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.
> 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.
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.
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.
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.
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.
oil. That's not some silly slap at the Iraq war which wasn't over oil IMO. But conquering for oil has already happened, japan in WWII and Iraq over Kuwait in thefirst gulf war just to name two.
In practice, we don't need to outright repudiate the debt, we can just expand the money supply (i.e. "print more dollars"). This causes inflation but is not as bad as just breaking our promises.
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.
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.
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.
> 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.
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.
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.
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.