Tag Archives: Default

Sex, Drugs & Rock ‘n’ Roll, by Jeff Thomas

A lot of Americans, particularly the Baby Boomers, have trouble recognizing the limits imposed by reality. From Jeff Thomas at internationalman.com:

Sex, Drugs & Rock ‘n’ Roll
The baby-boomer generation were perhaps the most privileged generation that the US has ever spawned.

Their fathers returned from World War II, eager to get married, buy a house and start a family. The economy was booming, as, during the early years of the war, the US wisely stayed out, but provided tanks, helmets and even toothbrushes to those who were directly involved in the fray.

What’s more, they didn’t accept pound notes or francs; they accepted only gold. So, at the end of the war, when the manufacturing cities of Europe had been destroyed by bombs, the male populations decimated and the governments broke, the US was on a roll. They had most of the world’s gold and had first-rate manufacturing facilities that only had to switch from making jeeps and rifles to making cars and televisions.

That wave of wealth allowed the young married couples to spoil their children with whatever they wanted.

The boomer generation reached their teens in the 1960s, and having grown accustomed to receiving whatever they wanted in life, they were young adults and wanted to party. The phrase, “sex, drugs and rock ‘n’ roll” was coined and it was an apt one. Young Americans opted for plenty of all three.

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Here’s What the Government Should Really Do in the Greater Depression, by Doug Casey

All of Casey’s suggestions make far too much sense to be implemented by our current rulers. From Casey at internationalman.com:

It’s hard to have a conversation today, or even overhear one, without being exposed to moronic – and I now use that word in its colloquial as well as its clinical sense – opinions about what “we” should do.

“We,” of course, is the government. Everyone believes it should “Do Something.” And it is.

But why deal in half-measures?

Why only send everybody a check for $1,200? Why not buy everyone a new Cadillac to get Detroit back to work, a big new house to help builders, and a $10,000 check that must be deposited at a failing bank and then spent at Victoria’s Secret.

A plan like that certainly sounds like more fun than what I’m going to propose. Especially since Americans are going to be a bit short on fun over the next little while.

They used it all up over the last generation.

I’ve explained elsewhere why we’re embarked on the Greater Depression. That’s a done deal. But here is what needs to happen if the depression is to be as brief and as therapeutic as possible.

1. Allow collapse of bankrupt entities. They’re uneconomic (as their bankruptcy has proven), their managements are overpaid and are proven incompetents. The bailout money going into them is simply wasted. Most of the real wealth now owned by the bankrupt will still exist. It will simply change ownership.

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Grab Your Bits and Shoulder Your Kits, We’re Going In! by Raúl Ilargi Meijer and Alexander Aston

The coronavirus may come to be seen as the beginning of a new era in human history. From Raúl Ilargi Meijer and Alexander Aston at theautomaticearth.com:

This is a new essay from Alexander Aston. He describes how once the world has passed through the -narrow- bottleneck of the coronavirus and its effects on our societies, which are long overdue for a redo, and on the central bank-engineered distortions of the markets that are -make that were- supposed to be the foundation that allowed us to flourish, there will be a better world waiting.

I’m all for it, and I have no rational issues with it either, but when I read“..these are the moments at which humans are the most creative and most inspiring”, my warped mind can’t NOT think: ..yes, we’re moving towards a better world, and we’re terribly sorry that you didn’t make the cut..”

Here’s Alexander:

Dear Raúl, I hope you are well. Things are all right on my side. Submitted my thesis, am being examined by the heads of Archaeology for both Cambridge and Oxford, which is a huge, albeit intimidating complement. Otherwise, just watching the world come unglued, so I wrote you something to put up if you like it. All the best – Alex

 

 

A mighty space it was, with gigantic machines here and there within it, huge mounds of material and strange shelter places.

And scattered about it, some in their overturned warmachines, some in the now rigid handling-machines, and a dozen of them stark and silent and laid in a row, were the Martians—dead!—slain by the putrefactive and disease bacteria against which their systems were unprepared; slain as the red weed was being slain; slain, after all man’s devices had failed, by the humblest things that God, in His wisdom, has put upon this earth.”

