

The United States is now, in some very general sense, bankrupt - noor420
http://ftalphaville.ft.com/blog/2008/10/12/16931/kemp-the-united-states-is-now-in-some-very-general-sense-bankrupt/

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dmv
I am surprised at the fast and loose use of numbers and assumptions[1] put in
this article. I expect more from the Financial Times. Even if we accept the
numbers to establish that the United States and its citizens have a negative
net-worth, that is not equivalent to bankruptcy. Bankruptcy is a legally
declared inability to pay creditors. If the US Government ever makes that
declaration... wow. We as a country have not defaulted on our debts, and based
on the strength of the treasury market, few are betting on that scenario.

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.

~~~
felipe
> We as a country have not defaulted on our debts and based on the strength of
> the treasury market few are betting on that scenario.

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.

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charlesju
Just do the math.

$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.

~~~
nostrademons
The author was referring to total household debt (including mortgages, credit
cards, and car loans), not just the Federal debt. That total is significantly
more than $10T.

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.

~~~
ks
Perhaps, but who would the US borrow money from later if they did that?

~~~
nostrademons
If war breaks out, who you're going to borrow money from is the least of your
problems. ;-)

~~~
newt0311
actually no. If the US outright repudiates debt in war, the value of the
dollar would take a plunge and solders, even the patriotic ones, like to get
paid for risking their lives. Furthermore, weapons and supplies are extremely
expensive.

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.

~~~
cmars232
Not if we go to war to plunder :)

~~~
marvin
That's an interesting question, what would looting in modern society look
like? Can you "confiscate" securities? Companies?

~~~
lacker
Heck, the government is buying huge stakes in banks at historically low prices
right now. Whether they're being "confiscated" or "rescued" is just a matter
of your viewpoint.

You can also look at Russia for examples - the Russian government basically
confiscated Yukos.

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hugh
s/general/inaccurate

~~~
david927
There's nothing inaccurate about this:

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.

~~~
lacker
But the assets of the United States include the right to print dollars! That
right is worth more than anything denominated in dollars, as pretty much all
of our debt is.

The _housing industry_ might be bankrupt. But that is a far cry from the
entire United States being bankrupt.

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vaksel
bankrupt? no

in debt up to our ears? you betcha

------
siculars
the points in this article are clearly worth discussing. no doubt america
spends too much and it needs to be curbed.

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.

~~~
dejb
> at the risk of sounding jingoistic clearly america has the most stable and
> transparent economy in the world

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.

~~~
DanielBMarkham
Perhaps instead of labeling the poster, you could just ask for support for his
statement? That usually works better than name-calling.

~~~
dejb
The whole purpose of my post was about the attitude demonstrated by the
poster. I was pointing out and arguing against the blind 'America is the
Greatest' thinking that it demonstrated. The fact that the poster felt so sure
about it without the need to provide any evidence was proof enough I believe.

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.

~~~
DanielBMarkham
The poster's attitude to me seemed to be "I'm not pro-my-country-no-matter-
what-the-facts, but I believe it to be superior in this one respect."

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.

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echair
I don't know if I trust someone who doesn't know the difference between its
and it's...

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newt0311
The guy does realize that houses are not the only kind of assets that the US
has. After they are accounted for, the US is anything but bankrupt.

