I'm certainly no expert, but I do have the good fortune of spending a lot of time talking to some of the smartest money managers in the world (yep some of those guys who were involved in things like the short sub-prime trade and betting against the banks, as well as making a nice profit on the rebound in 2009-10 too). And so far they aren't talking about a US default as being likely....

Anyway no need to get shirty with me and good luck out there - whatever happens it's going to be bumpy for a while yet I think.

Without getting shirty, how can any financial trader hedge against a US default?

The US recession visibly began at the end of 2008. It was easy to foretell well before then when US housing prices reached unsustainable and unrealistic levels in 2004 and 2005, in addition to the then-depreciating value of the USD against The Yen, The Canadian Dollar and the Euro.

I for one was not shocked when it all came tumbling down.

I am disappointed in the tactics used to get the US out of the recession. Giving government money to banks because they can lend it to businessmen and the businessmen can create jobs? really? you thought that would work? roflmao A real stimulus would go directly to the people. For all of the money they gave to the banks, they could have given every American family enough to pay off all debts. But then the hurting mega banks would lose money from interest payments.

I am disappointed that the recession has lasted this long, and that 2011 has boiled down to a battle of "It's my dolly, give it back!" And yet while talking about how to fix the problem, Republicans won't budge to put any revenue-generating mechanisms (ending tax cuts for the wealthy) and only demand budget cuts for the US government (which will result in reduced services, lower-quality services, and higher unemployment).

But I am not an economist. These are just my lay-person observations.

I think a default won't happen. There will be a Congressional vote at 11:59pm on August 2nd that will raise the debt ceiling. Just like they pushed a vote to approve a 2011 Budget and avert a government shutdown. This year's US Congress is just one giant game of financial chicken.

And once they vote to raise the debt ceiling (and I'll put money on it happening), then they'll have to start debating a 2012 Budget, which also won't be approved before Oct 1 when Fiscal year 2012 begins. Nor will it be approved before January 1 comes about.

If on the other hand, I am wrong, and the US government does default... well... it will be the end of the United States' golden age, and it will be because John Boner didn't want to raise taxes on his donors.

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I would sooner have you hate me for telling you the truth than adore me for telling you lies. - Pietro Aretino

I think the financial meltdown, the lack of an effective repsonse and the inability of US authorities to address the real structural issues behind it will be looked at by historians of the future as the beginning of the end of the US golden age. We are contempoary witnesses of that end, although there's a long way to go yet, and the US is still a very dynamic country and probably capable of undergoing quite drastic change in a relatively short space of time, so perhaps I'm being too hasty. Nonetheless, if they want to reverse this decline, they need to do something pretty fundemental.

It comes to something when the world's most powerful economy and military is run at the last minute. That's no way to keep an empire. Still, as long as a few people make lots of money out of it, it's all just part of the american dream, right?

I was not that concerned about the debt ceiling talks until I watched Charlie Rose on bloomberg in an interview with George Stephanopoulos, a republican advisor. The default risk is not a financial one its political (raising the debt ceiling). From the interview one important point that I took away was this: Republicans want an extension on the debt ceiling talks. However Obama wants to vote on the debt ceiling by Aug. 2nd and the republicans in turn will not budge. So both parties are playing a game of chicken and it seems like Obama stands to lose a lot more than his republican adversaries. The reason being that if Obama cannot get the agreement by Aug. 2nd and the US enters into a default the blame will squarely rest with Obama in the public's opinion. Meanwhile the republicans on the other hand want to push out the talks in time for the election season and use their stance on the debt ceiling to win themselves the coveted tea party votes.Obama may have to concede and push out the talks meaning that the debt ceiling talks will have to take place during election season. That means that Michele Bachman, Palin and their respective Tea Party cohorts may influence the issue of whether the debt ceiling will be raised. And that's whats got me worried. The fact that such a radical party may have any sway over such an important decision. Meanwhile
http://www.bbc.co.uk/news/business-14142621

Even if there is only a small chance of a default the situation is still sobering. When I came to the US shortly before 9/11 the US seemed to be cast as a beacon of hope and prosperity. Now we're at long-term 9% unemployment, still suffering from a housing hangover, and I read stories about how we're going to have to eventually scrap Medicare and Social Security since there is no money to fund those programs (SS tax revenues have used bonded out against treasuries and they will be increasingly unmarketable given the ever growing trouble the Fed is having in actually selling its treasuries at offerings, and the small detail that well, the money is going to have to be paid back some time in the near future). But whats more in 2012 (1 year from now) it is estimated that we will have reached the anticipated debt ceiling of 16.5 trillion (thats if congress passes the current debt ceiling). Then our debt will be larger than our entire economy. Then what, tax the rich? lol you think people with a bit of wealth in the US will not see a losing hand, fold and expatriate? You wait and see.

from the Washington Post:
Moody’s moves one step closer to downgrading U.S. (credit).

http://www.washingtonpost.com/busine...rc=al_national

"Moody’s Investors Service said Wednesday it has put the U.S. government’s top-notch credit rating on review for a possible downgrade because of the risk that Washington will not raise the federal debt ceiling in time to avoid a default.
The firm added that even a brief failure of the government to pay its bills would mean that the United States’s Aaa rating “would likely no longer be appropriate.” "

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I would sooner have you hate me for telling you the truth than adore me for telling you lies. - Pietro Aretino

Is China getting nervous? They have the European debt now this?

they all will be fine, including those rating companies..
Hollywood makes good movies with a happy ending always.

