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What will really happen when the US Defaults?
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Michael John Hind Send message Joined: 6 Feb 07 Posts: 1330 Credit: 3,632,028 RAC: 0 |
As it stands, if America defaults on its bond payments then technically no call on its assets can be made. This is the same for all countries that raise money by issuing bonds, they’re all unsecured so not backed by anything tangible. When you buy a countries bond your loaning them money on good-will terms and so long as countries repay them bodies will buy them. If America was to default on its bonds this could signal the beginning of the end to non-asset backed State loans. When the “big boy†fails to pay-up will you then wish to loan to the smaller ones? Countries around the world have been borrowing well above their means for far too long, simply this can not go on indefinitely. So, as long as America can pay so the game will go on. Because so many countries rely on taking part in this sport no one’s going to stand-by and watch America loose. All that will happen is a re-defining of the payment rules if a shock was to occur. But it will be this shock, if it materialises, that will define the future for the bond markets. It will also define future fiscal policies for most Eastern & Western countries for many-many years to come. Fiscal policies full of frugality which will lead to severely reduced world growth for the future ahead. |
Gary Charpentier Send message Joined: 25 Dec 00 Posts: 30608 Credit: 53,134,872 RAC: 32 |
Yeah, Gary. We'll all just party like it's 1799. Federal Deposit Insurance Corporation I think the interesting thing is what happens to FDIC if the debt ceiling is hit. How can it protect your bank deposit with "the full faith and credit of the United States" if there is no faith or credit? |
rebest Send message Joined: 16 Apr 00 Posts: 1296 Credit: 45,357,093 RAC: 0 |
The Laffer Curve? What is this, 1980? The Laffer Curve was debunked long before Reagan left office. That was why he raised taxes 11 times in 8 years. It didn't work. Thank you for the history lesson. I should have been more specific. The notion of 20% being the ideal marginal rate according to the Laffer curve was, indeed, debunked. Unfortunately, like most other conservative urban legends, it comes out of the woodwork again and again, only to be picked up by the talking heads on Fox News. As to my sources, here is just one. _______ August 10, 2010 The Laffer Test (Somewhat Wonkish) by Paul Krugman The renewal of claims that tax cuts pay for themselves has led to a revival of discussion about an old question: how high do taxes have to be before further increases actually reduce revenue? So I thought it might be worth thinking about this question in terms of a simple model of labor supply. Think of an individual facing a marginal tax rate t; and think of the amount this individual produces as depending on effort, which in turn depends on how much of his or her income the individual gets to keep at the margin, i.e., 1-t. Then a little calculus will show that whether a tax hike increase raises or lowers revenue depends on whether the elasticity of effort with respect to earnings — the percentage change in effort from a 1 percent rise in 1-t, the after-tax return to effort — is less or more than (1-t)/t. An example may make the point clear. Suppose that the top marginal tax rate is 20 percent, so that high earners get to keep 80 percent of what they make. Now raise the rate to 21 percent. This is a 5 (100*1/20) percent increase in the proportion of income collected in taxes; revenue will only fall if effort falls more than 5 percent. Meanwhile, the after tax return to effort falls 1.25 percent (100*1/80). So the elasticity of effort with respect to earnings would have to be more than 4 for revenue to fall. At a marginal tax rate of 50 percent, the break point is much lower; just 1. And so on. So what do we know about the elasticity of effort with respect to earnings? Well, history suggests that if anything it’s negative: real wages have trended up over time, but working hours have fallen. That’s not a paradox, because rising wages have an income as well as a substitution effect. When you get richer, you want in general to consume more of everything, and among the things you want to consume is leisure. Against this,you can buy more goodies with an additional hour of work; but the net effect can go either way. Now, someone might come along and point out that higher taxes aren’t the same thing as lower wages, because