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Is anyone worried about the US running out of money?
Posted by Glenbervie on 17 July 2011 - 10:05pm.
It seems fairly serious to me - as does the ongoing financial disaster in Europe. Am i being a depressive wuss, or are we on the brink of global meltdown? Any economists care to comment?
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Yes, but I'm not an economist
The consensus among commentators is that the Republicans are playing a game of brinkmanship, but as the days pass by, the situation is getting ever more critical and I wonder if they haven't collectively decided that they will damage Obama now to give themselves a better chance in the next election and possibly are even hoping that Obama will be a one term president, leaving the Democrats scrabbling to find a credible candidate.
Meanwhile the world is caught in the financial pincer of a collapsing Dollar and a collapsing Euro.
Run for the hills, we're all f******.
I do wonder
if the Republicans are stupid enough to believe that bringing the entire USA down is OK as long as Obama goes down with it.
We'll just have to wait and see...
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It is my firm belief that Market Capitalism no longer works and things are going to get a lot crazier before a more sensible way of running things prevails. Prepare yourselves for a very rough ride indeed.
Economists?
Economists? What do they know? It's all mathematically flawed bullshit, isn't it?
If they really understood their subject we would never have recessions.
Oh they understand all right.
It's just that no-one ever listens to them.
FT seems a tad worried about the last week's events
a good week to bury bad economic news you might say
http://www.ft.com/cms/s/0/1de5c92e-af0f-11e0-bb89-00144feabdc0.html#axzz...
they also had a good guide to the US standoff in the weekend edition.
While Hamish McRae is doing his best to sound reassuring today, but is just being rational here on weds:
http://www.independent.co.uk/opinion/commentators/hamish-mcrae/hamish-mc...
which quite frankly scares me ...
interesting times ahead ...
As Ronald Reagan famously said: "Government is like a baby. An alimentary canal with a big appetite at one end and no sense of responsibility at the other."
Endemic profligacy can't be sustained forever; sooner or later, someone will have to pick up the tab. We may be approaching the endgame for the big-spending social democratic welfare state (and I say that as an optimist).
The situation in the eurozone is perhaps even more interesting. How will countries whose democratic roots extend only as far back as the mid-seventies cope with the imposition of huge social, political and economic pressures?
True
However, given that collected tax revenues are at their lowest point since, well, a long time, there HAS to be a revenue lift as well as a spending cut.
Which is roughly what Obama has proposed
And which is guaranteed
to get Republicans frothing at the mouth at the very mention of it...
They would rather attack the so-called "entitlement programs" like Social Security and Medicare while at the same time opposing tax loopholes for Oil companies and tax breaks for the super wealthy.
I try not to worry about things I have no control over
to be honest.
A lot of this looks like hype stirred up by people hoping to gain from it though -- financial speculators, journalists and other bottom feeders.
Will the Euro collapse ... of course it won't.
Is this the end of the EU ... of course it isn't.
Will the US run out of money ... of course it won't.
Will the Euro collapse?
I wish I shared your confidence on that.
If Greece defaults, as is looking increasingly likely, it seems likely that the Irish government would come under huge pressure to do the same. Then what happens with the Portuguese, Spanish and Italian economies?
I don't at the moment think the dollar will collapse. I'm hoping people come to their senses. But should the Euro fail, who knows what worldwide repercussions will follow.
That would be the currency backed by
a combined GDP of about $17 trillion in which the main creditor in the world, China, as well as all the secondary creditors have huge holdings that they don't particularly want to flush down the drain?
You're applying logic
The markets don't necessarily act that sensibly.
I hope you're right because the worst case is too dreadful to contemplate.
Republicans...
Whilst by no means an expert on US politics it seems that the Republicans will do anything to destroy Obama even if it means taking their own country down the tube at the same time.
Obama's mistake was attempting to have some sort of consensus in his early days .That was taken as a sign of weakness.
Short term
Is there a good chance that I will have a great rate for the dollar when I go to New York end of September?
It's the question on everyone's lips.
It seems like the world's economy is like...
...a house of cards. And the wind around it is building up. Either that or its all a giant pyramid scheme of debt.
