Socio-Economics History Blog

Socio-Economics & History Commentary

The Coming US Government Debt Default

  • Which ever way you look at it: the US government will default on its debts. They can default by printing more money ‘out of thin air’ ie debasing the USD or outright refuse to pay by declaring bankruptcy. The problem with the latter is that: foreigners hold most of the US treasury bonds: China, Russia, Japan… This option will lead to geo-political upheavals and possibly even war. Steve Saville opines :
      
    We have always assumed that governments would surreptitiously default on their debt via inflation, but recently we’ve come to the conclusion that a direct default is a distinct possibility. Here’s why.
     
    Under the current monetary system there is no limit to how much debt a government can take on, provided that the debt is denominated in its own currency. The reason is that the central bank stands ready, willing and able to be the bond-buyer of last resort, and the central bank’s pockets are infinitely deep (there is no limit to the amount of new money that the central bank can create). As a result, if it chose to do so the government could continue to issue new bonds until the currency became worthless. At the point where the currency had lost almost all of its purchasing power the surreptitious default would essentially be complete because any debt denominated in this currency would be almost worthless.
     
    But rather than continue the debt issuance and the associated monetary inflation to the point where the currency is worthless it could, at some stage during the process, become politically more feasible to default directly on a large chunk of the outstanding debt. The reason is that hyperinflation would destroy the economy as well as the currency, and would thus inflict large losses on almost everyone, whereas directly defaulting on the debt would only inflict large losses on the holders of government debt. In the US case it is not hard to envisage the Administration being faced in the future with the following choice: default on all Treasury debt except for the debt held by US government trust funds, or plunge into hyperinflation and wipe out the values of all bonds and all monetary savings. Given that the bulk of the aforementioned Treasury debt is held by foreign governments, a direct default will potentially be the natural choice of the politically astute.
     
    The way things are going it will probably take less than three years for the US and many other countries to reach the point where it becomes necessary to completely abandon the pretense that the government’s debt will ever be repaid legitimately (without inflating the currency into oblivion, that is). It will then be a matter of deciding on the method of default.

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July 21, 2009 Posted by | Economics | , , , , , | 1 Comment

Currency Crisis, the Yuan to go Global! Gold will Rise!

  • Will the world see a currency crisis. My answer is YES! (see Global Monetary Meltdown in 2009 ?) The behind the scenes moves are getting to be more desperate. Thus, we will hear more and more ‘noise’ signalling the coming collapse. Julian DW Phillips reports :
     
    Suddenly the pressure from China to change the world’s monetary order is pressing. At the G-8 China asked for the forum to debate proposals for a new global reserve currency! They were largely ignored! China’s rising presence in the global economy [$2 trillion reserves now] and the threatening weakness of the $ is prompting China to act in this way and with speed. Not only the Chinese but the French, Finance Minister and Central Bank President called for greater currency stability and a system to avoid piling up currency reserves as we see with the $. It is clear that more and more countries are objecting to the debasement of the U.S. $ through Trade deficits and Quantitative Easing.
      ….
    Previous Chinese proposals on this subject were not welcomed at either the I.M.F. or in member nations of the Organization for Economic Cooperation and Development.   Because the G-8 did not entertain the Chinese proposal and it essentially reaffirmed the US $’s status as a reserve currency, China is likely to act unilaterally on the matter, much to the detriment of stability in currency markets and future cooperation in global monetary reform.   The boldness of these moves implies a sense of urgency by the Chinese. We believe that action will be seen on this front soon and suddenly.
     
    The possibility of a sudden $ devaluation prior to the end of 2009 will only make the Chinese act more forcefully a large positive for gold!
     
