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American National Debt Crisis

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  • edited July 2011
    As several people I have spoken to have said, you need to build up a Scott tolerance. In the course of this, however, you will have the intense urge to PUNCH THE MOTHERFUCKER IN THE FUCKING FACE.
    I've said it before, and I'll say it again - as much as I like, respect and at times even admire the guy, if you don't want to strangle the fuckery out of him sometimes - if even for a fleeting second - then you're either not human, or dead. I swear, he'd have the Dali Lama trying to break his jaw.
    Post edited by Churba on
  • edited July 2011
    A lot of news sites are talking about it, and I'm surprised it hasn't been mentioned here. The fourteenth amendment. I'll be honest, I knew the fourteenth amendment was the civil war amendment, but I didn't know it had anything to do with debt. When all the news started talking about it, I researched it, admittedly that research was mostly Wikipedia. But anyway, here's the deal.

    After the civil war the US had debt and the confederacy also had debt. The amendment says...
    The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.
    A strict interpretation would be that this amendment only has to do with the civil war debt, and no other debt. It basically said that real US debt was valid debt, but confederate debt was bullshit. If the REAL US owed you money, then you were AOK. If the confederates owed you money, you were shit out of luck. That is probably what the people at the time were thinking, but it doesn't matter. It says that the public debt of the US shall not be questioned.

    In Perry v. United States the Supreme Court basically said it was unconstitutional for congress to void a US bond. If the government issues a bond, which is the same as taking out a loan, congress does not have the power to void that bond. The government MUST pay. I'm no lawyer or judge, but if I were I would say that the debt ceiling is clearly unconstitutional since it is an act of congress that is causing the voiding of bonds. I'm sure a lawyer will tell me otherwise, but it seems incredibly straightforward to me.

    Obama just has no balls. If I were him, I would have just said "14th amendment, fuck you" right from the beginning. Why make the whole world suffer for weeks and weeks when that is what you'll probably be forced to do anyway?
    Post edited by Apreche on
  • We aren't voiding anything. We're just going to default on the interest we owe. It's the difference between "we won't pay it" and "we can't pay it.
  • It's the difference between "we won't pay it" and "we can't pay it.
    If we can't pay it, what's the difference between saying we can't pay it versus saying we won't pay? Either way, we aren't paying it.

    As I mentioned a number of posts up, I'm still unclear what exactly is supposed to happen here with defaulting and all the other options.

    A lot of people are talking about the end of the world. I often find that anything people start crying about is the end of the world ends up being completely innocuous and everybody continues on living.
  • A lot of people are talking about the end of the world. I often find that anything people start crying about is the end of the world ends up being completely innocuous and everybody continues on living.
    It won't be the end of the world, but it will be pretty rough. The value of the US dollar will fall significantly making a huge problem of inflation. Prices will rise, making things miserable for unemployed people. Unemployed people also have trouble if their wages don't rise. Old people might not get social security checks. Doctors might not get paid by medicare/medicaid. People having less dollars when prices go way up will be a big problem. Bread and circuses could go away.

    However, people who have money and also have debt will be doing pretty well. For example, if your student loans are $40,000 and inflation halves the value of a dollar, it's like your debt got cut in half. Your debt is still $40,000, but it's $40,000 shitty dollars, assuming you have them.
  • edited July 2011
    However, people who have money and also have debt will be doing pretty well. For example, if your student loans are $40,000 and inflation halves the value of a dollar, it's like your debt got cut in half. Your debt is still $40,000, but it's $40,000 shitty dollars, assuming you have them.
    So your advice is to borrow a considerable amount of money right now, while there is uncertainty, and spend it on stuff.

    If prices skyrocket and everything goes bad, you can use that stuff to convert it into more money than you had borrowed against (because everything inflated), and then pay back your nominal debt value while having made profit from the deal.

    If prices don't rise, sell that stuff for its value and pay back the loan.

    See the trick is you have to convert money to non-money, the non-money increases in nominal value while the debts do not, and then profit. Or break even if no crazyflation.

    That seems fairly broken to me. Am I doing it wrong?

    EDIT: but thanks, btw, for giving me the overview. I think I see some of the issues. Also, I'm unemployed, so I guess I should care a lot more than I do. But I have friends and family to lean on, just as they have always leaned on me for financial support. Interdependence is a good thing.
    Post edited by Byron on
  • It's interest vs inflation. If the interest rate is lower than actual inflation, you will make money just by borrowing money. You could borrow $10,000 now, but then when you look at the actual value of money you use to pay back the debt in the future, you've only spent $9,000 (or less) in current-year dollars.

