Top Billing! Instapundit & Fabius Maximus – First, Glenn Reynolds
SO HERE’S A QUESTION: Would a default on Treasuries accomplish what the Balanced Budget Amendment was supposed to achieve, by forcing the government to spend no more than it takes in? With more collateral damage, of course. . . .
Then Fabius Maximus responds with this very important post:
Would a default by the US government help America?
….There are no easy or certain solutions. We have to work our problems carefully, in the correct sequence, aware of trade-offs. I believe a default – in any form – is not necessary at this time. Nor will it be if we act quickly and wisely. The costs of default would be large and avoidable if feasible.
The chief problem we face today is a weak economy, and the risk of a double-dip recession (historically quite common). In the third year of this recession the reserves at all levels are drained – households, businesses, and governments. We are weak, as was the world in a physical sense after WWI – vulnerable to the 1918 influenza. Another downturn might be worse than the first. Should the economy weaken from here, failure to promptly enact another stimulus program might have cataclysmic – even historic – consequences
Too often, discussions of foreign policy and military strategy are divorced from economic realities. Debt financing deternines the current outlier of using American power. This could change if we change our fiscal and monetary policies, but right now, operations are largely debt-financed, like government spending in general.
Shloky – Lara M. Dadkhah On CAS = FAIL
Lara M. Dadkhah, a graduate student in Security Studies at Georgetown University’s School of Foreign Service, has written the most brain-dead op-ed I’ve read on the war in Afghanistan in years. It’s an infantile perspective on a complex dynamic. Lots of cheerleading, no insight.
An epic slam, and quite deserved. There was a lot of online speculation as to who the author was, given the minimal available info online about “Lara M. Dadkah”, but I have seen a highly credible person vouch for her as his former student, so she was not a “sock puppet”
or a character with a hidden agenda. It was simply a mediocre op-ed by an employee of Booz Allen.
WSJ (Evgeny Morozov)- The Digital Dictatorship (hat tip Adam Elkus)
….It’s easy to see why a world in which young Iranians embrace the latest technology funded by venture capitalists from Silicon Valley, while American diplomats sit back, sip tea and shovel the winter snow on a break from work, sounds so appealing. But is such a world achievable? Will Twitter and Facebook come to the rescue and fill in the void left by more conventional tools of diplomacy? Will the oppressed masses in authoritarian states join the barricades once they get unfettered access to Wikipedia and Twitter?
This seems quite unlikely. In fact, our debate about the Internet’s role in democratization-increasingly dominated by techno-utopianism-is in dire need of moderation, for there are at least as many reasons to be skeptical. Ironically, the role that the Internet played in the recent events in Iran shows us why: Revolutionary change that can topple strong authoritarian regimes requires a high degree of centralization among their opponents. The Internet does not always help here. One can have “organizing without organizations”-the phrase is in the subtitle of “Here Comes Everybody,” Clay Shirky’s best-selling 2008 book about the power of social media-but one can’t have revolutions without revolutionaries.
Futurejacked – Socionomic Trendspotting 2010 – The Gritty Reboot
….Rest assured, the mob, whether led by NY Attorney General Cuomo, some upstart in Congress that we have not yet heard much of or some Federal DA, will get back to the bankers. The end result will not be pretty. People will want scalps and these jokers are the most blind scions of privilege seen strutting and preening on the world stage since the French Revolution.
SWJ Blog (William McCallister) – The Men Who Would Govern Marjah
….While simple cause and effect narratives make for good reading, cultural complexity is inseparable from the study of cause and effect, especially in a place like Marjah. We continually espouse what we believe ought to happen but rarely how a given political or economic initiative might actually play itself out within a given cultural context. What might the Afghan approach to gaining a foothold in Marjah look like? How might the landowners, merchants and farmers, civil administrators, leaders of the Afghan National Army (ANA), local police, local fighters, and allies of the Taliban interact with one another? How might the imposition of government authority in Marjah play itself out? How might elements of the ANA and police support government administrators in imposing a central authority?
Chicago Boyz (Joseph Fouche) – Razzia III: The Finel Solution ( also see Razzia II: The Finel Countdown and Razzia)
New Atlanticist (Dr. James Joyner) – The (New) German Question
Steven Pressfield – Writing Wednesdays #27: “Help!”
