The United States is now, in some very general sense, bankrupt
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ftalphaville.ft.com
Martin Feldstein's proposal is so much less radical, as presented here (I am otherwise unfamiliar with it).
[1] For example: "The debt secured on half or more US homes will be worth more than the home itself, with little or no prospect of a quick rebound in housing values to rebuild positive equity. In the circumstances, many households may conclude that it is rational to walk away rather than pay over-the-odds for an asset the price of which has no realistic chance of regaining its former value in the short to medium term. The resulting wave of repossessions would only depress prices further." That might be true if housing were some simple investment vehicle... but it is not. My assumption: at worst, most people view a mortgage like credit card debt or an auto loan -- you don't consider the asset being backed, you focus on the payment. With the exception of speculative housing investors, most foreclosures seem (as reported) to be about an inability to make payments. Recall the existence of mortgage structures that accumulated negative equity: this is not an indication of savvy investors focused on ROI.
I haven't read the article yet, but I just want to make one comment about this quote. Although technically speaking we have not defaulted, we are inflating our currency through the roof, which is virtually a default -- In other words, our creditors will not be able to buy the same amount of stuff with the dollars we are going to repay them. And we are only able to do that because the dollar is a reserve currency.
For example, Argentina defaulted because they didn't have enough dollars to repay their debt. The difference in our case is that we own the dollar's printing press.
$10 trillion (national debt)/300 M (US Population) = $33,703.56
http://www.brillig.com/debt_clock/
As long as the US has the power to raise more taxes it can take on more debt with the insurance that in case of emergency it can hit the switch and raise taxes to take $33,334 from each of us to wipe off the debt (over like 10 years, $3,000 each year). That would totally "suck", but we're not "bankrupt" if these options exist.
Now, I obviously am not supporting the government's irresponsible deficit spending, I'm just merely pointing out that the media is blowing all this out of proportion.
Granted, he's still wrong, because he doesn't take into account who the debt is owed to. If you have a $200k mortgage, that $200k is your debt but some bank's asset - most of which are U.S. corporations. It all cancels out, and what you're left with is the U.S. debt held by foreign citizens, governments, and corporations. Which is worrisome, but historically, when major military powers have owed large sums to foreign creditors, they just declare war on the foreign powers and then declare that all debts owned by enemy combatants are null and void.
When war breaks out, money is one of the biggest problems. The praetorian guard in the roman empire once killed a praetor, put his head on a pike, and paraded him/it around Rome because he refused to bribe them.
You can also look at Russia for examples - the Russian government basically confiscated Yukos.
When is it not doing that?
http://ac360.blogs.cnn.com/2008/10/07/americas-53-trillion-d...
The United States is bankrupt, in the sense that its assets (housing stock, corporations and cash flow, plant and machinery) are now worth much less than its liabilities (in the form of mortgage-backed securities, other debt and loan instruments). In particular, large parts of the housing stock are now worth much less than the owners paid for them, and less than the outstanding value of the mortgages, or the collateralised bonds that have been issued against them.
The housing industry might be bankrupt. But that is a far cry from the entire United States being bankrupt.
in debt up to our ears? you betcha
at the risk of sounding jingoistic clearly america has the most stable and transparent economy in the world. and in times of chaos and uncertainty people seek out stability and security. that is what people all over the world can be assured of when they invest in america and us government backed financial instruments. the us treasury doesnt default.
There are many other first world countries in the world other thna America. America is the largest and that does make it the most important. But that does not automatically make it the 'most stable and transparent economy'? The fact that you just automatically believe it to be so actually does demontrate your ignorance and jingoism.
In this context I feel that using the very word (jingoist) that the poster said he was trying to avoid was certainly justified. Perhaps I could have avoided directly using the word 'ignorant'.
Anyway it doesn't surprise me that some people might disagree with my post. But I believe the prevalence of this attitude is a truth and actually an important truth. Possibly a substantial cause of the financial problems the original article was about.
For which you went for the jugular and called him jingoistic. A better response would have been to engage in a discussion over whether or not his assumption was true. He was open to the discussion, and by not taking it you shut him down for no reason at all.
As you noted, ignorant was a little over the top.
My point is that both of you guys are wasting your time unless you're willing to talk to each other and not past each other. When somebody says "I'm not trying to be X" and then acts like X, I see that as an opportunity to 1) define X, and 2) talk about the facts. It's not the place to trash the commenter. They're reaching out, for cripes sake.