U.S. Debt Default, Dollar Collapse Altogether Likely

[Joanne98]

The prospect of the United States defaulting on its debt is not just likely. It's inevitable, and imminent.

The regulatory black holes into which sanity and reason disappear on a daily basis are soon to collapse under the mass of their sheer size. The circle jerk going on among G7 governments has to end – the steady advance of gold, even in the face of a managed price, exposes the real value of the U.S. dollar, as opposed to its apparent value expressed in the dollar index.

Is 2009 the year that the United States formally defaults? And with that, will the dollar collapse be rolled back ten for one or more?

There are a lot of reasons to support that theory. To Wall Street economists, such an event is heresy and therefore unthinkable. Yet Wall Street is the very La-la-land that bred the idea of a perpetually indebted nation in the first place.

Number one among the indicators favoring this scenario is what is happening in the U.S. Treasuries auction market.

Last Thursday, an $30 billion auction in five-year notes failed to stir the interest of traditional primary dealers. The auction itself was saved by an anonymous “indirect” bid.

Buyers are discouraged by the prospect of what is expected to amount to $2 trillion total issuance for the full year of 2009. The further out the maturities on notes, the more bearish the sentiment towards them. The only way to entice buyers is through the increase in yields.

But with yields at 1.82 per cent, five-year notes were met with a demand for 1.98 times the amount offered - the lowest bid-to-cover ratio since September. A sell-off in treasuries began in earnest upon the conclusion of that auction.

The U.S. Federal Reserve suggested last week that it was going to step up its treasury-buying activity, and the mainstream media interprets this as a form of market support. What it actually is evidence of growing anxiety and desperation on the part of the Fed as the realization dawns that demand for treasuries is progressively evaporating.

Continued>>>
http://seekingalpha.com/article/118103-u-s-debt-default-dollar-collapse-altogether-likely?source=article_sb_popular

[ORDagnabbit]

1. a number of us have for years tried to bring attention to the DU masses but like certain other

truths information like this is swept under the carpet.

[bunnies]

2. Can someone dumb this down for me?

What are the main st. implications of what he's saying?

[ixion]

4. In short, a dollar will have far less value... think of a $20 DVD

in this scenario, that DVD would cost $200.

[bunnies]

6. Holy shit!

But would that mean if someone made $10.00/hr they would then make $100.00??

[ixion]

7. yeah, but think of it like the Peso when Mexico went through this

You'd be carrying around 30k pesos worth a couple hundred bucks.

It's like that. I doubt very much, though, that wages would level evenly, but that's speculation.

[bunnies]

10. wow. Im starting to get really freaked out over all of this stuff.

Obviously economics is not my strong point, but the more I learn the more freaked I get. Thanks for the info. :hug:

[ixion]

13. don't get freaked out... just prepare...

if we work together we'll get through it. :hi: :hug:

[bunnies]

17. I'm trying to look on the bright side...

Maybe I'll finally be a millionaire! :hi:

[FedUpWithIt All]

26. Suppose you had $1000 saved. What if the value of that money suddenly was no more than $10.

You would have a ton of paper worth very little. The time and energy used to save that $1000 in the current economy will be all wasted once the hard earned $1000 becomes $10.

Think about how long it would take to set aside a certain amount of money. Now imagine that same effort expended for significantly less. That is what is facing everyone who has attempted to "set something aside" in dollar value.

Does this make sense?

[Art_from_Ark]

30. I'm already a millionaire

I've got a million dollars! Zimbabwe dollars, that is! And at the current exchange rate, a thousand million-dollar bills in Zimbabwean currency might be enough...

...to pay the sales tax on a candy bar.

Yay! I'm rich! :bounce:

[Yupster]

44. Get into massive debt

Your $ 100,000 of debt will only be worth $ 10,000.

Inflation teaches people to behave in all the wrong ways.

Why save when your money in the bank is losing purchasing power every day. Go out and spend, spend and borrow.

[Xenotime]

50. Isn't Obama doing something about this.

When I thing about "change" I wasn't thinking a $20 DVD would be $200. This sucks!