    The Path to a Global Reserve Currency
    The Yuan looks as though it will be fast tracked from a protected national currency to an international reserve currency with the first sprint to be completed in 2010. The pace will be dictated by two factors, firstly the pace at which the Chinese dictates and secondly by the I.M.F. schedule for the review of the composition of the S.D.R. in 2010. By that time the Yuan must have a heavy presence in international markets in at least Trade flows.
      ….
    China must release huge amounts of the Yuan into international markets between now and 2010. This would require following a similar route to the one taken by the U.S. $ from 1971 onwards, which led to the $ being the most sought after international currency. With the U.S. in control of the security of the biggest oil producing area in the world the lands surrounding the Persian Gulf they ensured that oil was priced in the U.S. $. This forced it into the coffers of every nation on earth. While China does not have the same leverage, it does sell the cheapest and most sought after manufactured goods everywhere. As Chinese expertise grows, their goods will take a larger and larger path into international markets. Until the rest of the world earns as little as Chinese workers do, the “China advantage” will assist in this growing international presence. The threat to the $ is huge, because eventually in almost every transaction where the Yuan will be used, it will replace the U.S. $.
     
    This will leave a growing amount of the U.S. $ with nowhere to go but home. If this happens, forget rising interest rates, even in the face of inflation?
      …..
    Eventually we expect even O.P.E.C. to accept Yuan in payment of oil!
    The downward pressure on the $ is inevitable and we believe such a depreciation has been accepted by the Chinese. The moves to resurrect the S.D.R. are part of this acceptance and an attempt to avoid the $’s depreciation. There will simply be far more U.S. dollars internationally than are needed, so the only way to avoid suffering from the $’s fall is to diversify, via the S.D.R. into other currencies. If China can replace the U.S. $ with newly composed S.D.R.’s they can protect the buying power of their huge [$1.95 trillion] reserves, at least to some extent!
     
    What will the U.S. do in the face of this? Will it act defensively ahead of this? Is a devaluation of the U.S. $ about to happen? What will be the impact on the gold market and price? Will governments do something about gold ownership? We appear to be just ahead of major global currency market moves? 

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July 21, 2009 Posted by | Economics | , , , , , , , | Comments Off on Currency Crisis, the Yuan to go Global! Gold will Rise!

Obama’s War Signals

  • The war hawks want an Iranian war. They have been preparing for it for quite a few years now. This is about building the New World Order, One World Government. The conquest of Iran means the western ruling elite will control all the major oil supplies apart from Russia and Venezuela (approx. 12-13M bbl/day compared to total of 82M bbl/day world production).
     
  • They can start this war but I doubt they will win it. On the side of Iran is the Russian bear and the Chinese. Both know what is at stake. The defeat of Iran will mean the lost of the entire middle east and possibly even Asia minor. China will have to bow to the dictates of the western Illuminati banksters because of oil.
     
  • Justin Raimondo comments :
     
    … it occurs to me that only Barack Obama, who won the White House in large part due to his opposition to the Iraq war, could take us to war with Iran, and rally liberals and much of the left behind it.
      …
    The president has already set a
    September deadline for Iran to respond to our as-yet-informal proposal to negotiate over the completely phony nuclear issue – an oddly confrontational approach to opening the first on-the-record high level talks with the Islamic Republic since the Iranian hostage crisis of 1979.
     
    The nuke issue is phony because our own intelligence community, speaking through the CIA, determined “
    with high confidence” the Iranians gave up their nuclear weapons program in 2003. Yet Obama has repeatedly said Iran is working to develop nuclear weapons. The great sigh of relief we all breathed when the CIA assessment was made public last year – effectively blocking any last-minute attempt by the Bushies to strike Iran in the waning days  of Dubya’s reign – gives way to new anxieties.
     
    The evidence that Obama is ramping up the US effort to encircle and eventually strike at Iran is building: added deployments to Afghanistan and our increasing intervention in Pakistan can always be attributed to the vagaries of the Af-pak front, but one can’t blame the Iranians from looking at it differently. The US military presence, to the south and the east, is looming larger. This, in tandem with an apparent hardening of the US stance – e.g.  the “
    muscularity” of Hillary Clinton’s most  recent peroration – can only be seen by Tehran as prefiguring war.
     
    The spin prior to delivering her speech to the Council on Foreign Relations was that this was going to be a “muscular” speech, and indeed it was: threatening to use the military to “defend our interests, our allies, and our people” when it comes to Iran’s alleged nuclear weapons program, she declared, with typical Clintonian glibness: “this is not an option we seek nor is it a threat; it is a promise.”
     
