US Defaulting on debt

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CS
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US Defaulting on debt

Post by CS »

So this came out today:

https://www.newsweek.com/stock-market-1134867

' "We won’t be able to call it a recession, it’s going to be worse than the Great Depression,” economic commentator Peter Schiff told the Post. “The U.S. economy is in so much worse shape than it was a decade ago.”

A widespread drop in spending and income means that default rates will likely worsen in coming years. Schiff also blamed the U.S. Federal Reserve and other central banks in part for the impending crisis.

“I think we are going to have a dollar crisis — you think the Turkish lira looks bad now, wait till you see when the dollar is imploding and we have a sovereign debt crisis in the US,” he told the Post. “The U.S. government is going to be given a choice between defaulting on the debt, or else massive runaway inflation.” '

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So what do you guys think? What are the chances we actually default? (asking as someone who has a lot of treasury instruments to her name - and also as someone who doesn't want to have to bring a wheelbarrow to the supermarket to pay her bill....)

BRUTE
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Re: US Defaulting on debt

Post by BRUTE »

Peter Schiff was right about 2008, but he's also been calling the Next Great Depression every year since 2000.

chances over what time period? ever? 100%. next 10 years? 5%.

Schiff makes money selling doom. that doesn't mean there's nothing wrong, but he's an alarmist for sure.

arcyallen
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Re: US Defaulting on debt

Post by arcyallen »

Brute's 100% right. When you see someone that "called it" regarding the last financial event, look at their other predictions. There's usually lots of failed ones.

Will the US default? Very unlikely. Because we're printing the money we'd never technically need to. I AM very concerned about the $21 trillion in debt we have, but people like Warren Buffett call it sustainable even though that sounds insane. I guess it's like a large credit card bill you're not paying down - it's not healthy, but it's likely sustainable based on your massive income.

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Re: US Defaulting on debt

Post by jacob »

viewtopic.php?f=20&t=9404

Add: I guess I should read the article before I start referencing threads. The article is not about the US defaulting but Americans defaulting. It's certainly the case that household debt, corporate debt, and IIRC margin debt are again at peak levels. A lot of this is funded with short term debt (because it was cheaper) and those rates are now increasing. This means that individual people and corporations will default. This in turn means that spending and earnings will go down. In any case there will be a shifting around of assets from the pretend-to-haves to the haves.

prognastat
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Re: US Defaulting on debt

Post by prognastat »

BRUTE wrote:
Mon Sep 24, 2018 1:34 am
Schiff makes money selling doom. that doesn't mean there's nothing wrong, but he's an alarmist for sure.
When you have someone who actually makes money from things such as gold then selling doom, that the financial collapse is coming and you should invest lots in gold for when that happens then it's pretty obvious you have a vested interest in selling said doom & gloom.

Also if I had believed Schiff when I first heard from him my net worth would be much lower than it currently is. When you've been calling for another crash almost the whole time since the last crash he'll eventually be saying I told you so, but he has been saying another crash is right around the corner for almost 9 years now.

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unemployable
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Re: US Defaulting on debt

Post by unemployable »

Oh it's Newsweek? Didn't they default on being a magazine?

Anyway let's pretend the market does crash.

First of all I've lived through two separate 50% declines in the S&P in the last 18 years. I think I'll deal.

Then you have to ask, how does the US decline without taking the rest of the world with it? Where's everyone going to put their money? To China, who would suddenly be selling a lot less stuff to us? To Euro-denominated assets, when they're still doing QE over there? If there's one thing we've learned about recent market crises, it's that correlations all go to 1.

Where I live housing costs, for one, would go down significantly, as they did after 2008, as would likely some other costs such as transportation and fuel. Fewer tourists, less weekend traffic. Bring it on.

If you ERE'd five or 10 or however many years ago you'd be less screwed than the guy who spent those years in a cubicle and now doesn't have a way to make a living.

CS
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Re: US Defaulting on debt

Post by CS »

Thanks, everyone, that helps to get some perspective on it.

Eventually Schiff will be right about the crash. Hopefully less so about the runaway inflation. More motivation than ever to get away from the old day job and into a more useful net of income/adaptations.

I guess we are going to see how China handles things with their debt and the new tariffs. I don't think that is a small concern.

Mister Imperceptible
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Re: US Defaulting on debt

Post by Mister Imperceptible »

Ray Dalio is clear on the implications of the debts across the board (household, corporate, sovereign, and margin just for good measure), at about 11m30s of this interview:

https://m.youtube.com/watch?v=Nm0m62reFuY

He says a 30% depreciation of the US dollar can easily happen. But I think that’s a lower number than he would say elsewhere if he were not on TV. He looks pretty sheepish uttering that bit about 30%. He knows it will be more than that.

I’m about 45 pages into his free Debt Crises PDF and he says in such crises the nominal price of gold doubles, which implies a greater depreciation than 30%. He’s also disturbingly cavalier in that PDF about monetizing sovereign debts by money printing, bailing out too-big-to-fail financial institutions, and nationalizing the costs of bad behavior by market participants. He uses horrifying phrases like “beautiful deleveraging.” Of course, this beautiful deleveraging won’t be beautiful to the people losing their employment and following traditional stock/bond strategies peddled by financial advisors not required to act as fiduciaries. Maybe to a hedge fund manager removed from the concerns of most society it’s beautiful.