[MUAD_DIB]

11. The buying power of that 100 would still be ten. And ten would be 1.

[bunnies]

15. The dollar becomes the dime.

I think I get it. Other than being a pain in the ass though, I'm unclear as to why it would be so tragic. Im obviously still missing something. :banghead:


on edit: :think: Currency exchange?

[marketcrazy1]

19. a U.S. debt default as outlined above

would lead to a worldwide depression in a matter of weeks! ( as the dollar is the worlds reserve currency ) it would be more than " a pain in the ass " governments would collapse overnight. there would be rioting on a massive scale worldwide.... starting to get the picture.

[bunnies]

20. !!!!

I dont even know what to say in response. Wow. I had a feeling I'd be sorry I asked - but not THIS sorry! :wow: :scared:

[Yupster]

45. For one thing grandma's lifetime

of savings is all of the sudden worth a tenth it was before.

Is that bad enough?

Also everyone stops saving because their money loses value if it's not quickly spent. How's that for a lesson to teach families? Spend all of your money fast. Don't save anything because your money will be worth less tomorrow.

[Yupster]

43. And if you saved your whole life

and amassed $ 200,000 it will be worth $ 20,000. Tell that to grandma.

[ORDagnabbit]

watch....

www.moneyasdebt.net

its on youtube
http://www.youtube.com/watch?v=vVkFb26u9g8

[bunnies]

18. Perfect! Thank you so much.

I'll watch this tonight from home. :yourock:

[ORDagnabbit]

16. dupe

dupe

[notesdev]

28. No need to dumb it down

it's dumb to begin with. The US is not about to imminently default nor is the dollar going to collapse anytime soon.

The dollar is actually getting stronger these days, precisely because so many other countries are at risk of imminent default and currency crashes. The US currency is perceived as a safe refuge even in these times, because as bad as things are for us, they are far far worse in many places around the world.

[FirstLight]

3. Can you put this in context?

I am an econ moran... though I DO understand that here is no more money, nobody willing to loan us money, so how are we going to fund anything anyway...

but what does this REALLy look like, ON THE GROUND? can you explain it?
thanks!

[Doctor Cynic]

5. Go to Iceland. Then you'll understand.

[marketcrazy1]

8. !!!!!

:nuke: :nuke: :nuke:

[ixion]

9. What's more disturbing is that it took 20 years to make it into the press

if they'd been honest, they would have started reporting on this when it started in the crash of '87. Perhaps then we wouldn't be facing what we're facing now.

[marketcrazy1]

12. FirstLight

I posted a brief worst case scenario of a U.S. debt default but removed the post. I dont want to argue about it... surfice to say it would be VERY bad for us "on the ground" VERY bad!!! lets hope it does not come to that..

[Yupster]

46. They'll always be people willing to loan

The government is needing to borrow $ 150 billion per month from now on.

How do you get people to loan us that much? Easy. You keep raising interest rates.

Interest on the dollar already takes up about 10 % of the total US budget. When interest rates go up that could hit 25 % of the total budget.

Do you know anyone who spends 1/4 of their income just to make the minimum payment on their credit card? That's where the US government will be except we'll still be adding another $ 150 billion of debt every single month.

We've always had a deficit but I don't know if people realize how much the scale has changed. This year's budget deficit will be worse than any four years combined in US history, and the government is projecting it will be like this for the next decade.

It won't be. The system won't be able to support a debt that large.

[pokercat999]

47. Actually there is an unlimited supply of "money". It is

"created" from thin air every time a bank makes a loan. Through accounting magic the loan becomes an asset and, wa-la, instant money. It's really not much more complicated than that.

[Ikonoklast]

14. As soon as the rest of the world realizes that our debt is worthless

our economy will cease to exist.

How much longer will they be willing to finance us?

[SlowDownFast]

39. The rest of world will not have any money to finance us.

They are devaluing their currencies as well.

The rest of the world will probably get it harder than the US during this crisis.

The whole global economy is crashing.

[Earth Bound Misfit]

21. Can someone explain what this means

From the OP: "The auction itself was saved by an anonymous “indirect” bid"

I am a long time lurker to this forum, unfortunately my knowledge of Econ is severly lacking.

[marketcrazy1]

22. some one stepped in

to support the offering, either the FED ( buying our own debt ) or a FCB financed by our FED... not good....

