> The fourth default was the 1971 breaking of the U.S. government’s commitment to redeem dollars held by foreign governments for gold under the Bretton Woods Agreement.
Bretton Woods is a fascinating topic on its own. Accidental Superpower is a good read that dives in a little, but isn't focused specifically on it. I can't resist bringing up that book because in one of the later chapters, it predicted the invasion of Ukraine, IIRC, down to the month.
The past Bretton Woods system and US currency seemed to change from a process which can converting notes into precious metals into a process which can convert notes into military hardware and oil. Is there a name for this?
The "petrodollar". But more fundamentally the bit of Bretton Woods that survived was the deal that the United States would guarantee the security of global trade (that's the Navy's real mission) in exchange for a discount on imports. Unlinking from gold only cemented their position.
It's an interesting book and I think it's worth a read.
The author, Peter Zeihan, does a good job of melding geography, demographics, energy, and food supply to come up with a deterministic approach to geo-politics.
I have no clue how accurate it is, but it's a fun mental algorithm for simplifying complex and nuanced situations.
His prediction, and I'm paraphrasing here, was that Russian Demographics are more or less in free fall. Every year after ~2020 the Russians have less and less fighting age men and their army will be weaker and weaker.
Additionally, because most of populated Russia is a flat plane, they have no geographic barriers to protect their cities. Therefore they need to forward position their troops in order to feel secure.
So his assertion, was that based on previous Russian military conflicts, Ukraine was the next most likely target, and that if Russia wanted to do anything, they'd have to do something sometime earlier on in this decade. Otherwise they can't field an army of significant size to forward position their troops.
The Russians have considerably fewer fighting age men...less every day, now it would appear.
Amazing logic.
But, I guess p didn't expect such a drubbing.
>Additionally, because most of populated Russia is a flat plane, they have no geographic barriers to protect their cities. Therefore they need to forward position their troops in order to feel secure.
This is very weird argument that smells of taking russian propaganda on face value. There's no "geographical barrier" other than what, hundreds of kilometers of land? They don't need "forward position". Closest point from Ukraine to Moscow is barely less than from Latvia, and St Pete is pretty much on NATO border, yet somehow... land road to Crimea makes them feel "secure"?
The real answer is that there is no "feeling insecure" at all other than in propaganda, and invasion of Ukraine is purely for maintaining the empire. There can be no "russian world" country that is outside of russia and prospers.
I seem to recall in 2021 when the last debt ceiling issues emerged the same political cosplay took place. It's being used as leverage, last time it was close too, they ultimately got it across the line.
The US Government has never defaulted on its debt under the current (~50 year old) global financial system.
It HAS defaulted when transitioning off the gold/silver standard, when the world moved off Breton Woods, and during the Civil War.
I’d note that each of those defaults were related to the total collapse of the existing rules for national/global finance.
So ultimately, these defaults do bolster the case for the “never defaulted” folks: a default could literally bring an end to the current global financial system.
> technical default 32 years ago was blamed on check-processing glitches and quickly corrected . . . affected only a tiny percentage of maturing securities at the time.
Actually I think the financial system doesn't function as a rigid categorization structure. I think it's more like a negotiation of resource management. Things like leverage and political power apply here in ways that cause the rules to become far more flexible. A powerful government like the United States commands far more favorable (good faith) experiences with finance than, say, a person who is late on paying rent due to the same checking error.
I'm curious who is engaging in the gamesmanship in this scenario. This has been an issue long in the making with our deficit ballooning, even after significant increases in federal revenue. The bill signed by Republicans is hardly extreme, and when we considering the amount of expenses being paid to interest alone, it's clear the federal government needs to do something at this point.
Legislators across both aisles have demonstrated they have no interest in decreasing spending. This bill forces their hand while there's still leverage.
We have a budget process. If they fail to pass a budget, we get a government shutdown. Shutdowns are already extreme, but at least they are well understood and incremental. A 1 day shutdown is not too bad. A 1 year shutdown is untenable. Why do they need more leverage?
I answered that in my second paragraph. They've proven they're incapable of developing a budget that doesn't balloon. Non-discretionary spending is through the roof, as evidenced by their demand of latching spending to the 2022 budget levels. That's last year. How is this extreme or outside the realm of even negotiation?
Recall that the largest contribution to the budget shortfall is not increased spending, but tax cuts. If this were not simple gamesmanship, the proposed solution would include tax increases to pay for that which we have already agreed to purchase.
Without including meaningful tax increases, I don't think that the Republican bill can really be said to be a serious proposal. "We get everything we want and you get nothing" isn't a good faith negotiating position.
Spending is the side of the equation that's most problematic, though. Renevue has increased substantially lately, but the federal government has continued blowing past it at pretty insane rates. Both parties are obviously at fault, but this is the first major effort intended to curb it that we've seen in a long while.
The term ballooning is so qualitative and subjective that it is essentially a Barnum statement.
How would you determine if the number for the debt is too high? And why?
And how would you determine if it is too low?
For example would the calculation consider the current population? the current factory capacity? Agricultural capacity? the year? Interest Rates? Tax Revenue? The populations desired rate of saving? The current desires and goals of the nation and its citizens? If there is no exact formula, then would a representative body that debates and agrees on a best estimate number be a reasonable way to decide that? If so isn't that what congress does already?