Metamodern – Chemists deserve more credit: Atoms, Einstein, and the Matthew Effect
Don Vandergriff – Sun Tzu and America’s Way of War
Scholar’s Stage – Musings – How We Ought To Think About History
February 22nd, 2010 at 3:15 am
Regarding the first topic, if the US Gov’t ever loses its investment grade credit rating, then that will be the day that I start investing in canned food and ammunition. Losing our rating suggests that the government has a higher probability of not paying its bills. Whether it pays its bills is dependent upon whether it can extract money from the taxpayer. If it cannot extract that money, then that means either a) the money is gone or b) the gov’t is no longer in control.
Dibs on the chicken noodle soup and .40 JHPs.
February 22nd, 2010 at 4:18 am
I think the "starve the beast" idea jumped the shark right around the time they canceled The A-Team.
February 22nd, 2010 at 6:12 am
Maybe the idea is back in vogue. After all, the A-Team is back: http://www.youtube.com/watch?v=LoILTG8UF-A
And yes, that IS Rampage Jackson playing in the role of BA.
February 22nd, 2010 at 3:04 pm
Conservative Reagan economist Bruce Bartlett tackled the debt idea Reynolds posed. http://capitalgainsandgames.com/blog/bruce-bartlett/1509/another-dumb-right-wing-idea-default-debtHe's a good read on economic policy because he’s been harping with considerable detail and offering evolving policy proposals based on changing circumstances regarding the existential threat of continued financial irresponsibility since the Clinton/Bush years.
February 22nd, 2010 at 3:28 pm
I agree with you all that default as a quickie solution is inane. In certain circumstances, a move like that can make sense but is narrow and we would get some second and third order effects that are not going to be comfortable for us and would be catastrophic for others.
February 22nd, 2010 at 5:34 pm
Link to article showing the disparity of incomes is approaching 1920’s level. 1% of population is receiving 70% of all income. That is really bad.
February 22nd, 2010 at 6:09 pm
Yes, and unlike the 1980’s -1990’s where there was tremendous growth generated by new sectors of the economy being built from scratch – that also skews income – post 2000 is largely from adoption of rentier policies. Policies that favor established wealth over wealth creation/VC-entrepreneurship, exotic finance instruments over direct investment, institutional investors over middle-class wages, barriers to entry over access, sap economic dynamism and concentrate wealth. Why invest $ 100,000 in a start-up company if a hedge fund is offering you 9 -16 % return, year after year?
February 22nd, 2010 at 7:38 pm
I have some problems with FM’s piece, although I am having difficulty identifying what his underlying assumptions are. Statements like, "The chief problem we face today is a weak economy…", are meaningless. What is making the economy weak?
I would argue that the level of debt is much too high, and stimulus in this environment is incredibly foolish (I do not understand why this is the default position so many commentators have.) Simply put, debt levels have to come down considerably before any real new economic activity can begin to generate growth (by the bye, inventory restockings do not constitute the type of "new" economic activity I am referring to.) Also, the notion that a double-dip recession will be "catastrophic" is alarmist nonsense. There is too much overcapacity in several sectors of the economy that were financed through debt, this capacity and those debt levels that were used to fund them need to come down (i.e. a recession.)
Also, Rampage "pities the fool", unless your name is Rashad Evans!
February 23rd, 2010 at 5:43 am
[…] has it on good authority that there’s no ill intent here, and I’ll go with his gut, but, to be fair, this is […]
February 23rd, 2010 at 7:30 am
TDK — You raise some interesting issues! I did not discuss these broader issues; there is only so much that can be covered in 2200 words (already too long for a Internet post). For an answer to "What is making the economy weak?" see the links at the end of the post under the heading "causes of the crisis." Four of them discuss our excess debt, as you’ll see from the titles.
You will find analysis of the other issues you mention here:
Financial crisis – what’s happening? how will this end?
February 23rd, 2010 at 4:58 pm
February 25th, 2010 at 2:28 pm
Why is this meme speading so quickly? The US government is not going default unless it wants to, and you should just ignore what those venal idiots at the rating agencies say. If anyone out there is still listening to them, I have a couple of AAA rated CDO tranches I’d like to sell you…
The US government issues fiat currency in a floating FX regime and all of its debt is denominated in its domestic currency. It can always supply more dollars. In case you don’t believe me, here’s former President of the Federal Reserve Bank of Dallas, Bob McTeer:
Yesterday, we saw a sharp market reaction when one of the rating agencies that gave AAA ratings to mortgage-backed securities larded with subprime loans called into question the credit worthiness of Britain. As is the case with the United States and the Federal Reserve, Britain and its Bank of England have the ability to create new money if necessary to pay off its debt at maturity. There is no sovereign credit risk. There is no need for credit rating agencies to opine on the credit worthiness of sovereign debt.