– HG Wells

 

 

It took until the first two months of 2020 for the long Twentieth Century to finally come to an end. One thing now seems absolutely clear, this will be the decade that the majority finally come to understand that things are never going back to “normal.” To be sure, the complex entanglements of institutions, narratives, cultural practices, and economic relationships that emerged during the previous century have been under immense strain these past two decades. Enormous effort has been expended to maintain the inertia of the global system, from the immense violence of imperial politics and regime change wars, to the more subtle violence of economic dispossession by a privileged elite that control the mechanisms of power.

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The State of the Union: An Annual Reminder of Inevitable Default, by Tho Bishop

Politicians bloviate, time marches on, and the nation edges ever closer to default. From Tho Bishop at mises.org:

Last night’s State of the Union was particularly noteworthy for its showmanship. Scholarships were given away, medals were awarded, families reunited. At a time when national politics is bad theater, President Trump is clearly its most gifted star.

Trump also knows what sells. As a political figure, he’s motivated not by any consistent ideology, but rather by transactional legislation. Following the performance, an MSNBC pundit noted that the speech was a “microtargeted ad” to various demographics aimed at expanding his base before next year’s election.

Combined with his Super Bowl ads highlighting criminal justice reform, his focus on charter schools and honoring a hundred-year-old Tuskegee airman are aimed at eroding away the Democrats’ 90 percent control of black voters. The cameo by Venezuela opposition leader Juan Guaidó was an appeal to Hispanic families who have fled communist regimes—perhaps a poke at Bernie Sanders. Paid family leave, a policy focus of his daughter, is intended to help him with suburban women.

What doesn’t sell? Fiscal responsibility.

The political equivalent of Crystal Pepsi, the Republican Party has given up its long-standing façade of budgetary restraint. As Donald Trump told donors earlier this year, “Who the hell cares about the budget?”

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The Three Ds of Doom: Debt, Default, Depression, by Charles Hugh Smith

The world is at the precipice of a gigantic debt-contraction and depression. From Charles Hugh Smith at oftwominds.com:

“Borrowing our way out of debt” generates the three Ds of Doom: debt leads to default which ushers in Depression.

Let’s start by defining Economic Depression: a Depression is a Recession that isn’t fixed by conventional fiscal and monetary stimulus. In other words, when a recession drags on despite massive fiscal and monetary stimulus being thrown into the economy, then the stimulus-resistant stagnation is called a Depression.

Here’s why we’re heading into a Depression: debt exhaustion. As the charts below illustrate, the U.S. (and global) economy has only “grown” in the 21st century by expanding debt roughly four times faster than GDP or earned income.

Costs for big-ticket essentials such as housing, healthcare and government services are soaring while wages stagnate or decline in purchasing power.What’s purchasing power? Rather than get caught in the endless thicket of defining inflation, ask yourself this: how much of X does one hour of labor buy now compared to 20 years ago? For example, how much healthcare does an hour of labor buy now? How many days of rent does an hour of labor buy now compared to 1999? How many hours of labor are required to pay a parking ticket now compared to 1999?

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Governments Default on Debt More than You Think, by Daniel Lacalle

Governments even default on debts denominated in their own currency, which some economists say can’t happen because governments can always print up more of their own currency. From Daniel Lacalle at mises.org:

In this era of monetary fiction, one tends to read all types of undocumented and misguided views on monetary policy. However, if there is one that really is infuriating: MMT science fiction.

One of its main principles is based on a fallacy: “A country with monetary sovereignty can issue all the debt it needs without default risk.”

First, it is untrue. A report by David Beers at the Bank Of Canada has identified 27 sovereigns involved in local currency defaults between 1960 and 2016 (database here).

When The U.S. Government Defaulted, by Global Macro Monitor

Every gold bug worth his or her salt knows when the US defaulted, but many non-gold bugs are not aware of it. From Global Macro Monitor at macromon.wordpress.com:

One of the most pervasive myths about the United States is that the federal government has never defaulted on its debts. There’s just one problem: it’s not true, and while few people remember the “gold clause cases” of the 1930s, that episode holds valuable lessons for leaders today. – Sebastian Edwards, Project Syndicate,  May 21, 2018

My friend, UCLA professor,  Sebastian Edwards, is out with a must-read summer book, American Default: The Untold Story of FDR, the Supreme Court, and the Battle over Gold.