I don't understand why this time it's different than every other debt ceiling show. Republicans refuse, Democrats call them a bunch of names, there's a "government shutdown" where about 5% of the federal government is furloughed - the things most visible and painful to the average citizen like passport renewals, immigration, national parks etc... and then the Republicans admit defeat and everything opens up again.
The government shutdowns have been over failures to pass a budget. We have never failed to raise the debt ceiling yet [0]
[0] Unless you count forcing the treasury department to take extraordinary measures, which has happened several times; and has been going on since January.
> The US is lucky no country declared war over the thievery.
There were no other countries capable of going to war with the sole global superpower. Not even remotely close. Western Europe desperately needed the US to continue standing off the Soviets. Who was going to declare war? Nobody of course.
That remains true today (China for example can't project force outside of its borders effectively and the Europeans still desperately require the US to stand off the Russians).
Is it (a US default) at all possible given all we know? and if yes, is it possible to envision what would happen specifically? If it will have global repercussions then maybe it is something the global community should insure against, somehow?
These are questions I'd like to have have a grip on. Not an economist, obviously.
> Is it (a US default) at all possible given all we know?
An open question, nobody really knows. As I recall, the president has no option that isn't technically a constitutional violation. We might want to throw this to the SCOTUS and settle it.
Literally nobody knows the answer to these questions beyond the obvious answer of 'yes it's possible, and no it's not probable.' Everything beyond that is speculation, which is going to be more driven by ideological worldview than the unique specifics of the current situation.
People who think things won't change (not only referring to this specific issue) because the USD is still quite strong, remains the world reserve currency, and has survived rough waters in the past have a perfectly reasonable argument, even if it will inevitably be wrong one day. And those who take a bearish outlook on the situation also have a reasonable argument - we're obviously living through a major inflection point in history, the world has been de-dollarizing for decades, and the global economic (and geopolitical) winds are shifting. It's quite reasonable to see a storm on the horizon right now.
The hedging/insuring is "real" stuff. In an economic collapse any sort of financial vessel will become worthless. But after all is said and done, land, rare metals, and "things" in general will all maintain their value. Bill Gates and Ted Turner are currently the top 2 owners of farmland in the US. [1]
Right! This article very misleadingly confuses leaving the Bretton wood agreement and going off the gold standard as defaults. I think that is the same only in the mind of this author, who seems to be trying to normalize something that would be very dumb to do.
They literally were defaults. The reason for Bretton Woods, and the reason the USD became the overwhelming world reserve currency, is that it was directly convertible to gold. Buying USD was as good as buying gold, which meant the currency was not dependent on any given country.
But then due to poor economic policy we found ourselves in a situation where we had far more issued debt (currency) than we had gold. We were forced to default on those debts, withdraw from Bretton Woods, and basically just told the rest of the world 'deal with it.' A famous quote from the Secretary of the Treasury at the time was, "The dollar is our currency, but it's your problem."
You say we left Bretton Wood due to "poor economic policy". If that were true the economy of the US has performed poorly since 1972. That's crazy. Worse, it implies that we should go back to the gold standard. That's also tin foil hat proposition.
A default is by definition when you break a contract. On July 1944, the US signed the Bretton Woods Agreement. Agreements between countries change, they aren't contracts. That is why I don't think it is literally a default. Also, history has shown it was a sensible and beneficial thing to do.
I'm not going to debate semantics, but I will hit on the other issue. This is a site you may find interesting: https://wtfhappenedin1971.com/
The reason we were forced to default (or whatever you want to call it) on our obligations under Bretton Woods is that our economic policies were enabling inflation to start spiraling out of control. Cumulative inflation from 1913 to 1970 increased 306%. That was a major problem. From 1913 to today? It's 3091%. This causes countless problems in society. Take wealth inequality for instance. Workers have always expected annual raises, even in times of negligible inflation, but in inflationary times those those raises often struggle to even keep up with inflation. This [1] is a graph of real wage for workers. It understates the picture as it starts in 1979, at which point the decline was already in full swing.
But even there, you see but a 10% real increase in wages over the past 40 years. By contrast, real GDP/capita [2] has increased by more than 100%. And not only are there are far more basic costs to life today than in 1979 (internet, electronic devices, etc) but many things like housing and education costs have accelerated dramatically far ahead of nominal inflation. So you have a world with more billionaires than ever, and one where more people than ever can't afford to even feed themselves without government assistance. And this is not even scratching the surface of the issues. Basically we had a small problem in 1971. Instead of solving it, we stuck a bandage on it - leaving a later generation to solve a dramatically larger problem.
Imagine I promise to pay you back in Johannes-money that is pegged to the value of 1kg gold and then when it’s time to pay back I change the peg to 1kg rasins. I bet that’s pretty close to a default in most peoples opinions.
I can imagine that, but because I know about finance I know that in reality a person in the US could not exchange $35 for an ounce of gold in 1971. In theory sovereign nations had that right up until 1972, but in practice lots of agreements between nations made in the decade and a half before 1972 undermined that right by limiting exchanges or asking foreign governments to hold dollars in place of gold.
The US defaulting isn't really the most interesting topic at this point - scenarios where it honours its debts became implausible a while ago. It'd be much more interesting to get an honest insight into the views of the Chinese & Japanese leadership (two countries with the largest US dollar holdings) on what they think they are getting out of this.