Or Ben Bernanke:
Barney Frank: Do you think there is any realistic prospect of America’s defaulting on its debt in the near future?
Bernanke: Not unless Congress decides not to pay….
Or Alan Greenspan:
RYAN: "Do you believe that personal retirement accounts can help us achieve solvency for the system and make those future retiree benefits more secure?"
GREENSPAN: "Well, I wouldn’t say that the pay-as-you-go benefits are insecure, in the sense that there’s nothing to prevent the federal government from creating as much money as it wants and paying it to
somebody. The question is, how do you set up a system which assures that the real assets are created which those benefits are employed to purchase."
Et cetera, et cetera…
February 26th, 2010 at 4:39 pm
"Why is this meme speading so quickly? "
It is probably spreading so quickly because there is betting going on, much like that which is going on with the situation in Greece. The Wallstreet boys are begining to bet on the failure of the USA.
February 26th, 2010 at 5:09 pm
Hyper-inflation is in effect a default, only that debt holders get money in return (it’s just not worth all that much.) The meme is spreading so quickly because credit crises lead to sovereign debt defaults. A government spends billions to save their financial system, a recession occurs, tax revenues fall off and the government is no longer capable of paying off it’s obligations (i.e. default.) It is an issue today because the E.U. nations no longer have the power to inflate, that power now lies in the hands of the ECB.
Bailout Greece and you will have to bail out the rest of the PIIGS (if you are not familiar with that acronym it stands for: Portugal, Ireland, Italy, Greece and Spain) as well. Germany, France, the Netherlands, etc. only have so much capacity to bailout; this is why this meme is spreading (not necessarily because of the potential of a U.S. or U.K. default.)
Furthermore, even with the ability to devalue a currency this does not mean that a default can not occur, it merely means that any such event will be kicked further down the road.
Lastly, it is highly unlikely that the "Wallstreet boys" are betting on the failure of the U.S. For those who don’t know many Wall Streeters (I only know a few), they believe fervently in the American system. This is the same group of people who believed in the propaganda (which they participated in spreading) of the perpetual growth machine that was the American system. Furthermore, Wall Street was just bailed out by the American system, why would they be betting against it? The bailout merely reinforced the vision of American capitalism (which has little to do with free markets and voluntary action.)
I highly recommend David Merkel’s Aleph Blog for this topic, he had covered it quite a bit and is very instructive on the issue (link below.)
The Aleph Blog: http://alephblog.com/
February 26th, 2010 at 7:27 pm
I didn’t mention Greece. Greece is basically still on the gold standard (i.e the EMU). Its not at all comparable to the US, which, as I noted, issues non-convertible fiat currency in a floating exchange rate regime and its debt is denominated in its domestic currency. The conversation above, the original post, FM’s post and Instapundit’s post all explicitly discuss the potential for a US sovereign default, without recognising even the bare facts of the US monetary system. The US is nothing like Greece. It will not default unless it wants to.BTW, it doesn’t surprise me in the least that the Wall St oligarchy believes in the American system. I’m sure you could go to the worst communist hell hole in the world and find a few thousand people who believe in it fervently: the few thousand people with all of the money and all of the power. I wish I could share your faith in them. Since they are prepared to bet against the value of the firms they run when it suits them (take a bow G$), I have no doubt that they are betting against the US government here. Are spreads widening on their own? No, prices don’t adjust without reason. They reflect buying and selling. If spreads widen, people must be buying.Merkel’s blog is okay, but he’s not good at distinguishing between monetary systems either. He gets pulled up for this in the comments a few times–not sure if you noticed. Cheers
February 26th, 2010 at 7:28 pm
Aaaargggh–wish I could edit that and stick the paragraphs back in..Just figured out why everyone else has full stops between their paras…
February 26th, 2010 at 7:31 pm
Actually, TDL–one of those people was you!*Since private sector debt is high, govt spending is necessary to allow private sector to repair balance sheets without causing huge economic contraction, which, since private sector debt is high, lead us straight into debt-deflation territory.*Cheers
February 26th, 2010 at 7:56 pm
We actually agree. I was simply addressing why the meme has spread so quickly in the past six months. I wouldn’t compare Greece to the U.S. (my parents are from there, I know the difference.) As for my faith in Wall Street, it does not exist. Stock markets are critical, but they don’t have to be located at Wall & Broad.
February 26th, 2010 at 11:05 pm
February 27th, 2010 at 2:02 am
"Aaaargggh–wish I could edit that and stick the paragraphs back in..Just figured out why everyone else has full stops between their paras…"
It is a secret, to keep out all the bots.