Do the Debt Doomsayers Actually WANT the US To Fail?

by Darwin on November 28, 2010

No, they’re trying to get your attention.  Today, Ireland agreed to an EU/IMF bailout package that has essentially subjected every family in Ireland to a generation of debt slavery.  The sad part is, there was no simple solution.  Some would say the Irish should have just defaulted on their debt, letting the banks the public bondholders take a haircut, thus sparing the citizens the indignity and harsh austerity measures they are now subjected to for years to come.  However, the impact to surrounding indebted nations in the EU like Spain and Portugal may have brought down the entire European Union through spreading contagion.  In short, as markets lose confidence, the interest rates required to turn over debt increase more and more until there’s no longer an ability to borrow at a reasonable rate to continue to fund debt obligations.  This is what happened to Greece, then Ireland and may well hit Portugal and Spain next.  That begs the question as to why the US has thus far been seemingly immune to this market-induced chaos.

Is the US Immune to Debt Problems?

No, but too many Americans, politicians and elite economists either: 1) don’t even contemplate such a seemingly absurd topic, 2) act as though we are completely immune since we’ve been partying for so long and never got a bill or 3) flat-out refuse to address the question while continually proposing more spending.  The US has not had a crisis in market confidence, perhaps to our detriment when the day of reckoning actually comes.  Each time a global conflagration ensues, US Treasuries rally.  Aside from an occasional flight to precious metals, the US is the ONLY place to hide each and every time.  This has much more to do with our size, history and perceived potential to repay our debt obligations.

This has resulted in an overconfidence of sorts, that has led to delusions of grandeur.

Any student of the recent near-collapse of the global financial system will note that a primary underlying cause of the systemic failure of the entire system was due to overconfidence – confidence in excel models that didn’t allow a negative number for home price changes, confidence in the subprime market to continue to pay mortgages, confidence that credit default swaps would be paid even though the counterparty itself was in fact insolvent.  This overconfidence pretty much did or would have wiped out EVERY major investment bank in the country had taxpayers not stepped in to artificially prop up insolvent institutions  – and resulted in the destruction of several economies and banks overseas.  While American taxpayers bailed out banks and homeowners to some degree, who will bail out the American taxpayer when the ultimate crisis comes?  There’s nobody left.

Americans are overconfident – or naive – both of which are dangerous

Whenever the topic of the federal deficit (which is virtually impossible to cut even with seemingly draconian measures) comes up, people inevitably retreat to their political party talking points.  The right will say that you can’t cut defense spending and you must extend all tax cuts while the left would have us extend unemployment benefits forever and get out the pitchforks and attack the rich.  This has, and always will, continue to result in an absolute deadlock on cuts, while spending continues unabated until finally, we are forced into a dollar crisis.  The recently released deficit panel recommendations (which didn’t go far enough) were met with immediate disgust and horror.  But none of these voices seem to have a viable alternative that doesn’t SOLELY completely decimate the opposing side of their political spectrum.

If history teaches us nothing, can’t current events?  Just look at what’s going on in Europe and ask “If it’s happening there, why isn’t it happening here?”.  We have similar deficits and debt projections.  We have an aging population and incredibly onerous future entitlement promises which we all know can’t be kept – but nobody has yet to be honest with the American people, except a rarity like Chris Christie.  Remember, that as an American, you owe over $43,000 just to pay our existing debt – and this number is skyrocketing.  While many people may not be as bad off in retirement as the press would have you believe, there are millions that are wildly unprepared, making it even more unlikely that we’ll be able to look to them for help in the future to pay down the national debt.  We’ve gotta do something – like a debt snowball method – anything, to start moving the arrow in a different direction.

What’s Up with All This Negative Talk on the US Debt?

There are a lot of negative pundits, investors, bloggers and politicians warning of the US debt problem.  While they are often painted as whacky right-wing teabaggers or whatever other derogatory term will divert attention from the true issue, the bottom line is that they are truly concerned about the viability of country and future generations.  Many of these people are themselves rich, are willing to accept (actually demand) higher tax rates on the rich, but also want to see the overall spending/income equation change permanently.  Examples include Warren Buffet, Bill Gates and dozens of other millionaires and billionaires.  While they are in agreement with shared sacrifice, they aren’t leading the charge per se.  One such organization was founded by Pete Peterson.  After having made his billions in hedge fund management, he wants to educate America on just what we’re getting ourselves into and what kind of bold actions need to be taken to dig ourselves out.  They are affiliated with the recent movie I.O.U.S.A. and many other oft-cited sources dealing with our deficit problems.  He’s spending substantial sums of his own money to try to get the message across.  Check out more on the Peterson Foundation to see for yourself.  He has nothing to gain personally from the money he’s spending, nor do I in highlighting his campaign.  Nothing to gain other than the respect of our children who are now being subject to generational theft.

{ 9 comments… read them below or add one }

Financial Samurai November 29, 2010 at 1:07 am

The US is pretty much immune b/c we are the currency standard and awesome printing presses!


Darwin November 29, 2010 at 10:31 pm

That’s the naivete I was referring to :>

Thanks Sam for your comment as always of course…


retirebyforty November 29, 2010 at 5:54 pm

So as an investor what can I do to lessen my exposure to the eminent US economy collapse? If we get similar austerity measures I’m guessing my US investments will go down the tube. What can we do? Buy some gold bars? Open a Swiss bank account? Someone needs to write a good post about defensive strategies.


Darwin November 29, 2010 at 10:34 pm

I’ve written some articles here and there on the panic trade. Here are a few:

How to Short US Treasury Bonds:

How to Play Deflation (if you think that’s the endgame rather than inflation):

And then…there’s always precious metals plays (that BEAT Gold):


Sandy @yesiamcheap November 29, 2010 at 6:42 pm

How do we lessen exposure? Buy the yuan. China owns most of our debt. They are suppressing their currency valuation to be competitive in the world market, but since their economy is in a boom period, how much longer can they artificially hold their currency down.

And yes, politicians are blind to our debt. They would rather fight with each other than address what could be a crisis later. I applaud the Peterson Institute for trying to sound the alarm.


Darwin November 29, 2010 at 10:35 pm

Yup, that’s a play, or even more broadly, just short the US Dollar Index or treasuries as I outlined above.


MoneyEnergy November 30, 2010 at 12:17 am

Weird to me that calling out the US debt problem is seen, in the US, as a partisan-colored issue (with presumably only “the right” caring). It’s a bloody mathematical (and ethical, insofar as there is any intent to never pay it back) issue.


Darwin November 30, 2010 at 9:27 am

It is odd indeed. It is generational theft plain and simple. Our children will have to be burdened with debt from our excesses for years to come.


AMD March 29, 2011 at 10:14 pm

You need to read some of Eustace Mullins books and watch some of his interviews on either Google video or YouTube and listen to his radio shows on the French Connection Radio.


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