Friday, November 14, 2008

More Experts Waking Up to U.S. Default

We all know what happens if we don't pay our bills. At best you wind up with late fees, possibly even a higher interest rate as dictated by the angry creditor you have eluded. At worst, you experience bankruptcy and carry a marred credit score limiting purchases and personal leveragability for years to come.

Here at The Cosmopolitan Charlestonian, we've been squawking for some time about default. But we're not too worried about our own balance sheets. We're talking about the default of Uncle Sam. A national default.

Although a national default is not imminent, there's no reason to avoid the facts - that it's looking a lot like that's where the U.S. is headed. Simply being open to the idea that the current bailout mania chops away at the US' triple A sovereign credit rating with each billion added can begin to leave the average citizen feeling jumpy. It's starting to seem like at any moment a burly guy named Lou, is going to jump out from behind the bushes, crowbar in hand, to repossess the car. Only in the case of a US default, Lou is China.

More and more experts are beginning to openly discuss a US default. This alone can be perceived as good and bad. On the one hand, open discussion is what we need to find solutions to our economic woes (it's the derivatives, stupid!). On the other hand, the rising cacophony of default whistle blowers means more are seeing a US default as a possibility.

NEW YORK (Reuters) - The economy faces a slump deeper than the Great Depression and a growing deficit threatens the credit of the United States itself, former Goldman Sachs chairman John Whitehead, said at the Reuters Global Finance Summit on Wednesday.
Hat tip to Financial Armageddon blog for pointing to Reuters and offering their own excellent commentary in, Not as Bad as Before, Worse.

As if confirmation from an old player at Goldman Sachs isn't enough (Goldman is so in the know with Whitehead still well connected), Satyajit Das, an expert on derivative financial products, also deduces default is an option in, We Interrupt Regular Programming to Announce that the United States of America has Defaulted. Thanks to Nouriel Roubini's blog for putting that one out there. It is true that Mr. Das correctly predicted to fall of the financial system over the last several years as we've followed his work closely. The author of Traders, Guns and Money, he is an accurate, relevant and entertaining writer. Das is also known for writing some of the key reference works in the Swaps/Financial Derivatives Library. Das was, after all, a creator of some of the derivatives himself.

The US' ability to maintain its sovereign credit rating of AAA will surely be a topic discussed in G20, which begins tomorrow. It is yet to be known if our creditors have structured a payback plan for us. One thing is guaranteed - the US will have little wiggle room.

It's evident at this point that our creditors have been gracious enough to continue extending credit (as long as things were going well). The problem now is that things aren't going so well and it's time to pay the bill. At this point, the US is pretty much broke, so do we need to revisit what happens when we don't pay our bills?


WileyCoyote said...

And, as always, Dr. Ron Paul, the ignored and maligned TX-Rep-cum-Presidential-candidate, was RIGHT.

Oh, yeah, but he was outta left field, and what made him so smart anyway, and why didn't Greenspan or Bernacke agree with him... and why did ALL of the other candidates try to tell us that he was sooo wrong and that everything was ok, really, we're FINE, FINE, FINE...

Americans prefer the consoling, passionate lie to the cold hard truth every single time. Now that Paul is silenced, they can "wake up" to the truth - the truth that people who know and understand economics already know and have been preaching since the dot-com crash of the eighties.

"You were told" is a bitter pill that no one will swallow or even admit to having in their medicine chest. Much more pleasurable to go gaily thru life as a gullible, mouth- breathing, passion-dependent lemming, who stands aghast and stunned on the overlooking precipiece when the icy wet truth is ultimately, even partially, revealed from their worshipped and revered leadership. Jump, lemmings, jump! Save yourselves!

Yawn. Sorry, a wee bit cynical here.

Harry Brinson & Stacey Barrington said...

Wiley, being a Cassandra is tiresome. God knows it is difficult to be a truth-teller in a society drawn like children to illusion. Your cynicism seems natural considering you include the dot com crash ;).

Dr. Paul IS a good man and its a shame he didn't go further. Sadly his message was lost. That's not to say we don't see some hope for President Elect Obama. We do wish this man all the best. He has been hired to clean up a gigantic mess. And he may just have been enlisted to deliver some of that truth you speak of to the American public.
At least it will be delivered eloquently.

We can only hope that by inviting comments, and throwing around ideas, that maybe we can come up with a few tidbits to help maneuver through the next decade without going broke.

BTW, if you have it in you, write a letter or e-mail to your favorite government official. Tell them to re-tool the automakers, not bail them out! Losing jobs is not a good option, but handing them more money to burn to build Hummers is just stupid.

Take care and thanks as always for opining here!

WileyCoyote said...

Joe Wilson is about the only legislator I know (aside from Ron Paul) who is at least honest or tries to be, in his dealings in the House. However, their voices of reason are frequently lost in the political machinations of Beltway Barons and dealmakers - and sometimes even they are swayed by so many constituents pulling them in hundreds of different directions. Sadly both also have around them people who are Baron wannabes, who only let them hear or read what THEY feel they should. (Hence Joe's faux pas during his campaign.) Their biggest problem is that they do not know whom to trust. Their second biggest problem is that their advisors only feed them what they want them to know - and thus they make decisions based on incomplete information.

Sorry but I do NOT have faith in Obama (not that I had any in McCain either - a two-headed chimera there!). His financial advisors are from the Fannie Mae - Freddie Mac crowd - the latter of which has just requested 1.8 billion MORE in bailout monies. Obama was one of the Senators who demanded that lending restrictions and regulations be relaxed "so that more people could buy homes". Congress is the cause, not the solution - but if you think that most of them will admit that, much less do anything more than commiserate and pontificate, well, I can sell you my stock in the Ben Sawyer bridge very, very cheaply.

We are in for a long period of 'readjustment' on the scale of which most living Americans have never seen and cannot comprehend. And it will be worse because the people have swallowed the lies and heartfelt cuddles issued from Washington instead of reading, studying, and using reason (not the magazine) to make rational decisions about their own as well as this country's future. To paraphrase a line from my favorite book - "Yes, pride is tasty, especially when you put meringue on it!" How much more meringue can we slop on this fiscal mess, before we realize that covering it with sweet puffy lies won't make it go down our throats any more easily?

Actually, this Cassandra gave up trying to save others from themselves late last year, and is now working on saving herself. ;->