Will the USA default?

[ducatilover]

The 'money' that is being spoken about is in reality only internet/digital money anyway isn't it? It's not like it's gold that can be held in your hand is it?

According to that ridiculous Zeitgeist film as poorly researched as it was, that part could well be correct.
Where and how do we acquire internet money?

[oneofsix]

According to that ridiculous Zeitgeist film as poorly researched as it was, that part could well be correct.
Where and how do we acquire internet money?

with your credit card

[Edbear]

The 'money' that is being spoken about is in reality only internet/digital money anyway isn't it? It's not like it's gold that can be held in your hand is it?

There hasn't been enough gold to cover the world's finances for a long time now. The reality is that there has to be enough "real" money that anyone can go to their bank and withdraw their balance in cash. This is also no longer possible due to the credit society we run. In the news in recent years there have been runs on banks as people panic and demand their money in cash after hearing the bank is in trouble leading to the Government having to chip in and bail the bank out before it goes under. In NZ it happened with South Canterbury Finance.

In short, you borrow $300k for a house mortgage at 7%. Long before you ever pay that back, the bank lends that same $300k plus the balance of the interest income out at an other 7% and so on. So while the actual monies available to the bank at any one time is less than the original $300k, the value of the debtor's ledger is now $600K plus interest. The bank itself, though is now in debt as it has borrowed the extra from another bank at 3% interest in order to pay out the mortgages to the vendor of the houses. This is a simplified explanation, of course.

If you then default on your mortgage, the bank seizes your house and sells it to cover the debt. What happened in the US was that the banks had lent 120% of the value of the house, counting on capital increases to catch up the difference. (Greed and competitive manuevering to gain customers). When that failed, (the interest rates rose and the people couldn't afford the repayments leading to bankruptcy), the bank was left with a house worth 75%, (or less!), the value of the debt which meant the bank was in danger of defaulting on its own borrowings. The ensuing glut of mortgagee sales collapsed the housing market leaving houses worth 30% or less than the mortgage over them. People who paid $450k were forced to sell their home for under $200k leaving them still owing nearly $200k+ with no assets.

The US governement had no choice but to step in and rescue the banks or see the whole US economy collapse. They printed billions of dollars of paper money which, of course, devalued the USD and on top of that had to cut the interest rates to zero to try to encourage people to spend and book up more credit to restore the book balance of the banks. As predicted this was a short term "fix" that was bound to backfire down the track and it has. Now the US Government, having taken on the debts of the people and the banks, is facing bankruptcy itself.

Who's to blame? Everyone who wanted to buy/spend more than they could realistically afford, ie: the consumer booking up too much debt, then the banks for being loose and greedy counting on the economic boom to cover their irresponsible lending, and finally the Governement for taking on debt it couldn't afford and hadn't budgeted for in an attempt to bail everyone out and keep the economy afloat.

[Banditbandit]

The 'money' that is being spoken about is in reality only internet/digital money anyway isn't it? It's not like it's gold that can be held in your hand is it?

Theoretically yes it is.

One result of this is that the US Government can not afford to pay its employees - that's all the federal agencies - FBI ... CIA .. Tax .. Troops ... etc etc ... then the Federal public service collapses .... people don't have jobs (well technically they do, but they won't get paid) .. if they are not getting paid they won't pay mortagegs - so the banks are stuffed anyway ...

The banks I presume are holding security on the loans ... can they seize the security? Could the banks end up owning the US of A?

Be very amusing if the IMF stepped in and imposed conditions on the US.

The basic problem is that the US can not afford the wars it is currently waging. 10 years ago, when Geo W took over the US was trillions of dollars in surplus .. after 8 years (two terms) of a right wong supposedly fiscally responsible government it's trillions and trillions of dollars in debt ..

It's a house of cards and its all falling over ... Just as Marx predicted ..

[Usarka]

Fuck shit arse.

[oneofsix]

Who's to blame? Everyone who wanted to buy/spend more than they could realistically afford, ie: the consumer booking up too much debt, then the banks for being loose and greedy counting on the economic boom to cover their irresponsible lending, and finally the Governement for taking on debt it couldn't afford and hadn't budgeted for in an attempt to bail everyone out and keep the economy afloat.