those taxes are generally used to finance a more generous welfare state — and this can wash out the income effect. That is, if you impose taxes that bring incomes after tax back to what they were in, say, 1960, but use the revenue to finance generous retirement benefits and free medical care, you should not expect people to work as hard as they did in 1960. And that’s a good point when we’re talking about the effects of high taxes/high benefits for people in the lower part of the income distribution. But it’s not very relevant to high earners, for whom welfare-state benefits are inevitably small compared with their overall incomes. So the way I see it, even quite high marginal tax rates on high earners — even rates in, say, the 70 percent range that prevailed pre-Reagan — are unlikely to put us on the wrong side of the Laffer curve by discouraging effort. High earners won’t work much less; they might even work harder, because it takes more effort to make enough to buy that fourth home. That doesn’t mean, however, that it’s OK to go back to Eisenhower-era 91 percent top marginal rates. The problem with super-high rates isn’t so much that they reduce incentives to work; it’s that they create huge incentives to avoid or evade. But we’re nowhere near Laffer country now. In terms of taxes and revenue, up is up, down is down. Join the PACK! |
Dena Wiltsie Send message Joined: 19 Apr 01 Posts: 1628 Credit: 24,230,968 RAC: 26 |
Paul Krugman is a Keynesian and most likely a Socialist. That is hardy the type of person I would pick to judge a Capitalist economy and ideas. You might want to read about Mellon who gave us the Roaring Twenties. |
rebest Send message Joined: 16 Apr 00 Posts: 1296 Credit: 45,357,093 RAC: 0 |
Paul Krugman is a Keynesian and most likely a Socialist. That is hardy the type of person I would pick to judge a Capitalist economy and ideas. Andrew Mellon. A banker (not an economist) and Herbert Hoover's Secretary of the Treasury who staunchly stood against any kind of government relief or stimulus at the start of the Great Depression. Truly a scion of economic wisdom if there ever was one. [/sarcasm] Join the PACK! |
Dena Wiltsie Send message Joined: 19 Apr 01 Posts: 1628 Credit: 24,230,968 RAC: 26 |
Paul Krugman is a Keynesian and most likely a Socialist. That is hardy the type of person I would pick to judge a Capitalist economy and ideas. The great depression had three possible causes and none was the lack of stimulus. I most favor the argument that the Fed clamped down on the money supply and drove interest rates up to the point that they shut down business. Hover was a progressive and as such wanted bigger and more government including Smoot Hawley act that made a large cut in loan repayments to the United States because the countries that owed us money could no longer obtain the cash to repay us by selling us goods. I would remind you that Keynes was an investor who made a great deal of money off government moves. It was in his best interest to have the government move large amounts of money around as long as he knew where it was going. |
Dena Wiltsie Send message Joined: 19 Apr 01 Posts: 1628 Credit: 24,230,968 RAC: 26 |
From A Patriot's History of the United States Page 536 of the 2004 edition. Without a doubt, Harding's most astute appointment was Andrew Mellon at Treasury. Mellon, whose Pittsburgh family had generated a fortune from oil and banking, understood business better than any Treasury secretary since Hamilton. After his study of falling tax revenues revealed that the amount of money gleaned from the upper classes had declined with each new rate increase, Mellon concluded that lowering the rates on everyone, especially the wealthiest classes, would actually result in their paying more taxes. From 1921 to 1926, Congress reduced rates from 73 percent on the top income earners and 4 percent on the lowest tax payers to 25 percent and 1.5 percent, respectively, then down even further in 1929. Unexpectedly, to everyone except Mellon, the tax take from the wealthy almost tripled, but the poorer classes saw their share of the taxes fall substantially. The nation as a whole benefited as the national debt fell by one third (from $24 billion to #18 billion) in five years. |
skildude Send message Joined: 4 Oct 00 Posts: 9541 Credit: 50,759,529 RAC: 60 |
