U.S. Debt-Default: Then What?
In my commentary (http://www.gold-eagle.com/article/us-shut-down-excuse-debt-default) earlier this week; readers were presented with the latest/newest “clue” from the Corporate Media as to where the staged shut-down of the U.S. government (via its Debt-Ceiling Farce) is leading the U.S. economy – and the global economy as a whole. Here the mainstream media was succinct and direct (for a change):
A U.S. Default Seen as Catastrophe Dwarfing Lehman’s Fall
The whole Debt-Ceiling Farce is a totally artificial, totally contrived event. As explained previously, the entire concept of a “debt ceiling” (for the world’s largest/greatest Deadbeat Debtor) is itself entirely absurd. Thus the shut-down of the U.S. government is also an artificial event, and the imminent/subsequent inducement of a U.S. debt-default (at this particular moment) would also be deliberate and artificial.
Obviously, defaulting on its $trillions of debt would instantly make the United States potentially solvent again. But having defaulted on its old debts; new debt will not be an option for the U.S. – meaning money actually being lent to it by foreign Creditors. Simply resuming its economic Ponzi scheme, where it issues vast quantity of debt and pretends to pay for it with (worthless) paper conjured out of thin air, would also no longer be tolerated by the global financial community.
So we know that a U.S. debt-default is not “the end” of fiscal problems for the U.S., but rather the real beginning. It’s massive, structural deficit would have to be addressed; where the U.S. spends more than any nation on Earth – but refuses to tax the individuals/entities now holding all the wealth in that economy. It has no tax base.
A U.S. debt-default would not eliminate the need of that government for massive, economic reform and a complete restructuring of the tax system. Rather, it would force the U.S. government to begin that process immediately, and substantially – not just the pathetic baby-steps which these politicians have the audacity to call “deficit reduction”.
But this merely provides a taste of what is in store for the U.S. after any debt-default declaration. For many people, notably hundreds of millions of residents of other, Western deadbeat economies; what will be of most significance here is the inevitable “domino effect.”
If (when?) the hopelessly insolvent United States declares debt-default – i.e. its own bankruptcy – this will permanently/irrevocably remove the blinders from participants in our fraudulent, global debt markets. It would now be crystal-clear that “AAA” credit-ratings = “junk”.
In turn, Creditors suddenly/finally aware that they are taking a “junk” level of risk with all the money they are lending will demand “junk” interest rates – as compensation for that massive level of risk…at which point the Ponzi-scheme economies of most other Western nations would also be painfully revealed.
As with the U.S.; the only thing stopping many of these Deadbeat Debtors from being forced into immediate declarations of debt-default (bankruptcy) themselves is through paying absurdly/artificially low rates of interest on that debt. Jack-up those interest rates to real “market rates”, and watch the dominoes fall.
Greatly exacerbating this domino effect is the ultra-gigantic, ultra-fraudulent private casino which the Banksters call “the derivatives market.” For those still not aware of the scope of this financial obscenity; it is a ridiculously leveraged mountain of fantasy-paper which (by itself) has a nominal value more than twenty times as large as the entire, global economy.
Much (most?) of the leveraged bets in this humungous casino are leveraged to Western debt. Indeed, had not the Crooked Operators of this casino simply refused to pay-out on their own bad bets following the Greece debt-default; this mountain of fraudulent paper would have already imploded at that time.
But it’s one thing to “stiff” the Chumps who choose to gamble in credit-default swaps on ‘merely’ their bets tied to $400 billion of bad Greek debt. It’s a swindle several orders of magnitude larger to attempt to cheat Chumps on the countless $trillions in credit default swaps piled atop just the $17 trillion in U.S. national debt.
These Chumps will insist on being paid…and then “kaboom” goes this entire house-of-cards. “Kaboom” translates into global financial/debt markets being broken, which in turn translates to even higher interest rates than would have existed in a structurally sound debt market. And while a U.S. debt-default would implode all of the (fraudulent) $trillions in U.S. credit-default swaps after-the-fact; this implosion would then further financially destabilize other, Western dominoes.
In short; there is every reason to believe that a U.S. default would trigger a domino-detonation which must result in Debt Jubilee across the West, if not around the world. Any heavily-indebted nation would find it virtually impossible to resist the urge to join this (bond-burning) Party.
This leads to an obvious question: why would the current Establishment choose to stage a U.S. debt-default now, rather than continue the extend-and-pretend game which has been going on for many years? The answer to that question comes in two parts.
First of all, the longer that any Ponzi scheme is extended, the less which can be salvaged in the aftermath by the Ponzi-scheme Operators. The longer the scam, the louder the subsequent implosion.
But secondly, and more importantly; there is every reason to believe that the End is near for these Ponzi-scheme economies – whether or not our governments choose to financially fall on their swords. As noted in the prequel; Western governments have been (literally) economically defibrillating their economies for five years to try to coax some life out of them, with the results being nothing.
If you jab a mule with a cattle-prod again and again and again, and the mule doesn’t even twitch; you’re not going to get any more “work” out of that mule – because you have a dead mule. This isn’t about “pulling the plug” and causing these economies to die. It’s simply about turning off all the absurd/excessive financial life-support – because these economies are already dead.
Is this then “the Plan”? Detonate the entire chain of Domino Debtors (starting with the biggest Domino of them all); and then the Big-Bank Banksters hope they still manage to hold onto their own shirts after the “dust” (i.e. rubble) settles? Not much of a plan.
Indeed, given the devious, scheming nature of this banking cabal; one must suspect that these Wile E. Coyotes have somewhat different plans, if in fact this is the road they are embarking upon. Most likely their own scheme (scam) would involve some sort of Default Lite – a partial default.
The obvious template here (for the Banksters) is Greece. Default on much/most of the debt; while the Banksters continue to blood-suck these economies with their “interest payments” (admittedly much smaller interest payments). Then these Cheats would attempt to avoid paying out on their mountains of bad bets in their huge, credit-default swap scam, in order to try to to prevent the whole, teetering, fraudulent mountain of derivatives from imploding.
But we need only look at Greece to predict the “success” of such a scheme. Greece remains a disintegrating, Zombie Economy – more crippled than even the oldest of the Zombie Economies: Japan. It’s not a question of “if” it defaults on the remainder of its fraudulent bond debts – only a matter of when.
In short, any Default Lite plan would be in no way a “fix” for the current Masters of our monetary system. It would at best merely buy a little time (and sacrifice much of their own Paper Empire), before these now-exposed Ponzi schemes fully imploded.
It’s not a “good” plan. But the problem is that after decades of extend-and-pretend; it’s (likely) the only plan which the Banksters have left. And every day they wait; the probability of even partial success with such a plan dwindles.
This may or may not be “the end” of the U.S. economy as we know it. As long as the Ponzi-scheme Operators remain in control of their scam; the precise nature of the script remains known only to themselves. However (acknowledging a couple of “alternate endings”); we already know what the Last Act will look like.
Jeff Nielson is co-founder and managing partner of Bullion Bulls Canada; a website which provides precious metals commentary, economic analysis, and mining information to readers/investors. Jeff originally came to the precious metals sector as an investor around the middle of last decade, but soon decided this was where he wanted to make the focus of his career. His website is www.bullionbullscanada.com.