The US is Bankrupt

[Bill.L]

Hi all,

meconium,

The world is not going to end just yet.

Do you have a date??

Perhaps you haven't heard of peak oil?? In 1998 oil cost ~$US12/bbl. So far in 2010 oil has averaged ~$US72/bbl. The US imports about 2/3 of their oil use of ~20mbbl/d. If you do the math 13,000,000 X $60 X 365 = ~$284b.

That is $284 billion extra they have to pay for oil each year to overseas countries than they did in 1998. I'm sure that is nothing to worry about

When/if the US and European economies pick up, oil use will try to pick up, if they can get it (OECD oil use has dropped by about 4mbbl/day since the beginning of the GFC). The price in $US is likely to explode then.

All evidence points to the reality that we are sitting on the peak oil plateau at present, with increasing use in developing countries. If you are constantly paying more for energy then something else has to give. The something else looks increasingly like the living standards of the western economies, via currency devaluation/inflation of goods and services (including taxes) but not incomes.

You're right the world is not going to end, but it is highly likely to become a much nastier place.

bye

 

[Perth Investor]

Hi all,

meconium,



Do you have a date??

Perhaps you haven't heard of peak oil?? In 1998 oil cost ~$US12/bbl. So far in 2010 oil has averaged ~$US72/bbl. The US imports about 2/3 of their oil use of ~20mbbl/d. If you do the math 13,000,000 X $60 X 365 = ~$284b.

That is $284 billion extra they have to pay for oil each year to overseas countries than they did in 1998. I'm sure that is nothing to worry about

When/if the US and European economies pick up, oil use will try to pick up, if they can get it (OECD oil use has dropped by about 4mbbl/day since the beginning of the GFC). The price in $US is likely to explode then.

All evidence points to the reality that we are sitting on the peak oil plateau at present, with increasing use in developing countries. If you are constantly paying more for energy then something else has to give. The something else looks increasingly like the living standards of the western economies, via currency devaluation/inflation of goods and services (including taxes) but not incomes.

You're right the world is not going to end, but it is highly likely to become a much nastier place.

bye

You know I read all the peak oil stuff 3 or 4 years ago, walked around in a daze for a week thinking the world was coming to an end. Read "The Last Oil Shock" by David Strahan, if that doesn't have you going to a local hardware store to buy a length of rope, or a good toaster, nothing will.

But I don't buy it. The theory that is, I did actually buy the book. Firstly because I read it 3 years ago and still nothing has happened. But mainly because of horse poo. And Alt-A loans. But mainly becuase of horse poo.

in the early 1900's the biggest problem facing New Yorkians (and a lot of other big cities) was horse poo. But then the car came along (and who saw that coming???) and now horse poo is no longer a problem. And we alllllll know the Alt-A problem is coming, so that won't even be a problem. Well not a big problem, not a life ending problem, which is what the peak oil folks are saying.

Natural Gas, those oil shale thingys in Canada, Nuclear power, great big mother batteries that last for 500km's, smaller cars (alright, that one is a bit of a pipe dream), jet packs based on nanotechnology and vanadium (I made this one up...). All these wonderful technologies won't do one thing to solve the problem of peak oil. But something will. Something always has.

You see mankind has been going at this gig for a while now, and I refuse to believe the world is going to end on my watch, the odds just don't support it, and I am a betting man. And if it does, it won't be from something that we saw coming, that is for sure. No you can forget peak oil, and climate change, and the US government debt, whether it be 13 or 60 or 200 Trillion dollars, it will be something that "blindsides you on at 4pm on an idle Tuesday" that does you over.

But who knows, you could be right!

 

[Sunfish]

You know I read all the peak oil stuff 3 or 4 years ago,

Ergo, If it hasn't happened in three years it can't happen, ever. Or are you like an airline passenger who wants to be woken up just before landing. Incidentally Mike Malony says oil will go to $10/bl but not because of a glut of oil but because of a worldwide depression. I do not relish that prospect.

The thread heading is The US is Bankrupt and there are many here who say it just CAN'T happen. Do these people read history? Only a minute ago I was reading that the Ruble has been in existence for 500 years and during that time it has been continually devalued by a factor of 5 quadrillion (ie 5 with 15 zeros after it) Clearly it would have been better to have the family fortune being passed down in gold rather than currency.

The only debate here would be a definition of Bankrupt. That the US's creditors will not be repaid full value is a given, to me at least. Many will only get 30c in the dollar and many bankrupts pay that.

I vote in the affermative.

 

[ermen]

Ermen,
What does a govt do when the fed funds target rate cannot be lowered further?
Do central banks purchase Treasury bonds either directly or indirectly via open market operations as part of quantitative easing?
What is the impact of central bank demand for Treasury bonds on the price of bonds, their yields, and interest rates?
How does public debt grow as a % of GDP?

You might benefit from reading Eric Leeper's views presented at Jackson Hole themed “Fiscal alchemy can undermine monetary science"

1/ QE
2/ Combination of both - the Fed essentially swaps bonds (i.e. savings) for "cash" - theory being that the more excess reserves that banks have, the more they are inclined to lend. Can do this on the open market or calling up the banks to turn in their Treasuries
3/ Down i.e. price up, yields down
4/ By definition as treasuries outstanding go up, public debt grows

Tried to find Eric Leeper though haven't found it. But based on summaries that I have seen, he seems to advocate an "independent fiscal policy?" - that sounds logical as fiscal policy does have an effect on inflation

Anyway, you are talking about QE and I rememeber you alluding to the fact that stocking more apples on the shelves doesn't mean that people will buy more apples which I agree - so we are on the same page in that regard.

So back to Sunfish's point. This thread is about
THE US IS BANKRUPT. Well bankrupcy in the normal sense of the word means insolvent - i.e. you cannot pay your debts as and when they fall due. Will a cheque drawn on the U.S. government ever bounce? NO - not under the current system anyway.

PS: Winstonwolf, have you read the views of Warren Mosler?

 

[Perth Investor]

Ergo, If it hasn't happened in three years it can't happen, ever. Or are you like an airline passenger who wants to be woken up just before landing.

Sunfish

I have a pretty short attention span, so three years was waaay too long to wait!

And I prefer flying to being a passenger, so not sure how that plays out in your analogy...

 

[WinstonWolfe]

Tried to find Eric Leeper though haven't found it. But based on summaries that I have seen, he seems to advocate an "independent fiscal policy?" - that sounds logical as fiscal policy does have an effect on inflation

Have not read Mosler in depth.
Here's Leeper's paper.
Will respond more at a later date.