    This has already been going on for a while (see: housing bubble) because of how low interest rates have been kept down by the fed, but if inflation went through the roof, then it will happen on a grander scale.
  • I would not recommend borrowing more money. I'm just saying that if you happen to already be in debt, but you have cash, then inflation can potentially be a good thing for you. So let's say you have a credit card, student loan, car loan, or mortgage debt right now. You probably want to be making minimum payments on it. Then if the big inflation hits, start paying it off as much as you can while the dollars you are using to pay it off are worthless.
  • It's interest vs inflation. If the interest rate is lower than actual inflation, you will make money just by borrowing money.
    That kinda makes sense. So how are lenders making money? Is this why the banks got a bailout? I thought that was all about subprime loans that couldn't get paid back by the people that took them out.
  • Let me be clear that I am not advocating anyone ever go out and rack up a lot of debt either. That would be an awful idea. Even with rate and inflation doing crazy things, it's still a huge gamble an if you're going to gamble, do it on investments not debt.
  • Well. There is the possibility, however remote, that inflation becomes so bad that we have trillion dollar bills and such. And that in the morning an apple is one trillion dollars and in the evening it is ten trillion dollars.

    In that case I recommend going to a casino. The money is so worthless that even if you lose, who gives a shit? If you lose a dollar in the morning, by the evening it will only have been a loss of a dime. By tomorrow it will be a loss of a cent. The next day it will be a tenth of a cent loss.

    However, you will have so many dollars you will be able to play for a long time. If you manage to win something, you might temporarily have a pile of cash. Maybe a slot jackpot will pay out and you'll have a quadrillion dollars on a day where that is actually enough to get you some food.

    This assumes casinos stay open in such a harsh economic climate. I'm not sure if they would...
  • dsfdsf
    edited July 2011
    Well. There is the possibility, however remote, that inflation becomes so bad that we have trillion dollar bills and such. And that in the morning an apple is one trillion dollars and in the evening it is ten trillion dollars.

    In that case I recommend going to a casino. The money is so worthless that even if you lose, who gives a shit? If you lose a dollar in the morning, by the evening it will only have been a loss of a dime. By tomorrow it will be a loss of a cent. The next day it will be a tenth of a cent loss.

    However, you will have so many dollars you will be able to play for a long time. If you manage to win something, you might temporarily have a pile of cash. Maybe a slot jackpot will pay out and you'll have a quadrillion dollars on a day where that is actually enough to get you some food.

    This assumes casinos stay open in such a harsh economic climate. I'm not sure if they would...
    I read a book on how during the economic crisis in Bolivia, money was doing exactly this. Horrifying. Especially when a US company named Bechtel(under the name of Aquas del Tanari or some shit) moved in and bought all the rights to the water utilities from the government. Part of the contract stipulated that all costs for renovating the water system would be pushed off to the customers. So people started getting water bills for like crazy money(compared to their average income). So they naturally said fuck it and installed pumps to get to wells and stuff. So then Bechtel claimed that since they owned the water utilities they could charge for wells too. The end result was that Bechtel was ejected from the country violently and then the government re-incorporated as a socialist system and they've been doing pretty ok since. Not awesome, but pretty ok. They are still struggling to deliver water to everyone, but it is at least affordable to the people that do get it.

    http://en.wikipedia.org/wiki/2000_Cochabamba_protests

    Bolivia is a pretty neat little microcosm of the Neo-Liberal Economic model life cycle.
    Post edited by dsf on
  • This assumes casinos stay open in such a harsh economic climate. I'm not sure if they would...
    The house always wins. Always.
    So then Bechtel claimed that since they owned the water utilities they could charge for wells too. The end result was that Bechtel was ejected from the country violently
    I remember hearing about this more recently than 2000. Did they do this again somewhere?

    I think when money starts going apeshit, I'm going to just make it easy on myself and say "hey grocer, give me all your apples and I won't give you a bullet." That's easy economics. Not really, but I could see some people with certain personality disorders absolutely breaking down and going that route. That thought scares me much more than nominal values flashing around.
  • edited July 2011
    One of my economics professors was a highly-placed finance minister in Yugoslavia during the Cold War who was there during the period of Soviet hyperinflation. He told stories about people carting around wheelbarrows of currency to get simple subsistence items... milk, bread, meat. He said he had to learn the hard way why purely socialist systems can't work. Interesting stories that man had. H eventually defected to the States.
    Post edited by Jason on
  • edited July 2011
    He told stories about people carting around wheelbarrows of currency to get simple subsistence items... milk, bread, meat.
    I thought currency was supposed to ease trade, not burden it. It seems like, at that point, people (in smaller circles) would simply start agreeing upon some other currency that was not a burden.

    I suppose electronic currency via credit/debit alleviates a lot of that issue, though.
    Post edited by Byron on
  • edited July 2011
    He said he had to learn the hard way why purely socialist systems can't work. Interesting stories that man had. He eventually defected to the States.
    Where do we defect to when if our system fails? Better question, where would he go if both socialism and capitalism failed him?
    Post edited by Byron on
  • He told stories about people carting around wheelbarrows of currency to get simple subsistence items... milk, bread, meat.
    I thought currency was supposed to ease trade, not burden it. It seems like, at that point, people (in smaller circles) would simply start agreeing upon some other currency that was not a burden.