    With those words, the first rhetorical shots of the third Middle Eastern war – and potentially the most devastating, both to the region and our national interests – have been fired. The phraseology is almost Bushian in its studied belligerence, and it is most certainly not a précis to a rapprochement with Tehran.
     
    This is just about what any observer of the scene would have expected from our Secretary of State, given her past statements – the most recent being her threat to launch a “first strike” (her words) on Iran – and her ongoing refusal to retract her enthusiasm for the Iraq war. Indeed, in her comments to George Stephanopoulos on “This Week,” she held up the invasion of Iraq as
    a model for how to deal with the Iranians. 
      ….
    Obama, consumed with the rapidly deteriorating US economy, will let Hillary define the terrain on which the conflict with Iran will unfold: the stage is being set. The actors take their places, and, amid frantic preparations taking place behind the curtains, hardly suspected by the audience, the drama takes its preordained course.
      ….
    Who wants war with Iran? Who has been demanding it, hoping for it, and doing their best to provoke it? What faction of the foreign policy “community” has been warning that Iran is months away from creating a nuclear weapon, and will certainly target a small “democratic” US ally in the region, one which Iranian President Mahmoud Ahmadinejad purportedly (
    but not really) threatened to “wipe off the map”? 
     
    It’s no secret the
    Israel lobby has been in the forefront of the effort to mobilize American political, diplomatic and military muscle for a dust-up with Iran: the alleged “threat” emanating from Iran was the theme of the last AIPAC conference, and the propaganda machine that does Tel Aviv’s bidding has been going full-bore since the Iraq war ended in “mission accomplished,” targeting Tehran as the next victim of our post-9/11 madness. The current power struggle within the Iranian leadership, that culminated in the election fraud protests and the hard-liner clampdown, set the confrontational tone for the pro forma “negotiations” that will segue seamlessly into the second act, and, finally, the third – which will be played out here in this country, on the op ed pages of the nation’s newspapers (what’s left of them, anyway), and around dinner tables all across America. 
       ….
    They say Iran’s possession of a nuclear weapons capability represents an “
    existential threat” to the Jewish state. This may indeed be true, and yet that threat is no more substantial than the threat to the US represented by Soviet nukes during the cold war era. In that historic facedown, each side was constrained by the certainty of mutual assured destruction if war should break out. Since Israel, as everyone knows, possesses a large nuclear arsenal, the Iranians would be similarly constrained not to use theirs. The great problem in the Middle East today is that Israel is not so constrained, at the moment: the Israelis enjoy a nuclear monopoly in the region, and they are determined to maintain it – yes, even if it means war.  
     
    Not a war between Israel and Iran, of course, but between the US and Iran. Israel is sending all kinds of
    signals that if we don’t start the bombing, they will, but the Israelis have neither the technical means nor the inclination to risk their own necks – and why should they bother, when they have us to do their dirty work for them?  
      …
    Make no mistake: the enormous power of the Israel lobby – and it is formidable, don’t let anyone kid you – is being utilized to bring us to the brink, and we are moving along at a fairly rapid pace. It won’t be long before the clock stops ticking, and the fireworks begin: oh, to be sure, there will be plenty of drama, and secondary plots, along the way, but the essential narrative – Mad mullahs plan on blowing up Israel, if not the world – has already been written, rehearsed, and audience-tested.  
     
    It remains to be seen, however, if this particular show ever gets out of summer stock. The American people are in no mood for another war – certainly not a war of the scope necessitated by a huge and populous nation such as Iran. It will take a sustained political and propaganda campaign by the War Party to pull this one off – and yet you shouldn’t doubt they have the resources and the will to do it.  
     
    You thought you were safe, now that George W. Bush is out of the White House, and the neoconservatives have gone back to their well-subsidized holes – but you were wrong. I would not be at all surprised if the Iranian “crisis” – and it will be declared a “crisis,” complete with ticking clocks and lines in the sand, of that you can be sure – required a “delay” in our plans to withdraw from Iraq. At that point, the American people will either rise up and put an end to the nonsense – or else they’ll acquiesce, without much protest, to what seems like the inevitable.

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July 21, 2009 Posted by | GeoPolitics | , , | Comments Off on Obama’s War Signals