[Earth Bound Misfit]

23. I suspected as much.

Thank you.:hi:

[aldo]

24. Heck, I'm counting on it

I'm counting on my gold inflating past my debts. We'll see.

[TNDemo]

25. So if you really think a total collapse is going to happen,

what do you do? Buy up necessities at today's prices? Take your money out of the bank? Run for the hills?

[LeftHandPath]

27. Number one thing to do...

and its exactly what the Federal government should be doing as well.

Save money, and get out of debt.

Unemployment is the key. Watch it closely in the next few months. If we get over 10-12% in the next 6-9 months, start thinking about access to food and water supplies in the event grocery store shelves are empty (this will happen when credit runs dry, and no one can get a loan to hire a shipper).

Start looking around your community for farms, or a food co-op. Find someone close with a well.

We are starting to organize our neighborhood and getting ready. We are sharing rows in our garden this summer for help with work. Our neighbor is getting chickens, and we are looking at getting goats and maybe rabbits for proteins.

I know its going to suck for a lot of people, but some good will come of this as well. Let me know if you want more info, happy to help you prepare.

[marketcrazy1]

29. LeftHandPath if unemployment is your trigger

I think we will see 10+ percent before june this year.. I fully expect a collapse but I do not see it this year ( unless triggered by some dramatic event outside the U.S. ) never the less I am preparing also and would appreciate any info you might be willing to share...

[Art_from_Ark]

31. The problem with saving,

at least with saving paper money, is that there is absolutely nothing backing its value. If confidence in the issuing authority disappears, so does the "value" of that paper.

I have a nice but inexpensive collection of million-mark "Notgeld" notes, Serbian hyperinflation notes, Mexican "toilet paper peso" notes, and Brazilian "time to rename our currency again" notes that will attest to that.

[wuvuj]

32. Save it and spend it?

I think you'd want to save and then invest in real assets like land/food/water/necessities/gold/silver? But real assets...not the paper versions? Do this BEFORE it devalues....

[GliderGuider]

34. It all depends on whether the money supply is inflating or deflating.

Contrary to popular belief, inflation and deflation are related to the money supply -- the effect on prices is a lagging indicator.

During deflation, if you have a choice between hard assets and money, hold money. The assets will cost less in real terms as time goes by.

A complete financial collapse would be the same as massive hyper-inflation. If the value of money goes to zero, it's the same as if the money supply had inflated infinitely. If that happens, hard assets are the place to be.

[wuvuj]

37. Inflation = devalued $?

I think I meant that you'd buy real assets before inflation started.

If you had a total collapse...would you even be able to use your cash?

So at some point before a collapse or serious inflation you need to buy real usable assets.

Most people will just get by and expect "muddle through"...and not really do a whole lot...including myself.

At least some of us will be able to say..."I told you so"?

http://www.chrismartenson.com/crashcourse/chapter-20-what-should-i-do

[GliderGuider]

33. It depends on whether we're looking at deflation or inflation over the short to medium term.

If we're heading into a period of deflation, the classic recommendation is to save. Money you put aside today will increase in value as the total amount of money (credit) in the system declines. By the same token you should pay down your debts, because the real cost of outstanding debts will increase as the money supply shrinks.

If we're facing inflation, the advice is to spend your money before it loses its value. By extension you might even want to take on debt, as the value of the debt will decrease as inflation grows.

Personally I think we're looking at a longish period of deflation as the credit/debt bubble bursts and the world de-leverages. That means pulling in your horns, saving, paying down debt as fast as possible, and improving your ability to operate outside the monetary system (especially where food and shelter is concerned).

Normally I'd advocate not laying in supplies, since the money you tie up in them will be worth more later. However, the complicating factor is that we may be facing shortages due to the breakdown of transportation systems. What makes the situation even more complicated is that even if we do face shortages they wont be uniform. That means it's impossible to tell which commodities will be run short and which won't, so you risk hoarding the wrong things.

So my best advice is: save and pay down your debts; be prudent in all things; and build up your social networks (friends will help you out when strangers won't). Above all, be aware of what's happening around you. Noticing when things start to change is much more valuable than realizing they've been changing for a while and your window of opportunity to react has closed.

