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Why a U.S. Default Will be a Good Thing (or Why Default Terrifies Socialists)
Money Morning ^ | 8/11/11 | By Martin Hutchinson

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


TOPICS: Business/Economy; Government
KEYWORDS: default; europeanunion; germany; greece
Have you noticed that the media doesn't even dare to utter the word "default"?

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.

1 posted on 02/24/2012 9:36:43 AM PST by St_Thomas_Aquinas
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To: St_Thomas_Aquinas
I'm not economist but here's the problem I see

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!

2 posted on 02/24/2012 9:45:52 AM PST by Pietro
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To: St_Thomas_Aquinas

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.


3 posted on 02/24/2012 9:48:16 AM PST by jafojeffsurf (Return to the Constitution)
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To: St_Thomas_Aquinas

Just heard today that Proctor and Gamble will be cutting 5700 jobs to save $800M.

Fedgov, get a clue.


4 posted on 02/24/2012 9:50:53 AM PST by Reddy (B.O. stinks)
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To: St_Thomas_Aquinas
Why? Because default means the end of Socialism, for at least a generation.

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.

5 posted on 02/24/2012 9:51:03 AM PST by aimhigh
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To: Pietro

—— 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.


6 posted on 02/24/2012 9:53:39 AM PST by St_Thomas_Aquinas (Viva Christo Rey!)
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To: St_Thomas_Aquinas
Socialists prefer inflation, which is disguised taxation

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.
7 posted on 02/24/2012 9:58:34 AM PST by AnotherUnixGeek
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To: St_Thomas_Aquinas

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.


8 posted on 02/24/2012 9:59:37 AM PST by Secret Agent Man (I'd like to tell you, but then I'd have to kill you.)
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To: aimhigh

——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.


9 posted on 02/24/2012 10:02:37 AM PST by St_Thomas_Aquinas (Viva Christo Rey!)
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To: Pietro

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.


10 posted on 02/24/2012 10:04:14 AM PST by Secret Agent Man (I'd like to tell you, but then I'd have to kill you.)
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To: Pietro

Wilkommen in Wiemar Amerika!


11 posted on 02/24/2012 10:07:30 AM PST by Lonesome in Massachussets (Ceterum autem censeo, Obama delenda est.)
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To: St_Thomas_Aquinas
Have you noticed that the media doesn't even dare to utter the word "default"? Or when the word is mentioned, it is preceded by the word "disastrous" or "cataclysmic."

...and followed by "the Republicans' fault"...

12 posted on 02/24/2012 10:07:37 AM PST by NativeNewYorker (Freepin' Jew Boy)
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To: AnotherUnixGeek

-—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.


13 posted on 02/24/2012 10:12:46 AM PST by St_Thomas_Aquinas (Viva Christo Rey!)
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To: St_Thomas_Aquinas
Why a U.S. Default Will be a Good Thing (or Why Default Terrifies Socialists)

Irrational, self-cancelling headline.

If the socialists are so terrified, why do THEY TEMSELVES ALONE continue to make default inevitable?

14 posted on 02/24/2012 12:51:35 PM PST by Publius6961 (My world was lovely, until it was taken over by parasites.)
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To: St_Thomas_Aquinas

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.


15 posted on 02/24/2012 1:02:52 PM PST by allmendream (Tea Party did not send the GOP to D.C. to negotiate the terms of our surrender to socialism.)
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To: aimhigh
Default may scare socialists, but it doesn't scare the Marxists. Marxists want a default to create a crisis opportunity.

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?

16 posted on 02/24/2012 1:06:26 PM PST by Publius6961 (My world was lovely, until it was taken over by parasites.)
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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.


17 posted on 02/24/2012 1:09:50 PM PST by RC51
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To: allmendream

-—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.-—

Why?


18 posted on 02/24/2012 2:05:09 PM PST by St_Thomas_Aquinas (Viva Christo Rey!)
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To: St_Thomas_Aquinas
Deflation of the currency means inflation of the price of goods and services. Printing enough money to pay our creditors would cause deflation of the currency and inflation in the price of goods and services.

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!

19 posted on 02/24/2012 2:24:36 PM PST by allmendream (Tea Party did not send the GOP to D.C. to negotiate the terms of our surrender to socialism.)
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To: Publius6961

-—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.


20 posted on 02/24/2012 4:12:51 PM PST by St_Thomas_Aquinas (Viva Christo Rey!)
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To: AdmSmith; AnonymousConservative; Berosus; bigheadfred; Bockscar; ColdOne; Convert from ECUSA; ...

Thanks St_Thomas_Aquinas.
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.


21 posted on 03/03/2012 9:34:44 AM PST by SunkenCiv (FReep this FReepathon!)
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