Like the banking system, it's ultimately all founded upon trust: as long as everyone believes in it, its 'value' will remain robust. With the UK banks that trust stayed fairly solid because the govt stepped in with guarantees, which the world/the populace of the UK was happy enough to believe in - even though runs on all the banks would have ultimately crippled the country/govt.
When people do stop believing, they withdraw their money - and that's very similar vis a vis countries and their debts. Sooner or later countries will stop bailing out Greece/Italy/etc. because, for all the 'too big to fail' talk, there really will, simply, be a point where there are not enough billions available.
How one or more countries failing within the eurozone affects the rest of the zone/world remains to be seen.
The entire global economy is just one huge Ponzi scheme...
always has been. At least in the West.
There is a strong Anti-Tax faction
which is making its presence felt in the Republican camp. Unfortunately, this kind of thinking seems to be at odds with the need to reduce a multi-trillion dollar deficit. How to do this without increasing revenue ? Hmmm..
A crisis would occur if the U.S.'s creditors (China etc.) decided to call in their loans.
We watch and wait on the sidelines. I believe that the budget is supposed to be agreed on or about 1st August, though I may be wrong.
Wish I'd bought gold
This hullabaloo is, of course, nothing to worry about when compared with the forthcoming zombie apocalypse..
Keep it down
that is the way to start mass panic.
I'm not scared, I've been rehearsing it on my X-box for months.
Yes and no
Yes I do get worried about these kinds of things but then cannot grasp what it would mean to me and my life in reality.
I have assumed that if the Euro collapses, each country would revert to their old separate currencies and for some they would become a very poor country.
Er, can anyone tell me
where all this money that supposedly rich nations like the US borrow comes from? I know its probably complicated but a simple answer would be good. It seems like every country is mortgaged to the hilt.
Well ....
... in this country a lot of the gilts issued are bought up by pension funds.
Basically the rich nations borrow from each other, China, funds and companies. But then again that really is too simple an answer.
Put in an oversimplistic way
If Governments want to spend more than their annual income (which they traditionally did on wars, but since 1945 have done more generally on social welfare, health and education) they have two options.
Either they simply print more money - which leads to inflation - or they borrow it. In the main, they do this by issuing bonds which people buy on the basis that as it is the government, it is risk free. As such they will accept a very low rate of interest. If you've ever bought premium bonds, had a National Savings account as a kid, or invested in Granny Bonds, you have contributed to this - in effect lent your money to the government. (In a sense it's the government borrowing its own money back since it printed it in the first place). While this national debt isn't particularly a problem in a closed economy (where the only people who buy government bonds are the citizens or businesses of the country) it does become an issue in the current situation of open economies where businesses and markets operate internationally.
Take two examples. Chinese businesses are making large profits and, because they are state owned, the Chinese government is awash with money. They decide to buy US government bonds as a risk free investment. Consequently large chunks of the US government debt are not owed to their own citizens but to a foreign government (which may want to protect its investment by influencing the US government).
Or the current Greek situation. The markets have decided that the Greek government bonds are no longer "risk free" and there is a danger that if you buy them you might not get your money back. So the only way the Greeks can get people to buy them is if they pay a higher rate of interest. Consequently Greece has to go further into debt to meet the payments.
Thanks for that Humphrey...
...that was very clear and helpful. And I managed to read it without doing so in a 'Robert Peston voice'.*
(* No offence meant if, indeed, you are Robert Peston. Characters: we need more of them, etc etc)
I'n not Robert Peston
But I do aspire to be Stephanie Flanders!
I liked Niall Ferguson's explanation of bonds as well
still on C4OD and worth a look imo
As far as I'm aware, Dave...
...it's a door-to-door kitchen products guy, 'Straight-Up' Tony, in Bermondsey. He's at the top of the pyramid. Someone three or four levels below him hooked in the US government, but it seems they've run out of people to sell on to...
so the US bought too many dusters and mops?
I thought someone would just reply, "The IMF" or similar, not Amway. So where does the IMF get its money from then? (Talk to me like I'm 6 years old in the hope I'll understand)
Money doesn't exist.