The numbers are obvious - someone isn't going to be getting much in the way of real repayments. It isn't quite clear who yet where the hammer will hit (my guess is #1 pensioners, #2 foreigners). What do the foreigners think is going to happen? Did they actually buy the outrageous line that the path to prosperity was feeding goods into the US consumer for paper? It seems a tough sell that anyone in a foreign government believed that.
No better alternative for the Chinese. US Treasuries are the worlds most liquid and deep markets for money at the nation-state scale. Euro's are still in America's sphere of influence. Holding Yuan just destroys their export economy.
Japanese depend on America for security so they do it as a sort of quid pro quo.
I do agree though: pensioners (i.e. US public) will suffer first. International treasury defaults would threaten US hegemony.
The Asians have potentially just given huge amounts of real stuff to the US in exchange for ... arguably the exposure? They could have just taken the day off instead and been economically in the same position. "No better alternative" is a bit of a trick in assuming that the natural order of the world is Asians slaving away making life better for someone foreign. It didn't have to be that way.
I'm not saying that they've certainly made a mistake, but "no better alternative" is unimaginative. This is China and Japan we're talking about here, they absolutely had the power to make their own alternatives. Will they be surprised if the US doesn't pay them? The Russians saw it coming, they were doing exercises and whatnot years in advance of the asset seizures.
Japan doesn't. It is essentially a US vassal state when it comes to international disputes.
For China: Where would they put that money? They can't keep it in the Yuan because it strengthens their currency which destroys their export economy. So they have to buy other currencies to reduce demand for their currency while strengthening others. Which currency can they go to? The answer: USD. It's the only one that can support their scale.
Sure can they make up another currency? I think they've been trying to do a BRICs currency for a while now. However, you can be sure if that gains traction that the US will start doing something about it, either covertly or kinetically. It is that much of an existential threat to the US.
Well actually, the collective reaction of the west, including the virtual exclusion of Russia from all western economic activity could not have come as a surprise to Putin. This is in fact the only sense I can make of the overt aggression towards Ukraine: Putin and his clique already held the short end of the stick after Maidan, Georgia, Syria etc: i.e. the west were not going to make life easy for him anyway, so they devise a clean cut, a return to the cold war that they all were so familiar with - and with an expectation that the west would overstretch on armaments and financial crisis. This theory is supported by the obvious strategic investment in an alternative international currency that has been building for a long time - efforts that have been more fruitful after the invasion if anything - also possibly already predicted.
But I'm not sure. It might be crediting them with more brains than they have.
But consider this. The way you're putting is "Russia did X therefore they knew (meaning predicted/guessed) that Y was gonna happen". I don't disagree. However, the other person said "Russia saw it coming, it was doing X before Y". This inverts the causality because it suggests that Y was gonna happen regardless, and as a consequence they started X ahead of time. Russia wants to be a superpower, but somehow is always the victim.
I don't think the relation is all that strong. The US wasn't especially sanctioned after Iraq for example. As far as I know no US assets were frozen and seized. Although, to be fair, maybe people were sanctioning them and nobody noticed because the US is pretty robust. Stealing stuff isn't a usual global response to unjust wars.
The US was looking for a good excuse, and it got one. But I doubt there was a rule on the book saying that they were going to wipe their owings to Russia if the Ukraine was invaded. It isn't like Ukraine is in NATO or has some sort of defensive treaty with the US, all the activity is their initiative because they want to give Russia a black eye/topple Putin.
China has been buying gold. They have been preparing for the collapse of the dollar for years. There are some claims that the collapse of the dollar is China's goal.
That number is suspect. China imported 1343 tons in 2022. The source for that import number doesn't say it was added to the government coffers though. The quantity reportedly added to reserves was only 25 tons.
China also has extensive gold mining operations in Africa and South America. I doubt the quantity of mined gold is counted in numbers based on market purchases.
Personally I suspect all of these official figures. The unofficial speculation isn't much better either. The theme is something like, "The PBoC secretly buys gold to avoid driving prices higher", "Fort Knox is empty! They've been dumping to suppress the gold price" and one of my personal favorites, "The London bullion market is is rigged. Unbacked paper gold is used to suppress prices. When you ask for delivery, you can only get the currency equivalent".
None of this is impossible. I find it all interesting, but it is worth noting that it is heavily biased. The PBoC secretly has more gold than stated while the west is secretly bankrupt. A gold backed CNY will emerge as the new dominant currency.
Also of interest is the emergence of the BRICS as an acronym dates back to 2001 at Goldman Sachs. There's definitely more than meets the eye and the official numbers are suspect, but the alternative numbers are speculative. Not to say that I don't find the fringe theories interesting. I just find it hard to believe either side. For me the de-dollarization hype is too orchestrated. Meanwhile the Peter Zeihan theories are too neat and tidy.
I am more in the orchestrated collapse to centralize power camp. The Federal Reserve was created with the intent to centralize power in the hands of the bankers despite stated goals. We are 110 years running under that regime. After a 110 years working towards a goal the ability to orchestrate on a global scale could be quite extensive.
I am with you on being dubious of official numbers though. We really have no idea who is telling the truth and who is fudging numbers. I believe that people with a goal to build their power will lie, cheat, murder, and steal to accomplish that goal. If some countries collapse or a genocide is committed in the process they do not give a shit as long as their power is retained.
