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Politics : Stockman Scott's Political Debate Porch
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To: Benchman who wrote (53938)8/23/2004 8:25:34 PM
From: Wowzer  Read Replies (1) of 89467
 
For your information if the US Federal Government fails to make an interest payment or maturity payment on any of its bonds, the game is over. All financial models are thrown out the window and that 20 bucks you have in your wallet, which is only backed by the full faith and credit of the United States of America, becomes worthless.

That is the doom and gloom scenario that I don't buy into. Taxes will go up and a lot of pain will happen before then, and hopefully people will wise up and do something about it.

My point is a country doesn't have to strong arm the US to make its payments. We have to for the whole financial system to work in its current model. The entire world's monetary system is based on "risk free" US bonds and US currency. According to convential economics US bonds are risk free with regard to default. The only risk a US bond carries is interest rate risk.

But foreign governments and investors can and most likely will require higher interest rates to hold US debt or they won't buy it. Especially since interest and maturity payments are paid in declining US dollars to their currency.

You are right it has worked for 20 years but even you have to admit the Debt can't just keep going up indefinitely. The NASDAQ bull Market lasted for 19 years before it crashed in 2001. The increasing debt level has lasted longer and gotten higher then I thought possible, but so did the NASDAQ. Somewhere somehow someone will have to make the hard choices to reverse this trend. Or the market will and it won't be pretty.

Buffet has been in the news lately about placing big bets on foreign currencies. That is one man I would not want to be on the opposite end of...
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