When the US defaults….
Will the US default?
Well it makes no sense for the US to default…it has enough money to pay. The President knows they should not default, so let us hope that they do not.
However if you are tracking the US economy there is a huge…3 digits billion dollar default happening or about to happen in the Muni Bonds market….that is huge.
The Muni default will be combined with the slipping of the Euro…well Germany is likely to say ‘Hey our exports are being torpedoed by your monetary policy…so we are bailing out…’ – yuck this will mean the Euro goes for a toss…
that will hurt or help China? well it is difficult to say, but effect it will..
currently the market is not bothered …it is too bullish to worry…and to me that is a big worry…
well the US will not default wilfully, but the problem is the US inflation. Remember when the Japanese government invested in US $ bonds in the 1970s they gave 350 yen to get a dollar. When they sell these bonds in 2025….they may get 2 yen to the US $. The money was stolen by the American inflation.
Happy reading Amigos!
Rajeev
It is like a large baloon with many microscopic holes. Deflation takes time but it is sure to happen.
The US govt actually stands to gain from any devaluation of the US$. Biggest loosers will be people like China & the oil barons, who have stocked up on US deposits or bonds.
People who have been living beyond their means have to pay some time at least. If we see the future, perhaps there will be some other strong economic power coming to claim the top spot today enjoyed by China. If India takes care of the corruption and resulting non functioning of governance, we may very well claim the top spot.
Puneet
@Rajeev: “If India takes care of the corruption and resulting non functioning of governance…”
I personally do not see that happening in my lifetime.
Enjoy being an Indian, while you are; I must admit.
pravin
it is not as if indian govt is not a wastrel. most of its money goes in capital consumption and not investment.consumption destroys wealth.money is spent on salaries,subsidies and freebies to its favorite vote bank or running loss making PSUs(the losses from PSUs alone would have funded the golden quadrilateral completely).whatever part of the economy is doing well -telecom for example,it wants a pie of it -having done nothing except get out of the way, for it to flourish. the govt always wants a piece of the action.
i wish there were a blog which detailed govt waste and explained the opportunity costs associated with it -explained why we will remain poor if capital gets consumed instead of being invested.
there are many people who write about the shenanigans of those involved in the private markets but none who detail the waste of the planning commision,NAC,finmin etc in a non academic manner.
we may have a Greece like problem rather than an american problem -where the capital investing and generating entrepreneurs are still far freer than us and can make up for govt waste to an extent.
pravin
the losses from PSUs for just the last year alone^^
pravin
sorry to spam: but this speech by US congressman Ron Paul made to Congress’ financial services house committee is worth its weight in gold. http://www.lewrockwell.com/paul/paul740.html
I cant imagine ONE politician in india who has the moral or intellectual courage to tell the govt to stop wasting its money and burdening future generations.
StatSpotting!
Pravin, its a stupid stance taken by the Republicans – cutting govt spending now will send the economic recovery to the parking lot.
pravin
statspotting, yeah? what kind of recovery from debt is solved by taking on more debt. you seem to have fallen for the keynesian coolaid.just by kicking the can down the road,there is no genuine recovery.the money goes to the govts cronies.it ofcourse boosts the govts favorite sectors which can hire and statistically boost gdp.but in general,the debt increases,future generations are in jeopardy and nobody who is not a govt crony benefits.recovery is lead by increase in private investment and not consumer spending as keynesians would have us believe.and private investment has plummeted even though consumer spending is back on track .
the US govt could easily cut down its military expenditure.it has 700 bases in over 100 countries.its defence budget is bigger than the next 13 countries put together.what sort of good comes from that?
Rajeev
Puneet,
I have lived abroad for years and that too a ina country which is in top three non corrupt places. I still feel there sia possibility to free india of corruption.
Dr Mohammed Ali Khan
@ Subra
The US Government WILL default, IS defaulting
Inflation IS default by proxy
Rahul
This is correct to say that presently the U.S is not in good conditions. Huge spending habits/debt undoubtedly making a huge dent to their economy. But they can easily take the benefit of their default as well. Shale gas could be the one thing that’ll helps U.S to again rule the world and if the rumors turns out to be true for the huge oil fields they have in Atlanta region then they’ll use the oil when middle east will run out of their oil fields. I personally feel though in near terms there are lots of problems happenings in U.S but in long term they can’t be default. I have no doubt about that.
Now on India, most of the the people because of emotional attachment with their country see India in a very big way. Per capita income of Indians and China still very-2 low compare to U.S. India is not an export oriented economy, we are a service oriented economy. We don’t have huge oil fields. For most of our needs Govt. is importing a lot of stuff from other economies. How come India be a super power in coming few yeas!! The only plus point I know is our Agriculture sector and that too because of growing middle class and ever growing population will dent in exports. U.S is producing Oil/Natural gas for themselves and for the rest of the world they can do that.The only thing I am able to see is by importing oil they are just helping depleting other countries oil fields. Once oil depletes then they’ll sell their oil at much larger rates and will again rule over the world.
Besides India/China will going to see a huge water problems in very near terms. I guess Australia/Canada because of their natural resources will going to outperform than other countries.