Faith in the ability of countries to service their debts and eventually pay back their debts (because they can tax their citizens, make stuff and sell stuff) is what gives currency its, er, currency. When international markets stop believing in the ability of countries to gather tax, make stuff, sell stuff and meet debt repayments, then we're all in the shit. Then, in extremis, countries with guns & nukes say, 'Come and collect if you think you're hard enough,' while the rest either go totally self sufficient or grind to a halt. No public sector, no public services, a bunch of banks going belly up, rioting, martial law, rationing, the major food distributors being nationalised, the army being pulled in to run Tesco, Sainsbury's, Asda etc ... Interesting times (in extremis).
So this is a big concept
But when the IMF bail out a country, where do the funds come from and how do debtors get paid? I suppose what I really want to know is: if the US and other 1st world countries have to borrow money, where does the IMF get their funds from? Not from the US presumably? Germany seems to be putting a lot of money into the Euro bail out. Do they have to borrow to meet their public spending obligations?
You create the money by borrowing/lending
Example: you go to a bank to borrow £100,000 to buy a house. The bank doesn't actually *have* £100,000 to lend you but it is allowed by law to lend the £100,000 if it has, say, £10,000 in reserve (I'm not sure of the percentage but that's the principle). Where does the other £90,000 come from? You have to pay the bank that (plus another £10k plus interest) over 25 years out of what - at the point of the loan being granted - are your future earnings. The money is effectively conjured out of thin air on the basis of your contractual obligation to the bank. Prior to that, it doesn't exist anywhere.
This
really is the unbelievable truth - on a global scale, the money is created out of thin air and only actually *exists* when it is paid back! or should I say if. The indebted countries or individuals are already in hock to the banks anyway so will never pay it all back. Talk about the emperor's new clothes, the whole thing is a massive scam/lie and will undoubtedly collapse in on itself at some point. The bizarre thing is that the economic talking heads like Peston all seem to perpetrate the idea that it's all perfectly sensible and will work out somehow. The very rich get very richer from it, all of us remain in debt for the rest of our lives. Good thing there is something better to put our trust in really.
Brazil defaulted on it's debts in spectacular fashion
some years back and look what happened to them!
After a tough period of austerity etc. it bounced right back and is one of the world's few genuinely healthy growing economies.
I think Greece should follow Brazil's example and tell it's creditors "can't pay, won't pay" and be done with it. In the long run it won't be any worse for ordinary Greeks than struggling on as they currently are.
I'm not sure if this scales up, but...
In living memory, Livingston (twice), Dundee, Motherwell and Gretna have all gone bust in Scottish football. All but Gretna have risen from the ashes and even they exist in somewhat different form.
So who loses? All the local businesses and tradesmen who worked for the clubs and never got paid. The extreme case would be a small business going bust over a debt of a few grand, the owner selling his house and signing on the dole (because Livingston tried to live the SPL dream, paid wages they couldn't afford and went down the pan owing the guy that few grand that made such a difference to his life).
When default happens it's not victimless. In the case of Ireland/Greece/Portugal/others, there may be little sympathy for the banks that hold their debt - rather than butchers, bakers and candlestick makers in the football example above - but since the debt will be collateralized with other banks - or whatever the term is - then the default could see the necessity for another round of pan-European bank bail outs that we can barely afford.
That's why the choice is
1. Bail out the Greeks with European taxpayer money OR
2. Let the Greeks default, see another banking criss and bail out the banks with, er, European taxpayer money
Note: Italy & Spain are both in the top dozen world economies and are too big to bail out. If they go then very interesting times are in store.
I know all about businesses going bust.
I've worked as a self-employed contractor for 3 firms so far that went bust and never paid me what they owed.
An occupational hazard of self-employment, I know -now-, but the first time I was left in the shit and really struggled to get out again. The other two weren't painless either.
me too
I too have had 3 bad debts. The last one was a stitch up with a pre pack deal done between Christmas and New Year. The court bailiff said it had been expertly executed and he reckoned they had done it before. I am MUCH more careful now and although I expect to be caught out again I avoid known bad payers and get money up front where possible. I have turned down work from clients who take 90 plus days to pay, difficult in current conditions, but better than not being paid at all.
