Home › Forums › Financial Markets/Economics › Day of reckoning looms for the U.S. dollar
- This topic has 265 replies, 14 voices, and was last updated 15 years, 9 months ago by
Nor-LA-SD-guy.
-
AuthorPosts
-
May 23, 2009 at 9:11 AM #405328May 23, 2009 at 11:55 AM #404760
4plexowner
Participant“I too don’t understand why sovereign US debt (denominated in dollars) wouldn’t always be AAA-rated.”
At what point does common sense tell people that a debt that can’t be repaid, won’t be repaid?
If the existing liabilities are already un-payable, how can we maintain that new debt is rated AAA?
The US liability list is currently $60 or $70 trillion dollars and most of this is unfunded – our president is acknowledging trillion dollar per year deficits for the next 10 years taking our liabilities to the $70-80 trillion range
At the same time we have this mountain of unfunded liabilities, we have a major demographic shift occurring where 25% of our workforce wants to retire and enjoy their golden years
This demographic shift will open up jobs for younger generations but place a larger and larger burden on Social Security and Medicare programs
I read recently that future generations would have to be three times as productive as us and pay 100% of their earnings towards taxes to ever pay off this debt load
Obviously this isn’t going to happen so we are back to my underlying premise: a debt that can’t be repaid won’t be repaid
~
The most recent default of US debt occurred in 1971 when Nixon closed the gold window on international trade – the world had little option other than to go along with that default – now there are options as China is demonstrating (as an aside, we are seeing history in the making here as China converts the yuan to the world’s reserve currency of choice – this type of change only occurs every 200 or 300 years)
May 23, 2009 at 11:55 AM #405004Participant“I too don’t understand why sovereign US debt (denominated in dollars) wouldn’t always be AAA-rated.”
At what point does common sense tell people that a debt that can’t be repaid, won’t be repaid?
If the existing liabilities are already un-payable, how can we maintain that new debt is rated AAA?
The US liability list is currently $60 or $70 trillion dollars and most of this is unfunded – our president is acknowledging trillion dollar per year deficits for the next 10 years taking our liabilities to the $70-80 trillion range
At the same time we have this mountain of unfunded liabilities, we have a major demographic shift occurring where 25% of our workforce wants to retire and enjoy their golden years
This demographic shift will open up jobs for younger generations but place a larger and larger burden on Social Security and Medicare programs
I read recently that future generations would have to be three times as productive as us and pay 100% of their earnings towards taxes to ever pay off this debt load
Obviously this isn’t going to happen so we are back to my underlying premise: a debt that can’t be repaid won’t be repaid
~
The most recent default of US debt occurred in 1971 when Nixon closed the gold window on international trade – the world had little option other than to go along with that default – now there are options as China is demonstrating (as an aside, we are seeing history in the making here as China converts the yuan to the world’s reserve currency of choice – this type of change only occurs every 200 or 300 years)
May 23, 2009 at 11:55 AM #405242Participant“I too don’t understand why sovereign US debt (denominated in dollars) wouldn’t always be AAA-rated.”
At what point does common sense tell people that a debt that can’t be repaid, won’t be repaid?
If the existing liabilities are already un-payable, how can we maintain that new debt is rated AAA?
The US liability list is currently $60 or $70 trillion dollars and most of this is unfunded – our president is acknowledging trillion dollar per year deficits for the next 10 years taking our liabilities to the $70-80 trillion range
At the same time we have this mountain of unfunded liabilities, we have a major demographic shift occurring where 25% of our workforce wants to retire and enjoy their golden years
This demographic shift will open up jobs for younger generations but place a larger and larger burden on Social Security and Medicare programs
I read recently that future generations would have to be three times as productive as us and pay 100% of their earnings towards taxes to ever pay off this debt load
Obviously this isn’t going to happen so we are back to my underlying premise: a debt that can’t be repaid won’t be repaid
~
The most recent default of US debt occurred in 1971 when Nixon closed the gold window on international trade – the world had little option other than to go along with that default – now there are options as China is demonstrating (as an aside, we are seeing history in the making here as China converts the yuan to the world’s reserve currency of choice – this type of change only occurs every 200 or 300 years)
May 23, 2009 at 11:55 AM #405303Participant“I too don’t understand why sovereign US debt (denominated in dollars) wouldn’t always be AAA-rated.”