 

May24_Edwards

 

Sebastian has also published an excellent synopsis of the the book, Learning from America’s Forgotten Default, on the Project Syndicate (PS) website.   It is an excellent introduction to the subject material but only scratches the surface and should not be a substitute or excuse for not purchasing the book.

Money quotes from the Project Syndicate  piece:  

  • There was a time, decades ago, when the US behaved more like a “banana republic” than an advanced economy, restructuring debts unilaterally and retroactively
  • In April 1933, in an effort to help the US escape the Great Depression, President Franklin Roosevelt announced plans to take the US off the gold standard and devalue the dollar. 
  • …this would not be as easy as FDR calculated. Most debt contracts at the time included a “gold clause,” which stated that the debtor must pay in “gold coin” or “gold equivalent.” 
  • These clauses were introduced during the Civil War as a way to protect investors against a possible inflationary surge.
  • …the gold clause was an obstacle to devaluation. If the currency were devalued without addressing the contractual issue, the dollar value of debts would automatically increase to offset the weaker exchange rate, resulting in massive bankruptcies and huge increases in public debt.
  • Congress passed a joint resolution on June 5, 1933, annulling all gold clauses in past and future contracts.
  • Republicans were dismayed that the country’s reputation was being put at risk, while the Roosevelt administration argued that the resolution didn’t amount to “a repudiation of contracts.”
  • On January 30, 1934, the dollar was officially devalued. The price of gold went from $20.67 an ounce – a price in effect since 1834 – to $35 an ounce.

To continue reading: When The U.S. Government Defaulted

Cataclysm, by Robert Gore

Collapse generally comes as a surprise, even to those who predict it.

The USSR didn’t just fail one day, as does a person who dies of a sudden heart attack or stroke. It was more like a wasting illness brought on by an unhealthy lifestyle. A physician tells a morbidly obese patient: “Your daily consumption of twelve cocktails, three packs of cigarettes, and 4,000 calories, and your refusal to engage in exercise more strenuous than walking to the refrigerator will kill you, but I can’t say when.” For both individuals and governments, certain choices are incompatible with continued existence, and the Soviet government made plenty of those.

Very few people foresaw its failure when it was imminent, even purported experts. The small group who said Soviet communism wouldn’t work because it couldn’t work were disparaged right up until it didn’t work. However, the deck is always stacked in favor of those predicting this or that government will fail. Ultimately they all do because they all come to rest on a foundation of coercion and fraud, which doesn’t work because it can’t work.

There is both a quantitative and qualitative calculus for individuals subject to a government: what the government takes versus what individuals get back. Government is a protection racket: turn over your money and it promises physical security from invasion and crime, and adjudication and restitution in the event of civil or criminal wrongs. The quantitative calculus: am I getting more back than I put in? The qualitative calculus: what activities and people does the government help or hinder?

Need a good laugh before the shtf?

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KINDLE EBOOK

Protection rackets are often indistinguishable from extortion rackets, the “protector” a bigger threat to the “protected” than the threats against which they’re supposedly protected. Such is the case with the US government, as it was with the former Soviet government. Blessed with naturally defensive geographies and huge nuclear arsenals, the chances of the US being attacked are (or were, in the case of the former Soviet Union) remote. The cost for actual protection provided by those governments has been a tiny fraction of what’s been extracted by force or fraud from their citizenries, the very definition of an extortion racket.

Freedom militates against stupidity; coercion compounds it. Competitive markets and a wide-open intellectual climate either kill the worst ideas or impel their improvement. Power corrupts so completely because those who hold it rarely face negative feedback or consequences. Critics are mocked, stifled, imprisoned, or murdered. The costs of failure are borne by the victims. The perpetrators blame those failures on lack of funding or authority and receive more of the same.