It's political brinkmanship.
The US can, of course, comfortably afford to repay the debts. It is just that, at the moment, they're saying they won't as a means of destabilising Obama.
Money used to be worth a nominal weight in gold or silver
Stemming from the days when it WAS a lump of gold or silver. This was as meaningless as any other absolute scale of value but at least reflected gold and silver being pretty hard to come by and chemically inert so it was harder to adulterate them and get away with it.
In the modern era that link has gone - the final break was with the US dollar in the Nixon era. We now have a completely debt based monetary system.
Now money is worth solely what people think it might be worth - modern currencies are printed in vast quantities essentially to cover future debts and its the ability of you and me to pay that is being gambled on - until it just goes too far and the debts run up on our behalf by the financial services industry become unserviceable. 98% of debt is issued by the private banks, its out of control of the central bank altogether. It gets worse in that the vast debt is also interlaced with colossal bets against which way its going to go (get paid back or not) - i.e. derivatives which are by and large unregulated. The obligations involved via derivatives dwarf the public and private debt in this country and elsewhere.
And guess which world class industry invented all this shite that is about to engulf us? The same one that takes its cut every time money moves - ie everything now so much has been monetised and privatised. This industry is what Adair Turner calls a tax on every economic action by the productive areas of the economy. Banks don't create wealth they abstract it. They need our savings to front their insane bets. They don't pay tax. Senior banking managers were bragging this year that tehir cleaning lady paid more tax than they did. They weren't joking.
Money is about to become worthless. When people realise that every individual in the USA is going to be going round with a debt burden of hundreds of thousands of dollars, whose value is going down, then the US creditors (holders of dollar bonds) are just going to write it off. Then the whole edifice collapses. This has all happened before, lets hope its not a war this time.
The whole thing is on a knife edge and is only being kept going by cheap new sources of debt i.e. our governments who are certainly not acting on our behalf.
I'm SHIT scared.
Ah, the cleaning lady myth
I'm not one to defend bankers, but that much-reported quip was actually made by a venture capitalist, who was commenting on the fact that most of his 'income' was actually capital gains, which meant that the very generous business taper relief rules reduced his effective tax rate to 10%. Therefore, whilst he obviously paid a lot more tax than his cleaning lady in absolute terms, he paid it at a lower rate.
Bankers who are employed by UK banks in the UK cannot avoid UK income tax as easily as people believe - this is why they keep threatening to move to Switzerland whenever the top rate of tax is increased.
Worried? Not really
There´s no oil in Sweden. Norway, however. Wouldn´t get much sleep there.
isn't oil good?
I don't see your point.
I guess it´s more of a Bush era joke
If America runs out of money they´ll have to find it elsewhere. Maybe abroad. Maybe in the ground.
That was my point. It was rather lame, granted.
Don't worry
At least one person got the joke.
ah, I see
I actually slept really badly last night, thanks! Actually, I work in the oil service industry and the biggest market in the world right now is US land, mostly gas though.
You don't mean
gas extracted in this way do you?
http://www.propublica.org/series/fracking
some perspective, please
OK - things are bad economically. But compared to what and when? Here we are, with our big collections of CDs, DVDs, unread books, the slight (or more) paunch of the mildly successful. If it all goes tits-up, we grow more food, buy less, re-visit what we own, lose weight, and less money is pissed away, whether it is ours on that 'essential' box-set, rather crap festival anticlimax, subsidising political jollies for our 'leaders', etc. Nothing is steady state. Perhaps it will put life back on a more sensible course.
Iran having upgraded their cyclotrons is a much more immediate concern.
Cyclotrons
Always sound a bit Dan Dare to me. It'll be a big thing with balls and insulators all over it, looking a bit gothic, operated by a man with arched eyebrows and a pointy beard who laughs in evil fashion as he points it towards his enemy..
Like this, really. But BIGGER! MUCH BIGGER!
Go on, admit it
That's actually a piece of dental equipment
As Lenny
says, it's brinkmanship in the States and I would guess that they will come to some agreement at the last minute. We should be worried about what's happening in Europe at the moment though, plus I am running out of money as well but don't suppose Angela Merkel's too concerned about that.