I would have reordered the who's to blame. Start with the banks as they thought they could take on more risk and therefore make more money out of the gullible public and they then encouraged the public to borrow. The Government because it didn't stop the craziness in the banks and actually enabled them via Fanny May.

[imdying]

Well, when the money train gets derailed sufficiently, we have a world war. My assumption is that's where the world is heading.

Would that be too farfetched?

[Usarka]

Well, when the money train gets derailed sufficiently, we have a world war. My assumption is that's where the world is heading.

Would that be too farfetched?

I can't see the US and Europe rolling over and giving up their way of living to the chinese.

Well nor can the chinese that's why they've built gargantuan underground nuclear submarine bases.

[imdying]

I can't see the US and Europe rolling over and giving up their way of living to the chinese.

Nore can the chineese that's why they've built gargantuan underground nuclear submarine bases.

That's what I figured. It doesn't seem like something they're gonna wanna hold hands over

[shrub]

It's a house of cards and its all falling over ... Just as Marx predicted ..

Greed and frenetic consumption has been SO good to us. We (the west) have been living well beyond our means for many, many years and we have been borrowing from people who spent less than they saved to fund that lifestyle.

What frightens me is that we will start to sell our productive assets to cover that debt, and we will end up with a lower income and fewer assets and having to pay for the use of said assets. Selling shares in the energy companies is blindingly stupid because within a few years those shares will be predominantly owned offshore.

I came across something interesting a couple of weeks ago - a local building owner has had his building demolished and the insurance company won't pay out yet. He has a block of valuable CBD land that is earning nothing and costing him money and is unlikely to get a tenantable building for at least a couple of years. He was approached by a Chinese investor who paid over the going rate for the land and is in the process of trying to buy as many blocks as possible. Their intention is to sit on the land until the city comes back, then build and rent to locals. They can wait up to 20 years and are planning to use the land as car parks until they're ready.

[shrub]

I can't see the US and Europe rolling over and giving up their way of living to the chinese.

They won't need to. The Chinese have plenty of money to lend them to keep them afloat and buying the stuff they make. Incidentally, you know all those farmers selling milk products to China? Starter for 10: Where did a lot of the money they used to convert their dairy farms come from?

[Usarka]

They won't need to. The Chinese have plenty of money to lend them to keep them afloat and buying the stuff they make. Incidentally, you know all those farmers selling milk products to China? Starter for 10: Where did a lot of the money they used to convert their dairy farms come from?

There's a big difference between being loaned, and being owned.

[Hack0r]

Whats happening on the 2nd Aug? lol I fly to USA on the 1st!

[george formby]

It's all down to the banks in the end, but they are getting nervous as they are leaving themselves vulnerable to default so naturally they are reluctant to bail out whole countries who are broke and can't pay their bills. Of course if they don't, the country goes bankrupt leaving them without income. It's the same as if you went broke in your business, owing a million dollars and asking the bank for another million to pay the first million, even though you can't earn enough to pay it back...

Meantime, you need to live, so you book up more debt to feed your family...

Ha ha. That sums up business in the Bay of Islands beautifully, just knock a couple of zero's off. Everybody is well & truly into their winter overdrafts.

The US has been bankrupt for a long time, I think the biggest thing now is that investors have had to bite the bullet & face the fact. Support for the mighty greenback is waning in the face of Asian, Indian & Eastern growth & the US cannot compete. China is pumping more money into the EU to support it's markets there than it is into the States. Fairly recently China & Russia agreed on a common currency for trade which is not the US dollar. Scary stuff.
It was not until the 1970's that the full impact of Britain's debt to America from WWII was felt. A long time in population terms.
We have a way to go yet before any predictions can be made IMHO

[mashman]

Imploding under its own weight of debt?

Even debt is worth money to someone It's a living that pays well too I believe ...

Yes. But step outside the system for a moment and look at what it really is doing ...

We have all of the resources we need. Us consuming them, right up until this very moment in time is proof of that. (but we all pay a different price for the resource when we own it )

Outside the system. I see light.