Posted On: Wednesday - January 25th 2017 8:53AM MST
In Topics:   Global Financial Stupidity
(Continued from here.)
Let's keep this fairly serious compared to the last post, Part 2, on the topic of Global Financial Stupidity so's it doesn't become a mini-series. As the reader left off, the point was that US Gov't debt (also others but we're fixating on this specific debt right now) is fungible.
To default on only one part of a series of "debt instruments", as a finance guy might call it, does not work out well. How could other debt-holders be sure their holdings of debt instruments, IOU's whatever - which are assets to them - feel secure with what they are supposedly owed. They would feel the need to get out of these assets quickly, even if they took a big loss, meaning the price of all of these paper instruments would take a nose dive. That would mean that it'd be very difficult for the Treasury, Fed Reserve, or whoever is actually making up the pieces of IOU paper so that they can create digits in the accounts of the big banks, to issue more of it.
Secondly, how would you go about defaulting on only a portion? It'd be much like coming out with a regulation that banks not accept any 20's, 50's and 100's with serial numbers that have 4's in them. Wait, make that 8's - seeing as how the Chinese think 8 is a lucky number, maybe they like to keep the ones with the 8's, and we can just say, "hey, they're no good - maybe 8 is not such a happy-lucky number after all, but we'll honor your 4's any day of the week - except the unlucky days, haha" It'd be the same with Treasury Bonds - they've been traded all around, but even if a certain series were not to be honored - well, see the paragraph above this.
Getting back to the $200,000 (or in the rough neighborhood thereof) owed on average by each actually-tax-paying family, again, the money can not be payed back via tax increases without bankrupting most of those families or having them start shooting (probably more likely and appropriate option). Oh, wait, we can cut the Feral Gov't down to 10% of it's size, you say. Hey, don't get me wrong here, that's a Libertarian's and PeakStupidity blogger's wet dream - or dry, whatever! It's just that financial pain will happen to lots of people this way too, although SOME of them may be more deserving of it. Keep in mind that most of the Feral Gov't budget goes toward "transfer payments" meaning that money goes right back out in SS checks, medicare, pensions, grants of various forms back to states (the last being a very bad thing anyway). This means that with large budget cuts, which PeakStupidity would be joyful over, many people would lose a bunch of income and/or their jobs. We welcome more the cuts of jobs that are if not just a complete waste of money but are positions that harass and hurt the working people in lots of ways. Still, the transfer payments are money that is expected by people, and those will be in financial pain, whether deserved or not.
Part 4 coming later today. Have a good morning.