on our actual debts.
For example, nobody really knows how much more money Fannie and Freddie will require. (My bet is $500 billion each - or $1 trillion.) On Christmas Eve, when no one was looking, Congress approved unlimited funding for the two national mortgage banks.
And that's far from the only "off-budget" item. We have committed to fighting two civil wars - in Iraq and Afghanistan. The costs are likely to be $50 billion or so next year alone. How much over the next 10 years? Maybe $1 trillion? Or maybe more. And there's a new "jobs package" that's estimated to cost $76 billion next year with another $25 billion to bail out cash-strapped state governments.
Even if you only looked at the dollar amounts that have been budgeted today and you ignored all of the rest of the growth of future entitlement spending, you'll discover that we actually owe something around $20 trillion right now.
And if $20 trillion is the real number, then the amount owed by taxpayers is actually $200,000 each. Of course, that's if you're counting all of the taxpayers. Most people, though, pay almost nothing in taxes. Unless you're earning more than $50,000 per year, you're not really contributing to the tax receipts. Roughly 50 million folks are in this category. These people pay less than 10% of all income tax receipts. So you shouldn't count on them to repay much, if any, of these debts - they can't.
What's the real per-capita number? My best estimate - just on the money we actually owe today - is $400,000 per taxpayer. At a reasonable (6%) rate of interest that's $24,000 each - just to pay the interest on these debts each year. How many people do you know that could afford $24,000 a year in higher taxes? How many people can afford additional debts of $400,000?
My point? Our government is bankrupt - right now, today. Sure, it might still have access to the credit markets. And yes, since it owes dollars, it can always simply print more. I realize the government can't go bankrupt they way GM did. Our bondholders won't end up getting title to our national parks and the strategic petroleum reserve. No, that's not going to happen.
What will happen?
I can't say for certain. But here's what I know: It's not a good idea for the world's largest debtor and the world's strongest military power to go broke. Bad things happen in democracies when the government goes broke. At the very least, our creditors will demand much higher interest rates and abandon the use of our currency. That's going to devastate our standard of living.
These facts and figures should cause you to wake up and think about what you're doing with your savings. Here's a hint: Don't save dollars. And don't count on whatever the government has promised to you, whether it is a retirement or medical care. The government is bankrupt. It won't be able to deliver.
“You can’t margin (leverage) yourself 164 times legally in any form or fashion in The United States, and such a margin game, assuming you came up with some inventive way to do it, would make all of the firms that blew up in 2008 and 2009 look like pikers (Fannie/Freddie were 80:1 at the time they went boom, as was, roughly, AIG.)
Something “funny” is going on here folks, and it demands an inquiry - and answer.”
“Where Did They Get The Money (Blackrock)”
“Sure, it might still have access to the credit markets.”
I thought a couple of motnhs ago it ceased having credit. It is instead play an illegal shell game: It “buys” assets from banks then takes a loan from the bank on those assets.
This means the government has no credit resources.
Note to self: Go ahead and start that guillotine manufactury. Significant demand is not far off.
Oh, on a lighter note, if no one buys those T-notes,...
It is not hyperbole to state that the federal government has committed treason.
On more than one level...
Thank you I had not seen that. You have to wonder if there was really an economic terrorist attack with recent revelations Paulson hearts obama maybe he was the Feds/Banksters choice and that was one way to ensure it.
that is not good
It’s gotten really, REALLY hard to read, watch or listen to the financial guys like Denninger & Schiff. They’re not Charles Atlas, let alone the huge statue that stood astride the harbor over in Crete I think, to guard it.
It’s simple. We have been betrayed by those we trusted to have our financial and legislative backs. The lot of ‘em.
Close ranks. Man up. And make preparations for the next time they come at us. They are NOT modern Immortals, and they WILL be defeated. It may kill us all, one way or another, but the proverbial line in the sand has already been drawn in the sand, on the wall, and around our hearts now steeled to their entreaties.
O villain, villain, smiling, damnèd villain!
My tablesmeet it is I set it down
That one may smile, and smile, and be a villain
At least I am sure it may be so in Denmark.
“Hamlet” Act 1, scene 5, 105109
Obama’s gov’t bailouts reach 24 TRILLION and counting
Clyburn: ‘We’ve got to spend our way out of this recession’
Porter Stansbury: A few years ago, I got in hot water by insisting General Motors was bankrupt.Thanks FromLori.