At what point does common sense tell people that a debt that can’t be repaid, won’t be repaid?
If the existing liabilities are already un-payable, how can we maintain that new debt is rated AAA?
The US liability list is currently $60 or $70 trillion dollars and most of this is unfunded – our president is acknowledging trillion dollar per year deficits for the next 10 years taking our liabilities to the $70-80 trillion range
At the same time we have this mountain of unfunded liabilities, we have a major demographic shift occurring where 25% of our workforce wants to retire and enjoy their golden years
This demographic shift will open up jobs for younger generations but place a larger and larger burden on Social Security and Medicare programs
I read recently that future generations would have to be three times as productive as us and pay 100% of their earnings towards taxes to ever pay off this debt load
Obviously this isn’t going to happen so we are back to my underlying premise: a debt that can’t be repaid won’t be repaid
~
The most recent default of US debt occurred in 1971 when Nixon closed the gold window on international trade – the world had little option other than to go along with that default – now there are options as China is demonstrating (as an aside, we are seeing history in the making here as China converts the yuan to the world’s reserve currency of choice – this type of change only occurs every 200 or 300 years)
May 23, 2009 at 11:55 AM #405448Participant“I too don’t understand why sovereign US debt (denominated in dollars) wouldn’t always be AAA-rated.”
At what point does common sense tell people that a debt that can’t be repaid, won’t be repaid?
If the existing liabilities are already un-payable, how can we maintain that new debt is rated AAA?
The US liability list is currently $60 or $70 trillion dollars and most of this is unfunded – our president is acknowledging trillion dollar per year deficits for the next 10 years taking our liabilities to the $70-80 trillion range
At the same time we have this mountain of unfunded liabilities, we have a major demographic shift occurring where 25% of our workforce wants to retire and enjoy their golden years
This demographic shift will open up jobs for younger generations but place a larger and larger burden on Social Security and Medicare programs
I read recently that future generations would have to be three times as productive as us and pay 100% of their earnings towards taxes to ever pay off this debt load
Obviously this isn’t going to happen so we are back to my underlying premise: a debt that can’t be repaid won’t be repaid
~
The most recent default of US debt occurred in 1971 when Nixon closed the gold window on international trade – the world had little option other than to go along with that default – now there are options as China is demonstrating (as an aside, we are seeing history in the making here as China converts the yuan to the world’s reserve currency of choice – this type of change only occurs every 200 or 300 years)
May 23, 2009 at 12:29 PM #404790patientrenter
Participant4plex, my point was that the US govt can ALWAYS repay its dollar-denominated debt, so the chance that it won’t seems vanishingly small to me. Yes, the real value of the repayments may shrivel due to inflation (and my opinion is that they will), but are the rating agencies really factoring in that future implicit partial default caused by inflation into their US Treasury credit risk ratings? Do they actually say that?
May 23, 2009 at 12:29 PM #405037Participant4plex, my point was that the US govt can ALWAYS repay its dollar-denominated debt, so the chance that it won’t seems vanishingly small to me. Yes, the real value of the repayments may shrivel due to inflation (and my opinion is that they will), but are the rating agencies really factoring in that future implicit partial default caused by inflation into their US Treasury credit risk ratings? Do they actually say that?
May 23, 2009 at 12:29 PM #405274Participant4plex, my point was that the US govt can ALWAYS repay its dollar-denominated debt, so the chance that it won’t seems vanishingly small to me. Yes, the real value of the repayments may shrivel due to inflation (and my opinion is that they will), but are the rating agencies really factoring in that future implicit partial default caused by inflation into their US Treasury credit risk ratings? Do they actually say that?