[TNDemo]

35. So will the banks be salvaged?

I have to say my biggest fear of saving is that there will be a systemic collapse of the banking system. Of course if that happens I assume our money won't be worth anything anyway. I have my money spread between several banks but sometimes I wonder if I ought to be buying up necessities with that money instead but I keep telling myself I'm just being paranoid and I just keep on doing things the way I always have.

[GliderGuider]

36. Over-reaction is probably as bad as under-reaction

The entire banking system is very, very unlikely to fail all at once. TPTB will do everything in their power to keep that train on the rails, because they stand to lose too - it's not just us little people that will get crushed if it all goes down. That means that the collapse will be bumpy and protracted, and that in turn means that there will be opportunities for those who are aware and plugged in to get out of the towers before the charges go off. :evilgrin:

The plain fact is, we have no way of knowing which banks will fail, and how much buffer the FDIC will provide, so diversification is the name of the game - use several banks, and several life strategies, don't put all your money into one bank or one approach. That means a bit of hoarding is prudent, but putting all your money into canned food and ammo is probably not a winning strategy.

[SlowDownFast]

40. All of the above. n/t

[SergeyDovlatov]

38. US can never default on external debt

US debt is denomiated in dollars. Federal reserve can print as many dollars as needed.
So, contractually, US will be able to pay off with much weaker dollars.

Say, Russia or Agentina can default, because their external debts denominated in dollars.

So,

Dollar collapse - likely
US debt default - impossible (unless debt is renegotiated to be payed out un euro)

[whosinpower]

41. That only works IF

The US greenback is retained as a global reserve currency. If the value of that currency collapses -at what point will the global players step up and say - hey listen -this isn't working. We need to find a more stable currency - maybe the Euro......

Then it is game over for the Fed's - they can print as many greenbacks as they want - but if it is worthless BECAUSE the reserve currency is now priced in Euro's. IF Oil is then traded in Euro's - and the US greenback is worth pennies to what a Euro dollar is........

Well - if that threatens to occur - I guess we will see world war three. :-(

[Name removed]

42. Deleted message

Message removed by moderator. Click here to review the message board rules.

[ixion]

48. kick

[westerebus]

49. Seeking the new normal.

The rest of the planet will not pick up our tab unless they get reimbursed with higher interest. The good old days of cheap debt for government expansion are coming to an end. This is a good thing.

Borrow and spend by american consumers has slowed down dramatically. This is a good thing. Paying down debt and increasing the savings rate by american consumers are both headed in the right direction. Less debt and more saving. This is a good thing.

That the dollar is declining is not a good thing. It is an opportunity. Who determines the how is more important then the why at this point.

No country can afford the US to default. That would collapse their reserves, our dollar. That doesn't mean it can't happen. It means it has a very high probability it won't. The dollar will be devalued. Our trading partners have said so repeatedly.

They have all learned that if we go down, so do they. We are too big to fail. What they want is to reduce the risk across the boards. Currency revaluation is like bank regulation. Just who owns the money?

We haven't resolved that yet in this country. The FED and the banks have their version. The Congress has their's. You and I just pay the bills. Go figure.

We are de-leveraging. The banks aren't happy with the reduction in debt. Asset prices are contracting and interest rates are rising. You would think they would be happy. Until you open their books. Until you want to reduce systemic risk. Until you want to regulate them.

That gets us to Congress. Which party is willing to revalue the dollar? Forget gay rights, the 2ed amendment, Git-mo, Pro choice, forget any social issues. This is my money your talking about!!

The new normal means a smaller GM. What's good for GM is good for America. Are you starting to see where this is all going?

Then again what the hell do I know? Buy as much gold and as many guns as you can. Or buy a condo in Vegas and nice shiny 'vette. Or sell every thing and move to the middle of Canada.

Each has it merits.

[dixiegrrrrl]

51. Interesting to read the earlier comments here in light of where we are now.

China was not as belligerent about calling for a "new currency" back in Feb.
Devaluation was still the predominant view, now inflation and hyper inflation are being discussed widely.

The price of oil was about 40.00 bbl.

[Old Hob]

52. The meltdown of American civilization can not occur in a vacuum.

nor can it occur without serious and far reaching consequences i.e. war, starvation, anarchy, etc. I'm glad I'm young and fit. it definitely looks like a storm is coming.