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Tuesday Hot Reads – a two-part American Thinker debt-bomb special

by @ 7:36 on May 18, 2010. Filed under Economy, Politics - National.

If you’re not reading American Thinker, you are missing out on some of the brightest minds in political thought. Most outfits would put their “B-side” blog as their front page. A pair of posts from Monty Pelerin and Vasko Kohlmayer on the American debt bomb that is about to go off are prime examples of that. First, Mr. Pelerin on a possible doomsday scenario:

It is likely that Greece represents the prototype for early US responses. Political denial and cowardice will defer hard decisions. Eventually external forces will force action. The US government will become the same Pavlovian dog conditioned to respond to riots and violence. California is likely to be the first “trainer.” If the US government resists bailing out CA, then the streets of CA will be the learning center for the US Pavlovian dog. When (and I believe they will) the US government bails out CA, there is no end to the beggars that will show up. Eventually we run out of money, at least money that can be raised in financial markets. (We may be at this point already.)

My guess, and it is only that, is that the US government will do everything it can to avoid the necessary cuts and the resulting violence in the streets. That implies massive monetization to fund commitments. Ultimately that will destroy the currency and result in an hyperinflationary depression that will cause markets to cease to function other than on a barter system. Savings and fixed income pensions will be destroyed.

While printing money might buy some time, it will worsen outcomes, including worse violence. A hyperinflationary depression will destroy the country and perhaps our mode of government.

Somehow, I think that’s the goal. All the Boomers who are running things need to do is keep the plates spinning for another 20 years or so.

Next, Mr. Kohlmayer explains the nature of the public debt (link to Wikipedia removed as I don’t trust Wikipedia as far as I can throw it):

If anything, Intragovernmental Holdings – the part Mr. Hall terms “soft” – would be far more difficult to renege on than the other portion of the debt, since it concerns retirement money of Americans. One can well imagine the outrage that would erupt if one day politicians announced that we were going to simply “forget” about it. Given that senior citizens are electorally most potent demographic, no politician would ever dare to suggest that we do such a thing.

If any portion of the debt will ever get repealed it would be the Debt Held by the Public. Given that most Americans do not own government bonds, initially this form of default would directly affect only a comparatively small portion of the population. Much of the immediate loses would be, in fact, borne by foreign central banks and governments that hold US dollars as reserve currency. There would, of course, be much anger and protestations on their part. Politicians, however, would much prefer to face the wrath of foreigners than of their own citizens, since the Chinese cannot participate in our elections (or at least they are not supposed to)….

I do have to raise a point of order or two at this point. First, attempts by governments to renege on foreign-held debt have historically been met with war. Something tells me that the ChiComs aren’t simply going to walk away from north of $2 trillion, even in the “kinder, gentler” Third Millenium.

Second, that day of reckoning on the Intragovernmental Holdings is coming. It won’t affect those at or very near retirement, but those of my generation (the aptly-named GenX) are already being conditioned to accept that government won’t be there for us, even as we’re being told that we have to pay and pay and pay and pay for the lack of foresight on the part of our elders by not producing enough of us to keep the SocSecurity Ponzi scheme going while blindly depending on pensions that for the most part died before they got to use them.

The question is, will the publicly-held debt bomb explode before the Boomers die off? Something tells me that the proverbial spinning plates are already wobbling beyond stability.

Back to Mr. Kohlmayer for his close:

The dire nature of our fiscal situation has been recently pointed out by the International Monetary Fund which explicitly warned that the US national debt is soon to exceed 100 percent of GDP. The Fund cautioned that if nothing is done the figure will rise dramatically in the years ahead. Paradoxically, the IMF recommended that the amount by which the US needed reduce its structural deficits was greater than that recommended for Greece.

With the deficit projected to hit 10.6 percent of GDP this year and with long-term unfunded entitlement liabilities of some 104 trillion, the United States is indeed quickly becoming Greece on the Atlantic’s western shore.

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