May 23, 2009 at 12:29 PM #405335Participant4plex, my point was that the US govt can ALWAYS repay its dollar-denominated debt, so the chance that it won’t seems vanishingly small to me. Yes, the real value of the repayments may shrivel due to inflation (and my opinion is that they will), but are the rating agencies really factoring in that future implicit partial default caused by inflation into their US Treasury credit risk ratings? Do they actually say that?
May 23, 2009 at 12:29 PM #405481Participant4plex, my point was that the US govt can ALWAYS repay its dollar-denominated debt, so the chance that it won’t seems vanishingly small to me. Yes, the real value of the repayments may shrivel due to inflation (and my opinion is that they will), but are the rating agencies really factoring in that future implicit partial default caused by inflation into their US Treasury credit risk ratings? Do they actually say that?
May 23, 2009 at 2:14 PM #404849partypup
Participant[quote=patientrenter]4plex, my point was that the US govt can ALWAYS repay its dollar-denominated debt, so the chance that it won’t seems vanishingly small to me.
[/quote]P Renter, I understand what you’re saying in principle, but here’s my question: what happens when the dollar becomes so devalued that our creditors refuse to accept it? In such a scenario, the US gov’t would NOT be able to repay its dollar-denominated debt. Imagine that a debtor with insanely high debts has consistently been paying a creditor with a currency of real value. Now, imagine the debtor discovers that he no longer has access to a currency holding real value and instead begins to offer his creditors sea shells as payment. Yes, the debtor is technically attempting repayment. But if the payments aren’t accepted, a default ensues. The facts in this analogy aren’t entirely similar (since we aren’t converting our dollars into another form of payment like sea shells), but the concept is the same. A debtor cannot repay a debt if her payments are rejected. I think you are assuming that as long as a debtor presents something that she considers to be of “value”, his creditor is obligated to accept such payment. I think this is a false assumption.
When (not if) the dollar loses its status as the sole reserve currency, I think we may be looking at the possibility that severely devalued US dollars will eventually not be accepted as payment for imports or any forms of foreign debt because the dollars that a creditor accepts today may be worth even less tomorrow! Instead, the US will be required to come up with stronger currency (or gold) to repay its debts. This would be a common sense move for any US creditor under the circumstances. And that’s when things will start to get very interesting.
By next summer, I think there are going to be a whole lot of people who wished they had gotten busy adding gold to their portfolio. It could be going parabolic within months. Of course, precious metals will eventually turn into another bubble in a few years, but the prudent investor will use their dollar profits to do what the Chinese have been doing for the past year: buy hard assets like land, food, guns, ammo, medicine, equipment, seeds, etc.
May 23, 2009 at 2:14 PM #405096Participant[quote=patientrenter]4plex, my point was that the US govt can ALWAYS repay its dollar-denominated debt, so the chance that it won’t seems vanishingly small to me.
[/quote]P Renter, I understand what you’re saying in principle, but here’s my question: what happens when the dollar becomes so devalued that our creditors refuse to accept it? In such a scenario, the US gov’t would NOT be able to repay its dollar-denominated debt. Imagine that a debtor with insanely high debts has consistently been paying a creditor with a currency of real value. Now, imagine the debtor discovers that he no longer has access to a currency holding real value and instead begins to offer his creditors sea shells as payment. Yes, the debtor is technically attempting repayment. But if the payments aren’t accepted, a default ensues. The facts in this analogy aren’t entirely similar (since we aren’t converting our dollars into another form of payment like sea shells), but the concept is the same. A debtor cannot repay a debt if her payments are rejected. I think you are assuming that as long as a debtor presents something that she considers to be of “value”, his creditor is obligated to accept such payment. I think this is a false assumption.
When (not if) the dollar loses its status as the sole reserve currency, I think we may be looking at the possibility that severely devalued US dollars will eventually not be accepted as payment for imports or any forms of foreign debt because the dollars that a creditor accepts today may be worth even less tomorrow! Instead, the US will be required to come up with stronger currency (or gold) to repay its debts. This would be a common sense move for any US creditor under the circumstances. And that’s when things will start to get very interesting.