Paul Krugman is a Keynesian and most likely a Socialist. That is hardy the type of person I would pick to judge a Capitalist economy and ideas. That's funny I always thought Hoover was a do nothing Conservative. Allow the m,arkets to correct themselves. If I'm not mistaken. Inaction caused the caused the problems. Failure to regulate markets. failure to secure investments. failure of the banking industry to reign in dangerous loans. REmember there was no FDIC, SEC, or banking regulation to limit a loan exposure to investments(We have that now , Its 50%). The roaring 20's roared because of flim flam deals and unregulated borrowing. If that sounds familiar. Its because the same thing just happened with the housing market. The same folks making the same bad loans only a little twist that it cost people their homes(investments) this time. So nothing has really changed In a rich man's house there is no place to spit but his face. Diogenes Of Sinope |
Gary Charpentier Send message Joined: 25 Dec 00 Posts: 30608 Credit: 53,134,872 RAC: 32 |
Paul Krugman is a Keynesian and most likely a Socialist. That is hardy the type of person I would pick to judge a Capitalist economy and ideas. So all that regulation in the mean time and it still happened. They didn't loose their home. They never owned it. The bank owned it. Perhaps a little less entitlement mentality that they were owed a home might have gone a long way to preventing this. Ah, yes, entitlement mentality. ... |
skildude Send message Joined: 4 Oct 00 Posts: 9541 Credit: 50,759,529 RAC: 60 |
It happened again because Wall street created a "new Product" which was unregulated. Entitlement, please. When the enconomy goes south everyone loses. people are being foreclosed on homes not because of faulty loan policies. Thats old news. What's happening now is people are losing their homes because they don't have jobs. remember that 9.2% unemployment figure. take a 2 year break from work. then spend your lifesavings keeping your mortgage and other bills paid. One day the lifesavings is gone and you just can't pay the mortgage. That's the problem now. No entitlements sheesh. I do agree that people were given mortgages that should never have even been considered for loans. Todays problem is a matter of No work no money and no future. Welcome to hooverville In a rich man's house there is no place to spit but his face. Diogenes Of Sinope |
Gary Charpentier Send message Joined: 25 Dec 00 Posts: 30608 Credit: 53,134,872 RAC: 32 |
It happened again because Wall street created a "new Product" which was unregulated. And what was this new product? A loan? Entitlement, please. When the enconomy goes south everyone loses. people are being foreclosed on homes not because of faulty loan policies. Thats old news. Wow, so it isn't ARM resets any more. Or interest only loans principal payment coming due. Better tell the Wall Street types we are in for a double dip. What's happening now is people are losing their homes because they don't have jobs. remember that 9.2% unemployment figure. take a 2 year break from work. then spend your lifesavings keeping your mortgage and other bills paid. One day the lifesavings is gone and you just can't pay the mortgage. That's the problem now. No entitlements sheesh. They still didn't own the home. They felt entitled to the home because they made a few payments. You are only entitled after you make the last payment. I do agree that people were given mortgages that should never have even been considered for loans. Todays problem is a matter of No work no money and no future. Welcome to hooverville Yes, the banks were forced by the Community Reinvestment Act to make loans to unqualified individuals. Everyone understands that this Bill Clinton era law revision is responsible for the mess. This is what happens when you try to effect social policy by legislation to an intractable issue. As to jobs, WWII is coming home to roost. Before WWII women weren't in the work force. In WWII there was great need for workers as the men were overseas. When the men came back the GI bill took care of them until the MIC made its big boom. Then came Korea, NASA, Vietnam and all the other projects that over employed the population, the last being Y2K. Today, the defense department and the rest of government doesn't buy only USA made goods. The military today doesn't consume cannon fodder. The over employment stimulation has been removed. About 1/3 the work force is no longer needed. This is permanent. It will take a decade to sort out. |
skildude Send message Joined: 4 Oct 00 Posts: 9541 Credit: 50,759,529 RAC: 60 |
[] ever hear of mortgage based securities. It was all the rave up until about 2 years ago. Basically, you take Mortgages and bundle them together and sell them much like stocks. The big difference is that the people that sold the moprtgage based securities knew their wares were faulty and hid that from the investors In a rich man's house there is no place to spit but his face. Diogenes Of Sinope |
