Why economic collapse is inevitable

[Max Rockatansky]

If debt matters, the assets of the 1% can't solve the problem. It couldn't fund our current budget for any more than 8 months.

The only way that there will not be a crash, is if we can keep interest rates at their current artificially low rate. That just can't happen forever.

Disagreed on the power of the 1%. I have no doubt you are correct about the 8 months, but that only means if everything else stopped in the USA and only the 1% was funding it. Not a very likely possibility.

Disagreed about the certainty of a crash if interest rates rise. Interest rates have risen and fallen several times since the Depression. Those who whine about how bad it is now (not you, Peter11469, just a general statement) need to read more history. It's been a lot worse in this country than we've seen it now. It's a problem definitely in search of a solution and, on the track we're on, it will only get worse, but collapse? I don't see it happening because of the reasons stated.


http://www.theatlantic.com/business/...-chart/265185/

As the high-stakes wrangling over the fiscal cliff gets underway, we though it might be the proper moment to remind everybody just how the United States managed to become the world's biggest debtor.
So, here's how.


FREEDOM ISN'T FREE

The US was born in debt. The earliest full reckoning of US national debt was compiled by Alexander Hamilton, the first US Treasury Secretary, who was sort of like the Nate Silver of his era--a self-taught economist.

The analysis dates to 1790 and puts the newborn US at around a 30% debt-to-GDP ratio, with the debt a bit higher than $75 million. Where did that debt come from? Well, the Continental Congress, the rough equivalent of the Federal government in revolution-era America, lacked the power to tax. It first tried to pay for stuff by printing money. This currency, known as the Continental, collapsed. The nascent US government also raised cash by borrowing under all sorts of authorities. This National Bureau of Economic Research working paper lists them:

These included certificates issued by the Registrar of the Treasury, the Commissioners of Loans of the States, the Commissioners for the adjustment of accounts of the Quartermaster, Commissary, Hospital, Clothing and Marine Departments, the Paymaster General, and the Commissioner of Army Accounts. In addition, interest on these certificates had often been paid in further certificates known as 'indents of interest.'

All in, the US owed about $11.7 million to foreigners, mostly to Dutch bankers and the French government, and about $42 million to domestic creditors. The states also had a ton of debt (about $25 million, Hamilton reckoned), which the Federal Government assumed--take a hint, euro zone!--in 1790.
As Secretary of the Treasury, Hamilton was laser-focused on the debt, not so much to pay it off, but rather just to ensure that the fledging government could make all its payments to creditors. How? Well, tariffs and taxes. Americans were cool with that? No, 0f course not. People hated it. After all, the country had just fought a war inspired in part by a revolt against the taxation imposed by the British.

......More

[Mainecoons]

The debt has reached the point where writing down much of it is the only solution. However, that carries with it the likelihood that further borrowing would be precluded or at least highly restricted. And bear in mind that much of that debt is held in savings and retirement. One of the big drivers behind the Great Depression was the overnight evaporation of liquidity. That would happen here as well.

As for the statement that we've never had a collapse, of course we have. It was called the Great Depression, the difference was that it was caused by serious inbalance, fraud and wretched excess in the PRIVATE sector. This time, the PUBLIC sector is leading the charge to fiscal collapse.

The point is that it can't be fixed at this point without write down, it is simply too large. In the second Clinton administration, the velocity of debt acquisition had slowed to the point that moderate reforms and no more stupid overseas military misadventures would have avoided the debt explosion and distortions that started under Bush and have accelerated under Obama.

We are looking at 40 years of mismanagement here. This should disabuse any but the worst partisan hacks of the notion that one or the other of these political parties is responsible.

They both are. In spades. And we are responsible for letting them do it, for developing a culture that believes there is a free lunch.

[pjohns]

Off topic inflammatory post typical of a few here. It's only purpose is to irritate you into an emotional response and then that will justify his launching into personal attack and you're being blamed for it.

Amen to that!

Such behavior, I believe, is downright trollish...

On topic: I agree, we're in the midst of a debt bubble of sorts. But why can't the US just renege on its debt? Just simply announce, we're not going to pay if back.

Aside from the purely practical consideration at hand (i.e. any such reneging would surely result in the disinclination of other nations to lend money to the US, anytime within the foreseeable future), there is also the matter of honor: To borrow money and then refuse to repay it--even just the principal--is enormously dishonorable, it seems to me.

I have heard it asserted that there is a fundamental difference between the repudiation of a private debt and the repudiation of public debt, since the latter was not run up by the one asked to repay the loan.

And that would seem to make some sense--except for the fact that the money borrowed was the result of transactions made by our elected representatives, in our collective name. So the American people, in essence, are both morally and legally responsible for the accumulation of that debt...

[Max Rockatansky]

... So the American people, in essence, are both morally and legally responsible for the accumulation of that debt...

Of course. We always have. Has that changed since Obama was elected? I fail to see the point of why our Congress has deadlocked on fixing the budget.

[zelmo1234]

We have many financial problems, but nowhere as screwed up as Europe's. If they are still afloat, we will be too.