> It'd be much more interesting to get an honest insight into the views of the Chinese & Japanese leadership on what they think they are getting out of this.
Industry. They wanted it. They got it. This is how.
Remember, debt substitutes exports in the balance of trade. Issuing debt pumps assets and dumps exports. Buying debt pumps exports and dumps assets. Countries buy US debt because they want to pump exports. They want real jobs building real things with real infrastructure and real machines.
I wouldn't worry about China getting short-changed. I'd worry more about the implications of the US offshoring its industry. The implications to hard power are obvious, but the domestic implications are more consequential for most of us:
"We used to make shit in this country, build shit. Now all we do is put our hand in the next guy's pocket." - The Wire
Our politics is so dysfunctional. We waste tremendous amounts of time making the same arguments over and over and over, like somehow this time will be different. I assume both sides want it to continue, though I don't really understand the motivations from the left. The right is super easy to understand, it's a huge win for them every time.
If so, you need to get your tap water checked. Something is leaching in. You need one of those little testing kits that turns red when it detects conservative talking points.
In any case, the Democrats have a few large, obvious subgroups: the Justice Dems, the Economic Left, and "MSNBC Liberals." Let's call them the AOC, Bernie, and Biden factions. Sure, they bicker between elections and fight during primaries but they inevitably unite for the general election. Just as with any FPTP coalition.
The Republicans have big divisions too. Trump and DeSantis have very different visions for the party. Remember the chants of "Hang Mike Pence!" on Jan 6? That wasn't unity. Neither was Tucker Carlson getting fired. Next primary season should be entertaining, but I've seen this movie too many times to put much stock in left-wing pundits' prediction that the Republican party will actually fall apart. Our talking heads do it too, see? No, Republicans will unite for the general. Just as with any FPTP coalition.
> In any case, the Democrats have a few large, obvious subgroups
The elected Democrats, yes. What about Democrat voters?
> The Republicans have big divisions too. Trump and DeSantis have very different visions for the party.
Absolutely, but that doesn't stop the average Republican/conservative voter from supporting either candidate at the end of the day.
> I've seen this movie too many times to put much stock in left-wing pundits' prediction that the Republican party will actually fall apart.
I was literally just advocating the opposite prediction. I get that you want to read between the lines of my comment, but I am not the one writing there.
Democratic voters come together on election day too -- otherwise our coalition wouldn't have beaten your coalition in 2018 and 2020. It must be awkward to lose to a coalition that you don't believe exists, lol.
Pundits always say "THE (OPPOSITE PARTY) ARE FALLING APART!!!!" because everyone wants to believe it. Your pundits say it and our pundits say it. There's an important meta-lesson to extract from this: if you lob this meme across party lines, it will land like a whoopie-cushion because your opponent is guaranteed to be even more familiar with its inverse.
Democrat voters voted for the winner of their tent. It took coordination and convincing: most of which happened after Bernie dropped out of the race.
My entire point is that we are all stuck in a two-party system; and politically that is advantageous to conservatives and moderates, and disadvantageous to progressives.
So the intent here is clearly to blame all these problems on ending the gold standard. But on a lot of these graphs they really fudge it. The dual income trend began in 1965, as did the home value vs. income one. It's unclear to me why they view the words 'peer review' as a negative, but if you zoom in on ngram you'll find that spike also occurred before 1971. Some of the 'positive' trends also continued well after the end of the gold standard, like debt to GDP. The income inequality graph only diverges in 1980. And this is just from looking at their own graphs that they've cherrypicked. Needless to say, a questionable source at best.
There are multiple factors that contribute to economic trends, it's rarely accurate to attribute them to a single cause. The website doesn't really say the reason for this trend in 71, gold standard could be a reason or theory.
Some of the graphs do start before 1971, the trends in the graphs may have accelerated or become more pronounced after the end of the gold standard.
> The website doesn't really say the reason for this trend in 71, gold standard could be a reason or theory
Well, per the site owner[0], the assumption came first, and the poorly fitted graphs came later.
> I believe Richard Nixon’s closure of the gold redemption window in 1971 was the largest driving factor in the inflection points you can see in our data.
> As I stated previously this is an a priori assumption, as we did not gather the data first and then form a hypothesis based on the correlations.
It feels a little odd of to me that MMT (with Stephanie Kelton's book "The Deficit Myth" a great example of explaining such) never comes up in these conversations.
"BRETTON WOODS A system for international financial management and stability which was put in place by the Allies, minus the Soviets, in 1944 and destroyed in 1973 by President Richard Nixon without consideration being given to a replacement.
"Nixon hoped in this way to solve some short-term American economic problems by re-creating the sort of financial disorder in which the largest power would be best placed to benefit. It could be said that this was the single most evil act undertaken by an elected leader in the postwar period. Other leaders should not be discouraged, however. The opportunity to do worse is perpetual."
--- John Ralston-Saul, The Doubter's Companion, 1994
All of the examples cited use a repudiation of the backing of currency or bonds with gold or silver. I don't think I'd call that a default. I know that there is a political minority that still thinks that breaking away from the gold standard was a mistake, but that's not the same thing as straight up refusing to pay back holders of government debt.
What is the logic behind an absolute debt ceiling? The way most other countries that limit government debt do it is by limiting debt to some certain percentage of GPD.