Nothing succeeds like failure in coercive systems. Just look at the US governments “wars” on poverty, drugs, and terrorism. For rational people in free, competitive systems an ever-expanding gap between shining intentions and dismal reality prompts psychological turmoil. The powerful salve outbreaks of cognitive dissonance with arrogance, which expands apace with their failing programs. Just look at Obamacare, which its progenitor hails as his greatest accomplishment.

As the protection racket and its sub-rackets expand, the “protected” receive less and less, but pay more and more. By now, both the quantitative and qualitative calculuses are clear to productive Americans: they’re being reamed by people they despise, who in their arrogance and willful blindness despise them. The government steals trillions directly, but still resorts to financial sub-grifts—debt, fiat money, and central banking—to feed its insatiable money-lust. Like the government’s debt, stupidity compounds exponentially and rational people wonder how long unsustainable rackets can persist. The racketeers, if they realize their rackets can’t last, don’t care; they’re going to milk them as long as they can.

With the world’s most powerful military, largest nuclear arsenal, and most intrusive surveillance apparatus, the ostensible power of the US government is daunting. Yet, if a tenth of the US population ran up their debts, withdrew their funds from the financial system, and then stopped making debt service payments for a few months, it would propel a run on the banking system, choking the government’s financial lifeline and exposing its worthless fiat debt scam. Thus, the government is hardly invulnerable. As stupidity compounds, so too do its vulnerabilities.

The foundation of the global economy and financial system is interlinked debt. Anyone paying attention during the last financial crisis recognized that it took surprisingly few defaults—debt markdowns that marked down the value of the corresponding credit-assets—in a highly leveraged and interconnected system before that system unraveled and imploded. Anyone with a modicum of analytic ability and intellectual integrity realizes that the “solution” to that last financial crisis—more government and central bank debt—was another instance of stupidity compounding itself. Now, there’s more craziness in the debt asylum than there was in 2007.

There probably won’t be a voluntary debt payment moratorium, although for anyone asking how “we the people” can throw off the burdensome yoke of “our” government that would be a fine place to start. There doesn’t have to be; the mechanics of debt implosion guarantee the same result. Most of the world’s financial assets are debt or equity claims. Equity has a lower legal right to a debtor’s assets than debt. A debt collapse will leave the world impoverished, and so too its governments. Many real assets will be tied up in creditors’ squabbles. Governments’ and their central banks’ vaunted abilities to drive interest rates to subzero, go further into debt, and exchange their pieces of paper or computer entries for other pieces of paper or computer entries will mean little in a world submerged in debt, worthless paper and computer entries.

Those who scoff at the notion of cataclysmic collapse ignore ubiquitous signs of deterioration and recent history. Real economic growth and incomes have been trending downward since the turn of the century, even by official statistics. One has to question how much of the growth in either is the product of statistical legerdemain—government statistics leave much to be desired—and debt. If debt grows at 5 percent and the economy and incomes grow at 2, is the economy actually growing? Should some present value accounting be made of the fact that the longer debt growth exceeds economic growth, the greater the burden that debt imposes on the economy?

Some say the last financial crisis proved that governments and central banks can prevent a debt implosion. They’re drawing the wrong conclusion. It “proved” that massive injections of fiat debt defibrillated the patient, and it still serves as essential life support. However, not even life support will keep the patient alive the next time the EKG flatlines. All governments will then have are lots of weapons, worthless debt, millions of angry beneficiaries, and whatever loyalty they can still command, literally, from the police-military-surveillance complexes.

At which point, the calculus becomes intolerable for those long milked and bilked by governments, and offering them only further pain with no gain. Inevitably, they will consider their options: flight, secession, devolution, or revolution. Governments are only temporary arrangements and pendulums swing. Cataclysm should afford, for those inclined, opportunities—if they’re willing to fight for them—to live under arrangements more conducive to individual freedom and voluntary interaction.

THE PINNACLE OF OPTIMISM

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What’s Next With America’s Enormous $20 Trillion Debt?, by Simon Black

If the US government’s debt is not as dire as SLL and other critics assert, then what do those who downplay the debt think would happen if the government defaulted? From Simon Black at internationalman.com:

Thousands of years ago, as far back as 3000 BC, the ancient Egyptians had developed a highly advanced system of writing using hieroglyphic symbols.