    I suppose electronic currency via credit/debit alleviates a lot of that issue, though.
    In Soviet Russia, currency spends you.
  • You don't realize how true that is, do you?
  • You don't realize how true that is, do you?
    Yes. Which is why I said it. :)
  • He told stories about people carting around wheelbarrows of currency to get simple subsistence items... milk, bread, meat.
    I thought currency was supposed to ease trade, not burden it. It seems like, at that point, people (in smaller circles) would simply start agreeing upon some other currency that was not a burden.

    I suppose electronic currency via credit/debit alleviates a lot of that issue, though.
    Usually in that kind of situation, people tend to switch currencies - in Zimbabwe, almost everybody switched to the US dollar until the government gradually instated what was effectively an entirely new national currency.
  • Usually in that kind of situation, people tend to switch currencies - in Zimbabwe, almost everybody switched to the US dollar until the government gradually instated what was effectively an entirely new national currency.
    I'm betting the Soviet Union did not allow such things. Most likely, and I am completely pulling this out of my ass, there was at least one soldier stationed at each shopping outlet who would shoot any traitors that were not using The Soviet Currency.

    I think, if our monetary system did go berserk, CAD would be the go to system. Being from Michigan (where people hop over to Ontario all the time) and living in Massachusetts (where people like to embark in the culinary and winerary delights of Quebec), it is certainly the most feasible option in my mind.

    Sorry New Mexico, you too far away. Steal pecos. That'll be one wheelbarrow of cash for a loaf of bread instead of two.
  • people like to embark in the culinary and winerary delights of Quebec
    image
    Finally, something we can agree on.
  • As AWO's Clarissa pointed out on twitter, Republican Eric Cantor actually could gain personal profit from a debt default. So there you go.
  • As AWO's Clarissa pointed out on twitter, Republican Eric Cantor actually could gain personal profit from a debt default. So there you go.
    Any congressperson with a conflict of interest should be forced to abstain from having any part in crafting, negotiating, amending, voting, etc. on any legislation on which they are conflicted. It's just like how judges recuse themselves from any case where they have a conflict of interest.

    Also, I consider having a major campaign contribution from a party that would be significantly effected by the legislation as a conflict of interest. If the RIAA gave you mad moneys, then you can't take part in any copyright legislation.

    Yeah, it will never happen.

    Also, what fund did this guy invest in, and how can I invest in it?
  • Also, what fund did this guy invest in, and how can I invest in it?
    The specific fund is in the article. It shorts US bonds so that it gains value as debt increases. I imagine any such bond short fund would do the same.
  • The specific fund is in the article. It shorts US bonds so that it gains value as debt increases. I imagine any such bond short fund would do the same.
    Let's see if that's a choice at my 401k.
  • The specific fund is in the article. It shorts US bonds so that it gains value as debt increases. I imagine any such bond short fund would do the same.
    Let's see if that's a choice at my 401k.
    I looked at my 401k and my mutual funds a while back to see if they have anything based on these new fangled shorts and derivatives, and it turns out neither agency explicitly mentioned using anything but classic bond, stock, or currency investments. I'm curious if yours does.
  • The specific fund is in the article. It shorts US bonds so that it gains value as debt increases. I imagine any such bond short fund would do the same.
    Let's see if that's a choice at my 401k.
    I looked at my 401k and my mutual funds a while back to see if they have anything based on these new fangled shorts and derivatives, and it turns out neither agency explicitly mentioned using anything but classic bond, stock, or currency investments. I'm curious if yours does.
    No, they didn't have anything exciting. I've read in many places that reducing people's investment options greatly increased 401k enrollment rates. Back in the day you would get a book with a ton of choices for funds. It would be so complicated most people just wouldn't even bother doing anything at all. Nowadays most 401ks and such only have 20ish options. By giving less choices, more people actually take the time to choose.
  • edited July 2011
    Back in the day you would get a book with a ton of choices for funds. It would be so complicated most people just wouldn't even bother doing anything at all. Nowadays most 401ks and such only have 20ish options. By giving less choices, more people actually take the time to choose.
    Actually there is research that suggests limiting options is better for the consumer. One hypothesis is that consumers suffer analysis paralysis in the face of too many options; but this does not offer a solution nor explain why the analysis paralysis occurs.

    If anyone wants cites, http://scholar.google.com/ and look it up.
    Post edited by Byron on
  • but this does not offer a solution nor explain why the analysis paralysis occurs.
    There was a TED talk about the paralysis of choice, and I believe the speaker went into some detail about the mechanisms.
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