Note that the debt ceiling does not limit deficits. Those come from the budget. So Congress and the President can approve a budget that will cause debt to go above the debt ceiling, the government can then contract for goods and services authorized under that budget, and then when later presented with the bills for those goods and services run into the debt ceiling.
There's no perfect analogy between government finance and person finance, but reasonably close is this. You and 5 friends buy a vacation house together. You have a contract you have all agreed to covering how to run this thing. One of your group is designated as the treasurer, and this rotates yearly among you.
You have a planning meeting every year where you vote on major upgrades and improvements for the next year. These are put on a credit card that is jointly owned by you and your friends. Also on that credit card are utility bills, taxes, mortgage payments, and anything else that can be classified as a vacation house expense.
When the credit card bill comes each month, there is a meeting where it is presented. If it is under a certain amount the group contract authorizes the treasurer to pay it from the group's joint bank account, which you all pay a fixed monthly amount into.
If the bill is over that fixed amount, which it will be the month after a major upgrade or improvement is done, the treasurer can only pay it if the group votes to do so.
One year at the annual planning meeting the group voted unanimously to reroof the house. It votes 5-1 against proposals to install a hot tub, remodel a bathroom, and build a new deck. Those proposals were from 3 different people.
After the reroofing is done and appears on the credit card bill the 3 people whose proposals were voted down at the planning meeting vote "no" on paying the credit card bill. They say they are going to vote "no" unless the group agrees to their upgrade proposals. They are all adamant about this (even though each of them is against the other two's upgrades), and so the treasurer cannot get a group vote in favor of paying the credit card bill.
The sane way to do this is that when the spending is authorized at the planning meeting for that to also authorize paying the bill when it comes do.
Notice each time the U.S. defaulted it brought economic turmoil, something The Hill didn't point out. Also, the U.S. has never defaulted under the current global financial system. If they do then they can expect even greater pushback on continuing to use the U.S. dollar as the world's reserve currency and Americans can expect to see significantly higher inflation for the next several years.
Treasury bonds/bills are just “future dollars”, while physical cash and electronic deposits are just “today dollars”. The idea that a sovereign government can somehow default on obligations denominated in the currency it creates and controls is absurd. It can no more default on treasury bills than it can default on dollars, or accounts at Fed - either can be created at will, physically via printing press/mint OR electronically via crediting an account at the fed.
The “debt outstanding” is just the number of dollars the government has created. But the way we calculate this number doesn’t include ”today dollars” the government has printed, only “future dollars”, so it seems quite meaningless to fixate on it.
And it is not per se irresponsible for this number to be high. It only becomes irresponsible if there are negative effects on the broader economy, primarily via inflation but also other effects like crowding out private investment and reducing growth.
Right now we are in an overly inflationary environment right now, and the government should be printing fewer dollars (“austerity”) via lower spending, higher taxes. It would be reasonable to insist on changes to spending/taxation policy.
It is irresponsible to take money (today or future-dated) and imply the government may no longer honor it as money. You are destroying the public’s faith in money, and losing the ability to buy goods and services with it. This is why many countries can’t get others to accept their money as payment, and have to issue bonds in a currency they DON’T control. This is not a good situation to be in.
People take the intuition that it is irresponsible for a household to have too much debt because it might not be able to repay it, and apply that to the government which can create those dollars. It is not the same.
It is like saying Starbucks can default on “Starbucks points” that it owes to people. So long as Starbucks exists, it can hand out however many Starbucks Points it likes, because it decides what a Starbucks point is and maintains the records of who has how many points. There might be Starbucks Points inflation if they hand out too many, but it is always possible for them to meet Starbucks Point obligations.
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[ 1.9 ms ] story [ 147 ms ] threadBretton Woods is a fascinating topic on its own. Accidental Superpower is a good read that dives in a little, but isn't focused specifically on it. I can't resist bringing up that book because in one of the later chapters, it predicted the invasion of Ukraine, IIRC, down to the month.
https://en.m.wikipedia.org/wiki/Petrocurrency
The author, Peter Zeihan, does a good job of melding geography, demographics, energy, and food supply to come up with a deterministic approach to geo-politics.
I have no clue how accurate it is, but it's a fun mental algorithm for simplifying complex and nuanced situations.
His prediction, and I'm paraphrasing here, was that Russian Demographics are more or less in free fall. Every year after ~2020 the Russians have less and less fighting age men and their army will be weaker and weaker.
Additionally, because most of populated Russia is a flat plane, they have no geographic barriers to protect their cities. Therefore they need to forward position their troops in order to feel secure.
So his assertion, was that based on previous Russian military conflicts, Ukraine was the next most likely target, and that if Russia wanted to do anything, they'd have to do something sometime earlier on in this decade. Otherwise they can't field an army of significant size to forward position their troops.
This is very weird argument that smells of taking russian propaganda on face value. There's no "geographical barrier" other than what, hundreds of kilometers of land? They don't need "forward position". Closest point from Ukraine to Moscow is barely less than from Latvia, and St Pete is pretty much on NATO border, yet somehow... land road to Crimea makes them feel "secure"?
The real answer is that there is no "feeling insecure" at all other than in propaganda, and invasion of Ukraine is purely for maintaining the empire. There can be no "russian world" country that is outside of russia and prospers.
