Monday, March 15, 2010

 

Social Security to start cashing Uncle Sam's IOUs/U.S., U.K. Move Closer to Losing Rating, Moody’s Says

There are days like today when momentous news comes out that will probably not register in the minds of most people.

When I or anybody else warns about a debt becoming uncontrollable burden to the nation there is no way for any of us to know when or if it will occur. There are fixes to our current predicament which keep the U.S. from entering a debt default spiral and those fixes might come at any time. (I think the Republicans taking the House will be enough to put a break on spending and then send us into a more severe deflation.) What really is important and what makes default unpredictable is the necessary selling off of the treasury market (higher interest rates) will happen when enough people lose confidence in the government's ability to control the situation. And who knows when that will come.

We are carefully balanced between continued deflation and debt default. I think deflation wins because the treasury market will give us plenty of warning that creditors are losing confidence in the U.S.'s ability to pay it's debts back. But this depends on those running the federal gov't caring about default. I think they do and would rather avoid a stint of even really bad inflation but we don't know and they certainly aren't behaving like they care.

If default comes we will look back on days like today when the reason and the warning were both in the news.

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