Vox expands the borders of his pessimism.
Although most US-based economists are convinced that the special status of the dollar somehow renders the USA impervious to economic laws, the danger of US debt default is nearly as great as it is in Europe. The fact that the defaults are likely to begin in the next two years with the state and local governments does not mean that they are going to end there. However, a partial default would be much more likely than a general one, with the USA defaulting on the third of its debt that is presently held by China coming as a prelude to war between the waning superpower and its self-appointed would-be successor.
Major economic and historical transition points are almost always accompanied by large-scale war. I see no reason to believe that this will not be the case again in this repetition of the cycle.
It is already clear that Obama is incapable of decision-making.
He was not decisive in Porkulus, nor ObamaCare, nor Gitmo, nor Iraq.
He has made an art-form of evasive or meaningless speechification.
That doesn't cut s*&^ in a full-bore war.
"the danger of US debt default is nearly as great as it is in Europe."
ReplyDeleteYeah, which is basically nill right now for the both of them.
Partial and/or total default is a non-issue in the near future. This idea is fantasyland.
You have an opinion. So does Vox.
ReplyDeleteFrankly, I think Vox' thought on Europe is valid.
The US default? A discussion point.
Vox's link in that blog post is very accurate. Greece will need to partially or completely default on its debt. This is inevitable. But Vox makes the false assumption (like many folks are doing right now) that northern and southern European nations are one and the same in terms of default risk. They most certainly are not which is why it pains me to read about the Greek situation and it similarities to the rest of the world.
ReplyDeleteThe Krauts and Brits will be fine, largely because they are quitting Keynes as of last month.
ReplyDeleteGreece, Portugal, Spain, and Italy (possibly Ireland) are concerns.
So:
How much PIGS paper does CitiBank hold? JPMChase? WellsFargo?
Will the Fed buy that crap from them, too--like the toxic MBSs?
When it blows up, how will the Fed recover? More fiat? Repo of Seville?
"How much PIGS paper does CitiBank hold? JPMChase? WellsFargo?"
ReplyDeleteGerman and French banks hold most of this paper.
"The Krauts and Brits will be fine, largely because they are quitting Keynes as of last month"
The Germans and Brits are (relatively) fine because they hold the cards in terms of their currency valuations. The others don't have the ability to devalue so they'll have to deflate there way out of this mess which will actually lead to more debt as their GDP's collapse.
In other words, different strokes for different folks.
Oh? The Krauts dumped the Euro?
ReplyDeleteWhen was that?
All those banks are intertwined. If one falls, if the others don't, they will certainly be brought to their knees.
ReplyDeleteJust got done with the big-2year-global-plan... It ain't a pretty picture. Europe is one big friggin' question mark right now and the picture overall is pretty flat at best.
"Oh? The Krauts dumped the Euro?"
ReplyDeleteYou're killing me. Do I have to be so literal about this dadster?
The rest of Europe has attempted to adopt the former Deutsch Mark upon Germany's insistance. This is a fact. The ECB, the Euro, the EMU in general has been created specifically to adhere to German monetary principles. Hell, the Germans even insisted that the ECB be located in Frankfurt. The Euro is nothing more than an attempt to make the former Deutsch Mark a European currency.
Hence, Germany maintains control over their currency. It's also why the other European countries not named Germany are going to have big problems moving forward. They should be devalueing and boosting exports. Instead, they're deflating and creating mass unemployment.
They should be devalueing and boosting exports. Instead, they're deflating and creating mass unemployment.
ReplyDeleteConceding that the Euro is actually the DM under a different name, you seem to think that:
1) These folks should 'devalue'--which, of course, is inflationary and deleterious to their population; and
2) That "they" are 'deflating.' Well, deflation is happening in the US and it most certainly is NOT the policy of the Obama-ites. Why isn't that the case (un-forced deflation) in Europe?
What you are seeing is a result of the collapse of the Greenspan Bubble. Less asset values follow from less demand. That follows from over-indebtedness and fire-sales of assets.
1. Yes. Currency devaluation is inflationary and deleterious to their population. But nations undergoing this process usually return to growth quickly via a boost in exports which lead to growth, lower unemployment and increased tax receipts. Deflation is much worse. Entrenched deflation destroys wealth, creates mass unemployment (check out Spain) and increases debt levels as GDP collapses. Deflation usually accompanies the collapse of a nation's financial system.
ReplyDeleteI'll take currency devaluation and inflation thank you.
2. DISinflation is occuring in the U.S. and in northern European nations. Year-over-year CPI is flat or slightly negative. There's a BIG difference between disinflation and entrenched deflation which is occuring in many southern and eastern European nations right now. Bernanke's QE policy and the administration's underwhelming stimulus spending have kept the U.S. from outright deflation. So far at least.
"Less asset values follow from less demand. That follows from over-indebtedness and fire-sales of assets."
Yes I agree. But that's our problem. I'm talking about the solution.
I'll take currency devaluation and inflation thank you
ReplyDeleteMillions of SocSec recipients thank you. /sarcasm
So will millions of contract-bound union workers and coupon-clippers in the 50++ Y.O. class.
Evidently you're either too young to remember Carter's stagflation, or don't care b/c Keynes appeared in a dream and told you that it didn't happen.
The collapse in Spain has to do with Keynesians--who overspent, as usual. That label applies to GWB, but moreso to the (D) Congress of his last term.
Good work!
Oh, you go too far Dadster.
ReplyDeleteInflation, like during the 70's, can be controlled by pulling back the money stock (raising interest rates). Entrenched deflation is another matter. In other words, 70's inflation was bad, but nothing like a dose of 1930 deflation. A look at the data and history makes this obvious.
"The collapse in Spain has to do with Keynesians--who overspent, as usual."
You still are having a difficult time differentiating between Keynesian policy in normal times vs. time periods experiencing a liquidity trap. Believe what you will, but I think you need to brush up on your Keynes before making generalities like this.
Oh, I recognize that Keynes recc'd paying down the national debt when times were good.
ReplyDeleteBut the Keynesians didn't follow that advice, and still don't.
Too bad, eh?
No one has followed that advice.
ReplyDeleteYes. Too bad.