By next summer, I think there are going to be a whole lot of people who wished they had gotten busy adding gold to their portfolio. It could be going parabolic within months. Of course, precious metals will eventually turn into another bubble in a few years, but the prudent investor will use their dollar profits to do what the Chinese have been doing for the past year: buy hard assets like land, food, guns, ammo, medicine, equipment, seeds, etc.
May 23, 2009 at 2:14 PM #405332Participant[quote=patientrenter]4plex, my point was that the US govt can ALWAYS repay its dollar-denominated debt, so the chance that it won’t seems vanishingly small to me.
[/quote]P Renter, I understand what you’re saying in principle, but here’s my question: what happens when the dollar becomes so devalued that our creditors refuse to accept it? In such a scenario, the US gov’t would NOT be able to repay its dollar-denominated debt. Imagine that a debtor with insanely high debts has consistently been paying a creditor with a currency of real value. Now, imagine the debtor discovers that he no longer has access to a currency holding real value and instead begins to offer his creditors sea shells as payment. Yes, the debtor is technically attempting repayment. But if the payments aren’t accepted, a default ensues. The facts in this analogy aren’t entirely similar (since we aren’t converting our dollars into another form of payment like sea shells), but the concept is the same. A debtor cannot repay a debt if her payments are rejected. I think you are assuming that as long as a debtor presents something that she considers to be of “value”, his creditor is obligated to accept such payment. I think this is a false assumption.
When (not if) the dollar loses its status as the sole reserve currency, I think we may be looking at the possibility that severely devalued US dollars will eventually not be accepted as payment for imports or any forms of foreign debt because the dollars that a creditor accepts today may be worth even less tomorrow! Instead, the US will be required to come up with stronger currency (or gold) to repay its debts. This would be a common sense move for any US creditor under the circumstances. And that’s when things will start to get very interesting.
By next summer, I think there are going to be a whole lot of people who wished they had gotten busy adding gold to their portfolio. It could be going parabolic within months. Of course, precious metals will eventually turn into another bubble in a few years, but the prudent investor will use their dollar profits to do what the Chinese have been doing for the past year: buy hard assets like land, food, guns, ammo, medicine, equipment, seeds, etc.
May 23, 2009 at 2:14 PM #405394Participant[quote=patientrenter]4plex, my point was that the US govt can ALWAYS repay its dollar-denominated debt, so the chance that it won’t seems vanishingly small to me.
[/quote]P Renter, I understand what you’re saying in principle, but here’s my question: what happens when the dollar becomes so devalued that our creditors refuse to accept it? In such a scenario, the US gov’t would NOT be able to repay its dollar-denominated debt. Imagine that a debtor with insanely high debts has consistently been paying a creditor with a currency of real value. Now, imagine the debtor discovers that he no longer has access to a currency holding real value and instead begins to offer his creditors sea shells as payment. Yes, the debtor is technically attempting repayment. But if the payments aren’t accepted, a default ensues. The facts in this analogy aren’t entirely similar (since we aren’t converting our dollars into another form of payment like sea shells), but the concept is the same. A debtor cannot repay a debt if her payments are rejected. I think you are assuming that as long as a debtor presents something that she considers to be of “value”, his creditor is obligated to accept such payment. I think this is a false assumption.
When (not if) the dollar loses its status as the sole reserve currency, I think we may be looking at the possibility that severely devalued US dollars will eventually not be accepted as payment for imports or any forms of foreign debt because the dollars that a creditor accepts today may be worth even less tomorrow! Instead, the US will be required to come up with stronger currency (or gold) to repay its debts. This would be a common sense move for any US creditor under the circumstances. And that’s when things will start to get very interesting.
By next summer, I think there are going to be a whole lot of people who wished they had gotten busy adding gold to their portfolio. It could be going parabolic within months. Of course, precious metals will eventually turn into another bubble in a few years, but the prudent investor will use their dollar profits to do what the Chinese have been doing for the past year: buy hard assets like land, food, guns, ammo, medicine, equipment, seeds, etc.
-
AuthorPosts
- You must be logged in to reply to this topic.