rebest Send message Joined: 16 Apr 00 Posts: 1296 Credit: 45,357,093 RAC: 0 |
From A Patriot's History of the United States Page 536 of the 2004 edition. Ah, yes. Dr. Larry Schweikart. University of Dayton. Author of 48 Liberal Lies About American History: (That You Probably Learned in School) Hmm. No idealogical agenda there. I notice that this is a popular book, rather than a peer-reviewed journal article. Kinda like Fox News. Well, whaddya know! He's a regular on Fox News! Figures. Join the PACK! |
Gary Charpentier Send message Joined: 25 Dec 00 Posts: 30608 Credit: 53,134,872 RAC: 32 |
[] So you actually don't know what the new product was. Bundling securities up and selling them has been going on since the first days on Fannie and Freddie. |
rebest Send message Joined: 16 Apr 00 Posts: 1296 Credit: 45,357,093 RAC: 0 |
I would remind you that Keynes was an investor who made a great deal of money off government moves. It was in his best interest to have the government move large amounts of money around as long as he knew where it was going. I would remind you that articles of impeachment were drawn up against Andrew Mellon for conflicts of interest in his corporate holdings. He was saved a vote by the House Judiciary Committee when Hoover literally got him out of the country by appointing him Ambassador to the Court of St. James. Join the PACK! |
Dena Wiltsie Send message Joined: 19 Apr 01 Posts: 1628 Credit: 24,230,968 RAC: 26 |
I would remind you that Keynes was an investor who made a great deal of money off government moves. It was in his best interest to have the government move large amounts of money around as long as he knew where it was going. If you wish to dig up unsubstantiated information, Keynes was a homosexual which I have no problem with. However, there are unproven stories that the age of his partners didn't matter which I do have a problem with. Anyone can dig up unproven dirt if they want. |
Dena Wiltsie Send message Joined: 19 Apr 01 Posts: 1628 Credit: 24,230,968 RAC: 26 |
From A Patriot's History of the United States Page 536 of the 2004 edition. That is not proof that what I quoted is wrong. You may not like the messenger but the facts are correct. |
rebest Send message Joined: 16 Apr 00 Posts: 1296 Credit: 45,357,093 RAC: 0 |
I would remind you that Keynes was an investor who made a great deal of money off government moves. It was in his best interest to have the government move large amounts of money around as long as he knew where it was going. What does Keynes' sexual escapades have to do with his business practices? Talk about a classic conservative "I don't like where you are going so I'm going to completely change the subject!!!" Karl Rove would be so proud. You suggested that Keynes was improperly profiting from his work. There is a boatload of evidence that Mellon's companies - and those of his friends - made enormous profits thanks to specific tax changes made under his watch at Treasury. By 1932, even the Congress had enough with his backroom dealings and a resolution was introduced on the floor of the House for his impeachment that was referred to the House Judiciary committee. This isn't "unsubstantiated". This is fact. Maybe if you did real research rather than simply reading conservative comic books, you would know the difference. Join the PACK! |
hiamps Send message Joined: 23 May 99 Posts: 4292 Credit: 72,971,319 RAC: 0 |
Thanks to everyone but especially REBEST and Skildude, I feel out of all the posts you 2 try and see all sides a bit more that Dena or Gary. They both seem to have already made up their minds about everything....Never was good with a Black and White World....Guess we will all know more in a few days if the POLITICS keeps up. Official Abuser of Boinc Buttons... And no good credit hound! |
rebest Send message Joined: 16 Apr 00 Posts: 1296 Credit: 45,357,093 RAC: 0 |
My hope is that the stock markets will get eventually get through to the Republicans where pleas for common sense have failed. Recall in 2008 that Congress initially refused to pass TARP to bail out the financial sector. The Dow responded by dropping 800 points the next day. The message was finally received and the bailout was passed. I expect the sell off will start tomorrow or Thursday at the latest. If nothing changes, July 29, 2011 will be known as Bloody Friday. Sheer stupidity. Join the PACK! |
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