House approves debt ceiling extension through early December: https://edition.cnn.com/2021/10/12/politics/house-vote-debt-...
White House rules out concessions over debt ceiling while GOP refuses to help avert crisis : https://www.washingtonpost.com/us-policy/2021/09/20/white-ho...
House passes debt ceiling increase, sending it to Biden to avoid default hours before deadline : https://www.cnbc.com/2021/12/14/debt-ceiling-democrats-to-vo...
* https://www.youtube.com/watch?v=1FXuMs6YRCY
It HAS defaulted when transitioning off the gold/silver standard, when the world moved off Breton Woods, and during the Civil War.
I’d note that each of those defaults were related to the total collapse of the existing rules for national/global finance.
So ultimately, these defaults do bolster the case for the “never defaulted” folks: a default could literally bring an end to the current global financial system.
Edit: corrected 75->50 year old system
Except for 1979:
* https://www.reuters.com/article/usa-debt-default-idUSN1E76A0...
* https://www.theatlantic.com/business/archive/2013/01/heres-w...
* https://archive.is/jKayD
Not exactly the same thing.
Doesn't matter the reason. Doesn't matter the justification.
Legislators across both aisles have demonstrated they have no interest in decreasing spending. This bill forces their hand while there's still leverage.
(edited for typo)
And any increases were across the board. Asking them to cut all of the increases from only ~10% of the expenditures is ludicrous.
And how would you determine if it is too low?
For example would the calculation consider the current population? the current factory capacity? Agricultural capacity? the year? Interest Rates? Tax Revenue? The populations desired rate of saving? The current desires and goals of the nation and its citizens? If there is no exact formula, then would a representative body that debates and agrees on a best estimate number be a reasonable way to decide that? If so isn't that what congress does already?
[0] Unless you count forcing the treasury department to take extraordinary measures, which has happened several times; and has been going on since January.
> It HAS defaulted when transitioning off the gold/silver standard, when the world moved off Breton Woods, and during the Civil War.
If moving off of Breton Woods was a default, then your first statement is wrong, and the US hasn't defaulted on its debt in 50 years:
https://en.wikipedia.org/wiki/Bretton_Woods_system#Paralysis...
(Changed it)
When Nixon decided to end Bretton Woods.
There were no other countries capable of going to war with the sole global superpower. Not even remotely close. Western Europe desperately needed the US to continue standing off the Soviets. Who was going to declare war? Nobody of course.
That remains true today (China for example can't project force outside of its borders effectively and the Europeans still desperately require the US to stand off the Russians).
These are questions I'd like to have have a grip on. Not an economist, obviously.
An open question, nobody really knows. As I recall, the president has no option that isn't technically a constitutional violation. We might want to throw this to the SCOTUS and settle it.
People who think things won't change (not only referring to this specific issue) because the USD is still quite strong, remains the world reserve currency, and has survived rough waters in the past have a perfectly reasonable argument, even if it will inevitably be wrong one day. And those who take a bearish outlook on the situation also have a reasonable argument - we're obviously living through a major inflection point in history, the world has been de-dollarizing for decades, and the global economic (and geopolitical) winds are shifting. It's quite reasonable to see a storm on the horizon right now.
The hedging/insuring is "real" stuff. In an economic collapse any sort of financial vessel will become worthless. But after all is said and done, land, rare metals, and "things" in general will all maintain their value. Bill Gates and Ted Turner are currently the top 2 owners of farmland in the US. [1]
[1] - https://www.farmlandriches.com/largest-farmland-owners/
But then due to poor economic policy we found ourselves in a situation where we had far more issued debt (currency) than we had gold. We were forced to default on those debts, withdraw from Bretton Woods, and basically just told the rest of the world 'deal with it.' A famous quote from the Secretary of the Treasury at the time was, "The dollar is our currency, but it's your problem."
A default is by definition when you break a contract. On July 1944, the US signed the Bretton Woods Agreement. Agreements between countries change, they aren't contracts. That is why I don't think it is literally a default. Also, history has shown it was a sensible and beneficial thing to do.
The reason we were forced to default (or whatever you want to call it) on our obligations under Bretton Woods is that our economic policies were enabling inflation to start spiraling out of control. Cumulative inflation from 1913 to 1970 increased 306%. That was a major problem. From 1913 to today? It's 3091%. This causes countless problems in society. Take wealth inequality for instance. Workers have always expected annual raises, even in times of negligible inflation, but in inflationary times those those raises often struggle to even keep up with inflation. This [1] is a graph of real wage for workers. It understates the picture as it starts in 1979, at which point the decline was already in full swing.
But even there, you see but a 10% real increase in wages over the past 40 years. By contrast, real GDP/capita [2] has increased by more than 100%. And not only are there are far more basic costs to life today than in 1979 (internet, electronic devices, etc) but many things like housing and education costs have accelerated dramatically far ahead of nominal inflation. So you have a world with more billionaires than ever, and one where more people than ever can't afford to even feed themselves without government assistance. And this is not even scratching the surface of the issues. Basically we had a small problem in 1971. Instead of solving it, we stuck a bandage on it - leaving a later generation to solve a dramatically larger problem.