The used hieroglyphs for numbers as well.

A single line, for example, represented the number 1. Two strokes represented 2. Nine strokes for the number 9.

Since the Egyptians had not yet invented the “zero” in 3000 BC, representing the number 10 required a new symbol– a sort of upside down horseshoe.

So the number 99, for example, required eighteen different symbols: nine upside down horseshoes for the number 90, and another nine strokes for the number 9.

There was another symbol for 100, another for 1,000, and so forth.

The largest number in ancient Egypt was 1 million. As historian Will Durant wrote,

“The sign for 1,000,000 was a picture of a man striking his hands above his head, as if to express amazement that such a number should exist.”
Today the national debt in the Land of the Free is just shy of $20 trillion.

It makes me wonder what symbol the ancient Egyptians would have used to represent such an absurd figure. Hope and change?

Even the concept of trillion is difficult for our minds to fully grasp as there is very little within our physical human experience which relates to it.

“Trillion” almost seems like a fantasy… a made-up number like “a bajillion” or “zillion”.

And yet, the debt is very real.

Of course, we’re told that the debt isn’t important.

Modern “experts” who win our society’s most esteemed prizes for intellectual achievement tells us that the debt doesn’t matter “because we owe it to ourselves.”

This is pitiful logic.

It’s true that “only” $6 trillion– 30% of US debt is owned by foreigners.

The rest is owned primarily by the Federal Reserve, Social Security trust funds, US banks, large US companies, and the federal government itself.

But I fail to see how this is relevant. A debt owed is a debt owed.

To continue reading: What’s Next With America’s Enormous $20 Trillion Debt?

Puerto Rico Nearing Historic Default, by Michelle Kaske

SLL holds a simple belief: if you spend more than you take in for long enough, you will go broke. Puerto Rico confirms this simple truism. From Michell Kaske at Bloomberg Business via davidstockmanscontracorner.com:

Even if Puerto Rico manages to strike a last-minute deal to defer bond payments due in three days, the commonwealth’s financial collapse is about to enter an unprecedented phase.

Anything short of making the $422 million payment that Puerto Rico says it can’t afford would be considered a technical default. More importantly, it opens the door to larger and more consequential defaults on debt protected by the island’s constitution, and raises the risk of putting efforts to resolve the biggest crisis ever in the $3.7 trillion municipal market into turmoil.

Nearly 10 months after Governor Alejandro Garcia Padilla said the commonwealth was unable to repay all its obligations, Puerto Rico has failed to reach an accord on a broad restructuring deal presented to bondholders. During that time the administration has delayed payments to suppliers, postponed tax refunds, grabbed revenue originally used to repay other bonds and missed payments on smaller agency debt. With its options drying up, no bondholder agreement in sight and Congressional action delayed, defaulting may be the next step for Puerto Rico.

“It’s a game changer because it starts an actual legal process with teeth on both sides that can finally advance settlement negotiations,” said Matt Fabian, a partner at Municipal Market Analytics, a research firm based in Concord, Massachusetts. “Pre-default negotiations are really not going anywhere. Post default might have a better chance.”

Puerto Rico and its agencies racked up $70 billion in debt after years of borrowing to fill budget deficits and pay bills as its economy shrunk and residents left the island for work on the U.S. mainland.

The island’s Government Development Bank, which lent to the commonwealth and its municipalities, is in talks with creditors to avoid defaulting on the $422 million that’s due May 1. The commonwealth may use a new debt moratorium law if it cannot defer that GDB payment, Jesus Manuel Ortiz, a spokesman for Garcia Padilla, said Wednesday during a press conference in San Juan.

While a GDB default would be the largest yet by Puerto Rico, a missed payment on its general obligations would signal to investors that the commonwealth is finally executing on its warnings that it cannot pay its debts. Puerto Rico and its agencies owe $2 billion on July 1, including a $805 million payment on its general-obligation bonds, which are guaranteed under the island’s constitution to be paid before anything else.

To continue reading: Puerto Rico Nearing Historic Default