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Debtors revolt is the only way that the GFC can be dealt with.  This is no less true in the USA than it is in  Iceland.  The difference is that the US beneficiaries of the Ponzi economics that got us here can, for a while, delude themselves and most of the public into believing that these debts can be made good by some sleight of hand involving taxpayer bailouts.  It ain't gonna work. Even were the US citizenry willing to try to make good the bad bets of the Ponzi economists and financiers, they cannot.  They are already saddled with massive debt that they foolishly but reasonably willingly assumed and are in no position to see that debt increased by 25-50%, which is likely what would be required.

The USA is currently witnessing the process of having that understanding spread from a few "heterodox" economists and social critics to a much broader segment of society, including much of the economically literate investors in the country.  Watching everything one has worked for being thrown on a bond fire to warm those who brought us the GFC will become politically untenable once enough people understand what is happening.  The real question is what will happen then.

I am reminded of Keynes' The Economic Consequences of the Peace.  At least in Germany the hyperinflation experienced during the Weimar Republic was largely the consequence of conditions imposed from without.  In the USA a similar situation could result and it would be entirely the result of policies and theories "made in the USA."

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Aug 17th, 2009 at 11:35:19 AM EST
The global swindlers and thieves financiers made a lot of money in and under the current system.  They aren't about to shrug their shoulders and walk away.  Judicious use of a small part of their loot gain in the political arena should go a long way to creating a blocking minority in government -- just like California, US of A.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Mon Aug 17th, 2009 at 11:54:33 AM EST
[ Parent ]
Judicious use of a small part of their loot gain in the political arena should go a long way to creating a blocking minority in government...

At this point >90% of the capitalization of Goldman, Morgan, BOA, Citi, WF, etc. is based on their regulatory and policy capture of the US Government and they have calibrated the application of loot to governmental institutions and representatives quite effectively. Even a significant percentage increased application of that loot would be no problem.  However, there are those rare moments when the screens and curtains are blown away and the pirates are revealed in all of their sordid reality.  We were on the verge of such a moment last fall, but Obama stepped into the breach and distracted most of the public with "change we can believe in."

When the next big downward leg comes he may not be able to reprise his performance.  It will have grown stale and obvious and too many may be on to him.  But this does not have to end in repudiation of the Ponzi losses and prosecution of the guilty.  We could go the way of Weimar.  In fact that is the more likely outcome.  The sort of deals Hitler had to make with the German industrialists are already in place in the contemporary USA.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Aug 17th, 2009 at 12:42:37 PM EST
[ Parent ]
ARGeezer:
We could go the way of Weimar.  In fact that is the more likely outcome.  The sort of deals Hitler had to make with the German industrialists are already in place in the contemporary USA.

hmm, interesting, could you expand on that a bit, please?

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue Aug 18th, 2009 at 06:16:05 AM EST
[ Parent ]
AIRC, when Adolph became Reich Chancellor he needed the support of Hindenberg to lend him legitimacy with the military and he had to forge links to the industrialists, who found him distasteful and more than a little frightening.  Any right wing government that may come to power in the USA will be as a fish in water with respect to working with US industry and business.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Aug 18th, 2009 at 09:43:34 AM EST
[ Parent ]
All economic solutions for the US will be gridlocked or sabotaged, similar to what has already been done in California.  

In the absence of solutions there will be social breakdown and chaos.  

Chaos will be dealt with through nazification.  

This strategy was field tested with success (from the elite point of view) in the 20th century.  It is one of the main scenerios for the 21st century.  

Minor differences in detail (eg that the US has already significantly de-industrialized) will affect how well it actually plays out.  

The Fates are kind.

by Gaianne on Wed Aug 19th, 2009 at 02:37:02 AM EST
[ Parent ]
The most obvious candidate for the sort of sovereign Debt/Equity swap I propose would of course be the US.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Mon Aug 17th, 2009 at 12:06:44 PM EST
[ Parent ]
should there be sovereign debt swap when most the debt incurred was private ??? Let the creditors that lent to poor risk prospects take their losses (or get equity) Why have the State involved in any way?

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Aug 18th, 2009 at 05:39:55 AM EST
[ Parent ]
You are once again conflating two distinct points.

The question about whether or not the obligation should be public or private is of course a no-brainer. I agree with you entirely as I have said many times.

But you continue to avoid the question of why it is necessary for sovereign obligations to be dated at all.

Why should sovereign nations not issue equity as well as debt?

Do you have a problem with that?

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Aug 18th, 2009 at 07:26:22 AM EST
[ Parent ]
is called perpetual bonds. It exists already.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Aug 18th, 2009 at 10:49:44 AM EST
[ Parent ]
IIRC the Brits have some of those still rolling since hundreds of years, with interest rates so low it makes no sense to repay them/buy them back.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Aug 18th, 2009 at 11:49:23 AM EST
[ Parent ]
Perpetual Bond

A perpetual bond, which is also known as a Perpetual or just a Perp, is a bond with no maturity date. Therefore, it may be treated as equity, not as debt

Consols for instance, which is a very interesting beast, having first been a motley bunch of annuities. Some Consols have interest rates of 2.5% and others 4.0%, and there's also War Loan at 3.5%.

These bonds give rise to a flow of indefinite duration, the market price of which varies with interest rates.

Why not one single class or pool of National Equity/Perpetual Bonds of indefinite duration, and with an index-linked coupon?

Why do we need a National Debt anyway? It may be conventional, but it's bollocks.

We could then pay off all other fragmented (in terms of dates and coupons) sovereign debt with it. Using the huge amount of debt servicing thereby freed up (ie the capital repayments) we could invest in productive assets, which produce more revenues and so on....

There is simply no need for dated sovereign debt or debt repayments. Buybacks to create a sinking fund in respect of depreciating assets will be necessary of course, but that's another issue (no pun intended).

We could also create classes of Units of National Equity redeemable for energy (because the state has aa right to energy production from the assets funded), or for the right to occupy land (from public investment in land)....

Why not?


"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Aug 18th, 2009 at 12:47:35 PM EST
[ Parent ]
ARGeezer:
thrown on a bond fire

lol, even if that was a typo, it's still genius.

great comment all around.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue Aug 18th, 2009 at 06:08:12 AM EST
[ Parent ]

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