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Non-Tech : Derivatives: Darth Vader's Revenge -- Ignore unavailable to you. Want to Upgrade?

To: Sam who wrote (1873)	7/3/2011 11:07:22 PM
From: Hawkmoon	Respond to of 2794

On it's face it seems to be an innovative solution.. if definitely deflationary because it removes the Fed's primary means of draining the liquidity it has added by buying those bonds, thereby injecting cash into the system. To drain that liquidity they need to be able to sell those bonds back into the markets and withdraw the cash. But I wonder if the Fed has Swaps agreements with other CBs that would prevent such a nullification of debt. Would it also not equate to a defacto default by the US Government on those obligations? The Fed is a quasi governmental agency. But we must remember that it's primary shareholders are the largest US banks. Destroying assets of the Fed would seemingly have a consequent impact on the net worth of those shareholder banks, right? Hawk

To: Sam who wrote (1873)	7/4/2011 5:14:04 AM
From: axial	1 Recommendation Respond to of 2794

Internal debt renunciation is equivalent to declaring bankruptcy at best, and "fiddling the books" at worst. It's different from defaulting on sovereign debt. --- I don't think it's possible to say with certainty what the consequences might be. In the post-crisis unstable financial world, outcomes could range from bad but tolerable, to catastrophic. Back in 2008, Reinhart and Rogoff were quoted long before anyone had heard of them - *Message 24665654* ; they've become best-sellers and most people now recognize that post-crisis, defaults and renunciation are inevitable. What does it mean when $1.4 trillion of debt is renounced in the US, the keystone of global economics? Will there be contagion, and serial defaults by other countries who also decide to abandon fiscal discipline? We know there will be "soft" effects, but what about the "hard" ones? Especially since PayGo was abandoned, one party, far more than the other, is responsible for accumulation of debt. Should we then rely on that party for leadership in suddenly disavowing debt it so eagerly ("Deficits don't matter." "Read my lips - NO TAXES.") assumed? What will renunciation do to the USD, and sovereign debt purchases? Whatever course is chosen, the US has lost its claim to international leadership in finance and economics. Its tenuous hold on economic strength is maintained only by USD reserve status. Notwithstanding possible benefits, choosing Ron Paul's course will have consequences. They may reach far beyond US borders. Debtocracy - youtube.com Jim