Worst case, watch out your pocket or even your land

My two cents worth---the problem boils down to the fact that there is a generation of conservatives who genuinely believe that there are no circumstances under which taxes should ever be raised. Some of these people may believe in Darwin's theory of evolution, but like creationist skeptics neither facts nor logic will convince them they are wrong in their belief.

P.S. Please note that I am replying to this thread, but I did not START it.

been here before except this time it is more acrimonious. I am sure that many Republicans would love to throttle the tea smokers. I feel that they should concentrate more on the lobbyists both Democrat and Republican. Politicians care more about losing their seats and less about compromise on the debt.



Obama is raking in campaign funds from supporters over this whole debacle.

I hate the way that American pundits shout, but what he says is what I believe and it is depressing.

Short answer: it can, in the same sense you can fire a bullet into your mouth. And there about as much reason to do so.

The only reason the US will default any time soon is because either Congress did not authorize more borrowing (which it has done faithfully for the last hundred years) or the president chose not to assert that 14th amendment renders any action by Congress preventing the payment of debts is unconstitutional. Either way, it's purely a political matter.

The challenge is that republicans are not in control of their own causcus, and the Tea Party wing, led by Eric Cantor of my old hometown in Henrico County, Virginia, are, bluntly, barking mad.

What especially terrifies me is that Euro instabilities and the dollar insanity Re driving up the Swiss Franc against every other currency (even the yen). I'm in export manufacturing here, and I am watching all my sales become worthless against my costs. Everyone else in this country's manufacturing sector is also terrified. What's worse is that the dollar and the euro comprise 90% of the world's currency reserves (about 2:1 dollars to euros). The sterling bumps that up to 96%. The Swiss franc is around 1%. It doesn't take a lot to really power the Swiss franc up...

The world is connected in many many ways...

There's a lot of demarkation in US politics. I mean, they're even split along party lines about Rupert Murdoch and the 9/11 phone hacking. Should it prove to be true, I wonder how the Republican Party and Fox news will spin it?

Is this right, Texaner? I think the point that Goldtop is making is that a government never needs to actually default as long as it has a printing press. If it can't borrow the dollars, it makes new ones. This means deflation - but not more debt. The US could pay off its debt in as long as it takes to print out the bills, but it would have seriously devalued its currency in the process.

EDIT - n.b. I'm not being shirty, just confused.

"Making new ones" is the classic definition of inflation (i.e., increasing the "money" supply) not deflation.

Historically, no government has printed its way out of debt in the long term. People (especially politicians) delude themselves into thinking governments are exempt from fundamental economic principles, but the historical record says it just ain't so. Just as you or I can't fix an on-going debt problem by borrowing ever more money, nor can a government.

The (federal reserve) "dollar" has been treated by much of the world as the de facto "reserve" fiat currency for many decades. It has been heavily inflated over its lifetime, and recently much more heavily by so-called "quantitative easing" (QE1, QE2...). I doubt that we have seen the full inflationary effects of these actions yet, and if they continue, hyperinflation is a real risk.

And the US government can't just print "dollars" at will (yet). If and when they can, we will be on the brink of repeating what happened less than 100 years ago in Weimar Germany.

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"Live every day as if it were going to be your last; for one day you're sure to be right." — Harry Morant

not so long ago, it cost 0.50 GBP to buy 1 CHF.

today, it costs 0.75 GBP.

if amazingly, it shot up and cost 1000 GBP to buy 1 CHF, i wouldn't be complaining. i'd spend 5000 CHF and buy myself a large house in London.

there will of course be a hot flow of money into switzerland, but there is a limit to how much such a small economy can absorb.

>> Hasn't the limit been surpassed already ?
>> Isn't the CHF already in a full crisis, which means a currency which increasingly damages the national economy ?
>> I do not speak about "control" but does either the federal government or the National Bank have ANY influence on what happens in finance ?

>> shouldn't CH business switch to the Euro and leave the CHF to banks and some state institutions ?
>> would the CHF then rise up to a statistical value of some 100 US$ ?

Inflation v deflation - sorry, my error.

I understand that printing money isn't a solution. I'm just saying there is a difference between printing money and borrowing money. And it's not just a semantic difference.

Is there a limit to the number of new dollars that can be printed in a year? Or are you just saying that it would be so foolish to avoid a default by printing enough new money to cover the debt that the government/fed will definitely not do it?

Good question(s). As I understand the arrangement between the federal government and the banksters, a "dollar" (whether paper or digital) is only created by the Treasury department when its "value" is loaned to the Treasury (i.e., the government) by a creditor — e.g., when the Federal Reserve and/or other banks "buy" Treasury bills, which are essentially the government's promise to make good on the "value" of the T-bill. They don't just fire up the presses or push buttons. The new "money" comes into existence in direct connection with the creation and assumption of a "dollar's" worth of debt. That's a simplistic explanation, but enough to get the concept across, I hope.

That doesn't mean they couldn't at some point bypass that process and just bust open the hyperinflation window, pretending that will "fix" something. I think that's what happened in Weimar Germany — all those Marks were paper and ink and nothing more, the government no longer cared whether it was "backed" by anything.

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"Live every day as if it were going to be your last; for one day you're sure to be right." — Harry Morant

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