[1] - https://fred.stlouisfed.org/series/LES1252881600Q
[2] - https://fred.stlouisfed.org/series/A939RX0Q048SBEA
The numbers are obvious - someone isn't going to be getting much in the way of real repayments. It isn't quite clear who yet where the hammer will hit (my guess is #1 pensioners, #2 foreigners). What do the foreigners think is going to happen? Did they actually buy the outrageous line that the path to prosperity was feeding goods into the US consumer for paper? It seems a tough sell that anyone in a foreign government believed that.
Japanese depend on America for security so they do it as a sort of quid pro quo.
I do agree though: pensioners (i.e. US public) will suffer first. International treasury defaults would threaten US hegemony.
I'm not saying that they've certainly made a mistake, but "no better alternative" is unimaginative. This is China and Japan we're talking about here, they absolutely had the power to make their own alternatives. Will they be surprised if the US doesn't pay them? The Russians saw it coming, they were doing exercises and whatnot years in advance of the asset seizures.
For China: Where would they put that money? They can't keep it in the Yuan because it strengthens their currency which destroys their export economy. So they have to buy other currencies to reduce demand for their currency while strengthening others. Which currency can they go to? The answer: USD. It's the only one that can support their scale.
Sure can they make up another currency? I think they've been trying to do a BRICs currency for a while now. However, you can be sure if that gains traction that the US will start doing something about it, either covertly or kinetically. It is that much of an existential threat to the US.
You're trying to pretend that causality goes the wrong way around. The invasion of Ukraine caused the asset seizures.
But I'm not sure. It might be crediting them with more brains than they have.
But consider this. The way you're putting is "Russia did X therefore they knew (meaning predicted/guessed) that Y was gonna happen". I don't disagree. However, the other person said "Russia saw it coming, it was doing X before Y". This inverts the causality because it suggests that Y was gonna happen regardless, and as a consequence they started X ahead of time. Russia wants to be a superpower, but somehow is always the victim.
The US was looking for a good excuse, and it got one. But I doubt there was a rule on the book saying that they were going to wipe their owings to Russia if the Ukraine was invaded. It isn't like Ukraine is in NATO or has some sort of defensive treaty with the US, all the activity is their initiative because they want to give Russia a black eye/topple Putin.
https://www.gold.org/goldhub/gold-focus/2023/04/chinas-gold-....
I'm more in the Brent Johnson camp on the de-dollarization hype.
China also has extensive gold mining operations in Africa and South America. I doubt the quantity of mined gold is counted in numbers based on market purchases.
https://oilprice.com/Metals/Gold/Reopening-Of-Chinese-Econom...
None of this is impossible. I find it all interesting, but it is worth noting that it is heavily biased. The PBoC secretly has more gold than stated while the west is secretly bankrupt. A gold backed CNY will emerge as the new dominant currency.
Also of interest is the emergence of the BRICS as an acronym dates back to 2001 at Goldman Sachs. There's definitely more than meets the eye and the official numbers are suspect, but the alternative numbers are speculative. Not to say that I don't find the fringe theories interesting. I just find it hard to believe either side. For me the de-dollarization hype is too orchestrated. Meanwhile the Peter Zeihan theories are too neat and tidy.
https://www.goldmansachs.com/our-firm/history/moments/2001-b...
http://www.goldmansachs.com/our-thinking/archive/archive-pdf...
https://www.gata.org/node/20925#:~:text=Why%20have%20Western...
I am with you on being dubious of official numbers though. We really have no idea who is telling the truth and who is fudging numbers. I believe that people with a goal to build their power will lie, cheat, murder, and steal to accomplish that goal. If some countries collapse or a genocide is committed in the process they do not give a shit as long as their power is retained.
Do you mean this debt ceiling cycle or in general?
Industry. They wanted it. They got it. This is how.
Remember, debt substitutes exports in the balance of trade. Issuing debt pumps assets and dumps exports. Buying debt pumps exports and dumps assets. Countries buy US debt because they want to pump exports. They want real jobs building real things with real infrastructure and real machines.
I wouldn't worry about China getting short-changed. I'd worry more about the implications of the US offshoring its industry. The implications to hard power are obvious, but the domestic implications are more consequential for most of us:
"We used to make shit in this country, build shit. Now all we do is put our hand in the next guy's pocket." - The Wire
There is no coherent Left in the US: instead we have one tent for every person who isn't conservative.
In any case, the Democrats have a few large, obvious subgroups: the Justice Dems, the Economic Left, and "MSNBC Liberals." Let's call them the AOC, Bernie, and Biden factions. Sure, they bicker between elections and fight during primaries but they inevitably unite for the general election. Just as with any FPTP coalition.
The Republicans have big divisions too. Trump and DeSantis have very different visions for the party. Remember the chants of "Hang Mike Pence!" on Jan 6? That wasn't unity. Neither was Tucker Carlson getting fired. Next primary season should be entertaining, but I've seen this movie too many times to put much stock in left-wing pundits' prediction that the Republican party will actually fall apart. Our talking heads do it too, see? No, Republicans will unite for the general. Just as with any FPTP coalition.
The elected Democrats, yes. What about Democrat voters?
> The Republicans have big divisions too. Trump and DeSantis have very different visions for the party.
Absolutely, but that doesn't stop the average Republican/conservative voter from supporting either candidate at the end of the day.
> I've seen this movie too many times to put much stock in left-wing pundits' prediction that the Republican party will actually fall apart.
I was literally just advocating the opposite prediction. I get that you want to read between the lines of my comment, but I am not the one writing there.