One fact often overlooked between all the political partisans pointing fingers at each other is the fact the rich, the 1%, have a lot more to lose in a collapse than the rest of us 99 per centers. It's for that reason that I believe the 1% won't let a collapse happen. They'll do what is necessary to save their own fat cat asses and not one thing more. That means the economy won't collapse, but we won't see much improvement for the Middle Class.

The trouble with your theory is that at this point you can confiscate everything that the 1% have and you can't even touch the national debt!

The 1% know this YES I am one of those EVIL $#@!s of which you speak! Because of this we do what we can to change policies to increase revenue! Liberal Regulations and Taxation have actually reduced revenue potential, but they will never believe it!

Trying to influence that change in direction, going down with the ship is another. And you are missing the fact that the 1% have sheltered themselves against that sinking ship! this does not mean that those that are a driving factor in the economy, want it to collapse, but that someone has to be ready to pick up the pieces and move forward!

So the secret is not in higher tax percentages, but in not only expanding revenue, but in expanding the tax base back to the levels where about 70# of Americans are contributing income taxes to the federal budget. This is the only way to produce the surpluses need to start ringing down the national debt, If the 1% see an effort to actually move on the national debt, they will be there to help reduce it quickly to a maintainable level!

But they did not get to be members of the 1% by throwing good money after bad, and right now the US economy is not a good investment!

[zelmo1234]

Of course. We always have. Has that changed since Obama was elected? I fail to see the point of why our Congress has deadlocked on fixing the budget.

So I have an idea of how I would fix the budget deficit, how would you do it?

[lynn]

I disagree that the American people are both morally and legally responsible for the accumulation of that debt. A good percentage of that debt is due to our elected officials borrowing from social security, Medicare, etc and I personally as well as many other people believe that they have no right to borrow those funds. In order to repay those funds, it is the tax payers money that is used and and any sane person would not agree with that.

Would you hire someone that mismanaged your finances and creating more debt for you and still kept them employed? Obviously the answer is "no" so why are we accepting this behavior from our government? The American people have no representation to enforce our government to follow the rules or pay the consequences.

The government will not pay down the debt since the interest on it is taking off the top of taxes collected in cash. The interest payment is simply subtracted from total collections and then deposited in general funds to spend it on whatever other pet projects. Otherwise, our tax money is suppose to be appropriated to different departments of government after interest is paid to the general fund.

[Max Rockatansky]

So I have an idea of how I would fix the budget deficit, how would you do it?

The first thing to admit is "we have to trust others". To answer you question, I could toss out some ideas like use politics to have our allies carry more of the load so we can cut our military budget, but that's just a dent. We mostly need to recognize that greed is bad. Greed works both ways; it's bad to let the rich get away with paying relatively little and it's bad to create an entitlement society where people think they have a right to other people's money.

Our major problem is one of materialism. Our worship of the Almighty Buck. Don't have a nice car? You're a loser. Don't have a big enough house or a 52" TV? Loser. Is that what we want our children to think? I hope not, but that is certainly what we are teaching them.

[Chris]

Amen to that!

Such behavior, I believe, is downright trollish...



Aside from the purely practical consideration at hand (i.e. any such reneging would surely result in the disinclination of other nations to lend money to the US, anytime within the foreseeable future), there is also the matter of honor: To borrow money and then refuse to repay it--even just the principal--is enormously dishonorable, it seems to me.

I have heard it asserted that there is a fundamental difference between the repudiation of a private debt and the repudiation of public debt, since the latter was not run up by the one asked to repay the loan.

And that would seem to make some sense--except for the fact that the money borrowed was the result of transactions made by our elected representatives, in our collective name. So the American people, in essence, are both morally and legally responsible for the accumulation of that debt...

I agree with the moral aspects of repudiation that you raise. Bottom line, even in they don't represent us I rightly, we elect and re-elect our representatives. We'd lose dignity and trust as a nation but may still have to do it.

[zelmo1234]

The first thing to admit is "we have to trust others". To answer you question, I could toss out some ideas like use politics to have our allies carry more of the load so we can cut our military budget, but that's just a dent. We mostly need to recognize that greed is bad. Greed works both ways; it's bad to let the rich get away with paying relatively little and it's bad to create an entitlement society where people think they have a right to other people's money.

Our major problem is one of materialism. Our worship of the Almighty Buck. Don't have a nice car? You're a loser. Don't have a big enough house or a 52" TV? Loser. Is that what we want our children to think? I hope not, but that is certainly what we are teaching them.

Well I think I have taught well then, I drive a 205 F150 live in a 100 year old farm house and the largest TV in my home is 26" And I have made it to the top 1%

Next you assumption that the Wealthy do not pay their fair share? What is my fair share? The top 10% are paying 80+ percent of the tax burden!

Greed, for the sake of Greed is bad I will agree, but profit for the sake of creating a successful company that will benefit others is not bad in my opinion!

I also agree that it is time for others to share the burden, for us to stop using the military unless we can take the stand of US Grant and unconditional surrender! If the conflict does not meet that standard we have no need to go!

The answer lies in controlling all government spending not just the military and that would start with a 10% real cut across the board, and this should be taken out of administrations and downsizing and conservation, not benefits provided!

Second is a track to elimination of the entitlements as we know them, changing them slowly to a personal and family wealth building program! this would also eliminate the Welfare/disability program as we know it and replace it with a program that would in fact bring people onto the working rolls