First, I think that Mr. Biancuzzo correctly identifies the problem as a Federal Reserve-induced bond-bubble:
By doing so, they essentially solved the problem with the same exact measures that created the problem in the first place.
They created another bubble.
Only this time, it’s within our Federal Reserve. And when it pops, like every bubble does, it will take us all down with it.
This is what Denninger refers to as Bondzilla, the monster that awaits just over the horizon.
It looks like Mr. Brown at CHD is going to make a series out of his thoughts on what will happen in the wake of a government default/collapse, so it might be interesting to follow.
I don't really think even a default will actually collapse the government. A lot of bad things can happen in the wake of a major financial crisis, especially when there are literally millions depending on a government check to eat, pay the rent, electricity and cable.
I have referred to the Argentine model. One big difference is that we here are the United States. Many of the states are well-governed and well-funded. Parts of even the worst states are strong and solid. Illinois has two major problems -- Chicago and East St. Louis, but Springfield, in which I have spent much time for work, is a fairly stable little government town. Most of Illinois is just good farmland. Northern California and the Imperial Valley could take care of itself. Los Angeles will probably burn, but I would not be surprised to see San Francisco make it through all right.
You could get someone like Obama or Clinton stepping up to try and play FDR or Lincoln, seeking despotic authority on the grounds of quelling chaos and unrest. People might go for it.
As I may have mentioned, I attended a retirement seminar a couple of weeks ago. One of the question was whether or not the Social Security system was sound. The presenter, who is a very nice man, said that it was. As long as those who are working are paying in, there is money to send out the checks. But -- old people like me can sit and scream, "It's not an entitlement! We paid in!" all we want, we are soon not going to have the votes or any other leverage to prevent the flow of funds from being cut off. If I were going to predict one big impact of a default, that would be it: an end to the Social Security/Medicare/Medicaid system.
Good links. A diminishing of Federal power with a rise in State sovereignty sounds like a good thing. SS/Medicare/Medicaid default sounds very likely. It was going to happen anyway. I honestly don't think I'll see any of what I have put in these past 30 years.
ReplyDeleteLike I said the guy who did the seminar is a very bright and very decent person. I guess he just wanted to reassure us, but he insisted that it could be fixed. And it could be, but it's not going to be because it would require acknowledging that there is a real problem with spending.
ReplyDeleteOne guy asked Joe the presenter point-blank, "Are you saying there is actually money in the fund to cover pay-outs?" I could see Joe's face go rigid. He hesitated and said, "Yes." The fund is a vast promissory note that the government swears on a stack of Bibles it will pay. There isn't a dime in there.
One thing Bush did that I thought was reasonable and courageous was attempt to address SS with privatization. I don't know that it would have worked, but it would certainly have changed the dynamic and gotten people thinking differently.