"F. George McDuffee" wrote in message
...
On Fri, 18 Jan 2008 09:54:12 -0500, "Ed Huntress"
wrote:


"pyotr filipivich" wrote in message
. ..
I missed the Staff meeting, but the Memos shoed that Jim Stewart
wrote on Fri, 11 Jan 2008 12:50:59 -0800 in
rec.crafts.metalworking :
F. George McDuffee wrote:

Oil hits 100$/bbl, gold hits 900$/oz, governmental debt at all
levels and the trade deficit continues to rapidly mount, and
California [as the first domino] is on the verge of bankruptcy.

Got a cite that California is "on the verge
of bankruptcy"?

Ummm, it is run by Democrats??

pyotr

Dick Cheney once said, "Reagan proved that deficits don't matter." Only he
didn't. They do.

The US cannot go bankrupt because its debts are denominated in its own
currency. States can go bankrupt, when they follow the contemporary
Republican, which is to say the Reagan/Cheney, economic philosophy.

While the US can't go bankrupt, its economy can wind up looking like it
is.
The distinction won't matter.
==========================
In the external sense, countries can and do go broke [default]
such as Argentina.

The US federal debts *HISTORCALLY* have been denominated [with a
very few exceptions] in US dollars, as this was the world's
reserve currency, and you are correct that the Treasury, or
Federal Reserve, or whoever can print enough money to pay off
these dollar denominated instruments, and other debts such as
Social Security, Veterans pensions, etc. The value of this
"money" is another thread.

It will be yet another red flag / siren / warning shot across the
bow, when the US government begins to sell securities denominated
in Euros or commodities such as oil, either to finance new debt
or to roll-over/manage the existing debt as it becomes due.

You say "when." I would say "if." There's no need for that to occur, no
historical imperative and no trap that we can't get out of. A continuation
of current policies would land us in such a trap, but I don't think it will
happen.


The shift to short-term debt [with the more frequent roll-overs],
which was done during the Clinton administration because of the
marginally lower short-term rates in effect at that time (and
perhaps to boost the bond companies volume of business), will
then bite us big time. It is the classic "borrow short - lend
long" trap that killed the S&Ls, and currently is in the process
of destroying wide swaths of the existing US economy.

The "firewalls" and "sprinklers" installed between the financial
sectors as a result of the last big economic crisis [e.g.
Glass-Steagal and Glass-Owens (cash reserve requirements)] have
been repealed and/or ignored, while regulatory agencies such as
the SEC have been rendered powerless.

Yes, and the extreme example is the unfathomable interconnections
(literally, no one understands the full circle of investment security, as
the practitioners have recently admitted) of hedge funds. If margins are
called and the cards start to fall, no one knows if the house will stand,
because no one can predict which securities actually will be targeted as the
collateral for other ones. This is not some cockeyed cracker-barrel
economics. This is what the top economists are saying all over the world.

Thank you, Ronald Reagan, for bestowing upon us this wonderful securities
system that's so free of regulation.


Even if through some quirk of fate the federal government can
avoid issuing "high yield" foreign currency denominated bonds,
possibly with a "gold clause," the enormous Current Accounts
trade debt and exploding trade deficit must still be dealt with.
For example, in addition to the governmental bonded debt, the PRC
holds about a trillion, (with a T) US dollars of "private"
current account trade debt.

Which is only a problem if the economy goes south. It's amazing how much
debt we can get away with if the economy is growing. I expect to be amazed
also at how fast it becomes a crisis when growth slows down.


It is interesting that the establishment "solution" to the
current "cold-snap" [as opposed to an actual "blue-norther") is
to print more monopoly money and give it to the people for
carefree spending through tax rebates, tax reductions, etc. More
of the same only better -- Hit'em again! -- Hit'em again!! --
harder!!! -- HARDER!!!!

It has taken 50 years to get the US into this situation.

It's worked pretty well, though, you have to admit. d8-) What has economists
nervous now is that there's no way to predict how this big pillow of debt
will play out when things are not so good.

--
Ed Huntress