US Government Bankruptcy

[Ogre]

So I wonder, at what point will the US Government be considered bankrupt? Or at what point will people believe they are bankrupt? Or, as I fear, are there so many people so refusing to see that the emperor has no clothes that denial will continue until bread costs $1,000,000US?

Consider:
$700 Billion in spending on bailout I
$800 Billion for Stimulus II
$750 Billion proposed for Bank Rescue II
$75.5 Billion more just proposed for Iraq III
$634 Billion proposed for Forced Communist Health Care System
And today, an operating budget that spends $1.75 Trillion more than it takes in.

That's $4.71 trillion in US government spending of money they don't even have.  And that's in just the past three months, the slime in Washington is just getting started.

[John Edward Mercier]

You'll notice the market interest rates rise dramatically.

[Russell Kanning]

I don't know when they will not be able to pay their debts ... I picture them giving up a little at a time like the russians are doing

I wonder if their is a book by Mises  or similar about Germany going broke.

[Keyser Soce]

You'll notice the market interest rates rise dramatically.

Yup. Watch the bond market for the beginning of the end.

[bigmike]

Treasury bonds, not corporate bonds right?

Isn't it funny how they say "we need $1 trillion for the stimulus package/bailout, but don't ask us where the money is going because we haven't worked out the details." Then how'd you know you needed $1 trillion?" Damn I hate corporate media.

Will someone please ask them just who exactly they are borrowing the money from? The Chinese and the Saudis cannot be that stupid to keep loaning to us unless they know something that us little people don't.

While they're at it, will someone ask why we are loaning money to banks to unfreeze the credit crunch when they don't loan money to begin with? I can't believe nobody comes out and states the obvious that banks don't loan their money, they issue credit based on how much money they have in reserve. Why don't they just change their fractional reserve rules?

I know there's no way the media would actually ask this stuff it would just be nice if more Americans knew the truth. I explained our monetary system to my family over the holidays, some of them actually believed I was making it up.

You know that sign painting party you guy's are planning? Here's my sign:

Hey Government: Quit Trying To Help!

[John Edward Mercier]

Treasury Bonds.

Yes, the individuals of this and other countries loan the money to get a risk-adjusted return.

Changing the fractional reserve percentage would result in a higher risk profile... that profile might not secure private investment after what happened at Lehmann Brothers and friends.

[bigmike]

From what I saw of the CDOs/ABS's/SPVs that Lehman, Morgan Stanley and Bear Sterns had set up, they were overly risky to begin with. Like a ponzi-scheme that nobody wants to talk about. But they bribed and coerced the rating agencies to give AAA ratings so nobody truly knew about the risk anyway.

I watched a CNN interview with this lady one Friday and she actually used the term "largest ponzi scheme in history" when describing the mortgage crisis. Monday's big story: Bernie Madoff scandal. Nice cover media:)

I don't think I'd be investing in any of their products because a prospectus doesn't truthfully paint the picture of the risk when the ratings are bogus and intentionally misleading. If they did it for mortgage backed securities, what else are they using fake ratings for?

[John Edward Mercier]

Social Security.

[cxxguy]

One person asked "from whom is the government borrowing this money".

The answer is:  nobody in particular.  They print t-bills, which promise to pay $xx in 20 years.  The bills are auctioned.  Whoever buys the bills can either resell them or hold them 'til maturity.

Another person asked "at what point is the government considered bankrupt".

The answer is: a government whose obligations are denominated in a currency they control cannot go technically "bankrupt".  They can always print more money.  They could print the money to pay the national debt tomorrow, and it would be gone.  The problem is that the money would remain, and the foreign ex-creditors would then want to send the dollars to America and buy up real goods.  China alone would be able to buy up 9 months production, if the prices didn't change.  But, of course, the prices would change.  They would skyrocket, as Americans bid against the former debtors for goods.

So the answer is:  fiat money governments don't go bankrupt.  They inflate their currency out of existance.

[Ogre]

So the answer is:  fiat money governments don't go bankrupt.  They inflate their currency out of existance.

Sadly, that's what I'm afraid is happening here today. In another 3-8 months, I can see inflation going off the scale. Then government will try and control that and screw things up even more. It wouldn't be so bad if government would just leave me alone, but I know they won't.

[John Edward Mercier]

The US Treasury has a twenty year bond?

The US would be 'bankrupt' when the total value of assets within its confiscatory powers was under obligation.

[cxxguy]

The US Treasury has a twenty year bond?

The US would be 'bankrupt' when the total value of assets within its confiscatory powers was under obligation.

But that cannot happen, because printing money allows the government to confiscate even the value of it's own debt obligations through inflation.  Because  it's debt obligations are within it's confiscatory powers, it's obligations cannot exceed it's ability to confiscate without violating an identity.

A <= A.  Nothing can be done about it.

[John Edward Mercier]

At that point the inflationary measure would become hyperinflationary without resolve... and foreign countries would refuse to accept US credit or currency.

It would internalize and bankrupt...

[cxxguy]

One could "refuse" to accept dollars for treasury bills, but if you did so, you would be refusing to be paid at all.  There is no obligation on the part of the government to pay you in an alternate currency if you're not keen on dollars when you get paid. Since a bankrupt is unable to meet the terms of his credit obligations, and since the terms specify only that a particular number of dollars be delivered, a technical  bankruptcy is impossible.

When nobody accepts dollars, it will be for new obligations, not for discharge of debt.  That's not bankruptcy, it's worse.  It's currency collapse.  Especially since the #1 cash crop in America is cash.

BTW, the 20 years should have been yy years  -- I don't know the terms of treasury bills, as I'd rather be dipped in shit than buy one.  I'll short them given the opportunity when the time is right, though.

[John Edward Mercier]

Since the dollars wouldn't have any exchange value... the act of being paid would be largely ceremonial.

Of course I would be smart enough to take the dollars... preferably in coinage, and preferably the lowest denomination... but if not, in paper of the lowest denomination.

The t-bill is usually electronic...