Pundits always say "THE (OPPOSITE PARTY) ARE FALLING APART!!!!" because everyone wants to believe it. Your pundits say it and our pundits say it. There's an important meta-lesson to extract from this: if you lob this meme across party lines, it will land like a whoopie-cushion because your opponent is guaranteed to be even more familiar with its inverse.
Democrat voters voted for the winner of their tent. It took coordination and convincing: most of which happened after Bernie dropped out of the race.
My entire point is that we are all stuck in a two-party system; and politically that is advantageous to conservatives and moderates, and disadvantageous to progressives.
Some of the graphs do start before 1971, the trends in the graphs may have accelerated or become more pronounced after the end of the gold standard.
Well, per the site owner[0], the assumption came first, and the poorly fitted graphs came later.
> I believe Richard Nixon’s closure of the gold redemption window in 1971 was the largest driving factor in the inflection points you can see in our data.
> As I stated previously this is an a priori assumption, as we did not gather the data first and then form a hypothesis based on the correlations.
[0]https://wtf1971.com/2023/03/21/reader-qa-why-did-you-create-...
My wife was working in transportation consultancy and there was a sudden drop in the amount of work.
The national parks were free to go in an out, so we decided to go to the death valley. I saw the biggest pile of trash ever inside a park.
"Nixon hoped in this way to solve some short-term American economic problems by re-creating the sort of financial disorder in which the largest power would be best placed to benefit. It could be said that this was the single most evil act undertaken by an elected leader in the postwar period. Other leaders should not be discouraged, however. The opportunity to do worse is perpetual."
* Politicians play chicken, waiting until the last possible moment
* The markets get upset in the meantime and this impacts US Treasury bond prices
* Eventually the limit is raised, right before the deadline
The estimated deadline is approximately mid August, though could be somewhere between June and early September.
In the long term, either we need something that provides massive growth (increased tax revenues, reduced welfare spending), or we'll default.
A default in 2023 is not impossible, though is definitely unlikely.
Note that the debt ceiling does not limit deficits. Those come from the budget. So Congress and the President can approve a budget that will cause debt to go above the debt ceiling, the government can then contract for goods and services authorized under that budget, and then when later presented with the bills for those goods and services run into the debt ceiling.
There's no perfect analogy between government finance and person finance, but reasonably close is this. You and 5 friends buy a vacation house together. You have a contract you have all agreed to covering how to run this thing. One of your group is designated as the treasurer, and this rotates yearly among you.
You have a planning meeting every year where you vote on major upgrades and improvements for the next year. These are put on a credit card that is jointly owned by you and your friends. Also on that credit card are utility bills, taxes, mortgage payments, and anything else that can be classified as a vacation house expense.
When the credit card bill comes each month, there is a meeting where it is presented. If it is under a certain amount the group contract authorizes the treasurer to pay it from the group's joint bank account, which you all pay a fixed monthly amount into.
If the bill is over that fixed amount, which it will be the month after a major upgrade or improvement is done, the treasurer can only pay it if the group votes to do so.
One year at the annual planning meeting the group voted unanimously to reroof the house. It votes 5-1 against proposals to install a hot tub, remodel a bathroom, and build a new deck. Those proposals were from 3 different people.
After the reroofing is done and appears on the credit card bill the 3 people whose proposals were voted down at the planning meeting vote "no" on paying the credit card bill. They say they are going to vote "no" unless the group agrees to their upgrade proposals. They are all adamant about this (even though each of them is against the other two's upgrades), and so the treasurer cannot get a group vote in favor of paying the credit card bill.
The sane way to do this is that when the spending is authorized at the planning meeting for that to also authorize paying the bill when it comes do.
Treasury bonds/bills are just “future dollars”, while physical cash and electronic deposits are just “today dollars”. The idea that a sovereign government can somehow default on obligations denominated in the currency it creates and controls is absurd. It can no more default on treasury bills than it can default on dollars, or accounts at Fed - either can be created at will, physically via printing press/mint OR electronically via crediting an account at the fed.
The “debt outstanding” is just the number of dollars the government has created. But the way we calculate this number doesn’t include ”today dollars” the government has printed, only “future dollars”, so it seems quite meaningless to fixate on it.
And it is not per se irresponsible for this number to be high. It only becomes irresponsible if there are negative effects on the broader economy, primarily via inflation but also other effects like crowding out private investment and reducing growth.
Right now we are in an overly inflationary environment right now, and the government should be printing fewer dollars (“austerity”) via lower spending, higher taxes. It would be reasonable to insist on changes to spending/taxation policy.
It is irresponsible to take money (today or future-dated) and imply the government may no longer honor it as money. You are destroying the public’s faith in money, and losing the ability to buy goods and services with it. This is why many countries can’t get others to accept their money as payment, and have to issue bonds in a currency they DON’T control. This is not a good situation to be in.
People take the intuition that it is irresponsible for a household to have too much debt because it might not be able to repay it, and apply that to the government which can create those dollars. It is not the same.
It is like saying Starbucks can default on “Starbucks points” that it owes to people. So long as Starbucks exists, it can hand out however many Starbucks Points it likes, because it decides what a Starbucks point is and maintains the records of who has how many points. There might be Starbucks Points inflation if they hand out too many, but it is always possible for them to meet Starbucks Point obligations.