At the risk of sounding like a broken record: The world doesn’t need to collapse in order for you to profit from a currency devaluation.

suomalainen
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Re: US Defaulting on debt

Post by suomalainen »

CS wrote:
Mon Sep 24, 2018 10:27 am
Eventually Schiff will be right about the crash.
Even a broken clock is right twice a day.

Campitor
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Re: US Defaulting on debt

Post by Campitor »

suomalainen wrote:
Mon Sep 24, 2018 5:21 pm
Even a broken clock is right twice a day.
So is the broken clock stuck at 12 o'clock going to be right sooner than later? Are we approaching midnight (crash) or are we approaching noon (more growth to come)?

Reading the market, the ripple effects that Trump tariffs are beginning to have, the fact that midterm elections are coming, and the unfunded liabilities on the horizon at the state level, I'm beginning to feel that midnight is approaching. I hope I'm wrong. I'm ready for the crash but I feel this one is going to be as painful or more painful than 2008.

suomalainen
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Re: US Defaulting on debt

Post by suomalainen »

I have no idea. And neither does Peter Schiff. We can all see the same tea leaves. We each choose to focus on different parts of the picture. What it "means" in terms of future human actions at any given future point in time and how those actions are reflected in asset prices is anybody's guess. If you think you're right, place your bets. If you know you're wrong, write a monthly newsletter and charge for it and make some money off the people who know even less than you but nevertheless take comfort from your shaman-dance-moves. Maybe I'm just a cynic when it comes to prognostication.

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unemployable
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Re: US Defaulting on debt

Post by unemployable »

Campitor wrote:
Mon Sep 24, 2018 6:28 pm
So is the broken clock stuck at 12 o'clock going to be right sooner than later? Are we approaching midnight (crash) or are we approaching noon (more growth to come)?
I could see a mild recession in 2020-21, like the S&P down in the 20-30% range. That would be from whatever the top is. The banks are far less leveraged now, with far less concentrated in real estate, than they were in 2007, and global markets haven't gone up nearly as much as ours have (EM have been in the crapper this year). People like to point to car loans but I don't think that's the big banks, and they're mostly securitized anyway.

I could also see some stagflation, but doubt it would be on the level of what we had in the 1970s, and the thing about inflation is everyone's been predicting it since 2009. Seriously, right after everyone had decided the bottom was in all the managers I was meeting with were worried the stimulus was going to take us back to the Carter era. What was that now, nine years ago.

I'm not sure what the catalyst would be. Also pensions really don't fail all at once, not public pensions at least. Same way 4% SWR doesn't fail all at once.

Chris
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Re: US Defaulting on debt

Post by Chris »

unemployable wrote:
Mon Sep 24, 2018 7:23 pm
I could also see some stagflation, but doubt it would be on the level of what we had in the 1970s, and the thing about inflation is everyone's been predicting it since 2009.
True. But now there's tariffs and constraints on labor (low unemployment + drop in immigration), so there's more fuel for inflation.

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Re: US Defaulting on debt

Post by unemployable »

Chris wrote:
Mon Sep 24, 2018 8:59 pm
True. But now there's tariffs and constraints on labor (low unemployment + drop in immigration), so there's more fuel for inflation.
I wrote that as a disclaimer. The world's developed economies have basically spent the last nine years trying to cause inflation and the only place it really showed up has been in financial asset prices. I'm increasingly less convinced the continuation of this general endeavor will yield different results, although the theory says what it says.

trfie
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Re: US Defaulting on debt

Post by trfie »

arcyallen wrote:
Mon Sep 24, 2018 6:08 am
When you see someone that "called it" regarding the last financial event, look at their other predictions. There's usually lots of failed ones.
I cry foul. Not only did he call the 2008 crash well in advance, but he specifically described what was going to cause it, the housing issue. There was no one at the time calling it - look at Ben Bernacke who said that the housing increase prices were based on solid fundamentals, look at all the experts. Everyone knows how hard it is to predict something in advance, very easy in retrospect, but no one saw any of the previous bubbles occurring, not only the 2008 crash. When you make a call and explain it in detail, what more do you need to substantiate it?

I think he's right that there will be a major crash, but the chance of a default is practically nil, the government would never allow it because the effects would be catastrophic. Runaway inflation is what would happen. But keep in mind that if the govt and individuals reduce their debt and solve all the underlying problems, then there's no reason for this upcoming mega-crash to happen. Schiff gives many specific underlying reasons that it will occur, it's not like he is just proclaiming doom all the time without any basis, and there are plenty of people like that.
Last edited by trfie on Wed Sep 26, 2018 7:16 am, edited 1 time in total.

trfie
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Re: US Defaulting on debt

Post by trfie »

prognastat wrote:
Mon Sep 24, 2018 9:45 am
When you have someone who actually makes money from things such as gold then selling doom, that the financial collapse is coming and you should invest lots in gold for when that happens then it's pretty obvious you have a vested interest in selling said doom & gloom.
This is really bad logic because it can be applied to almost anything. Doesn't jacob have a vested interest pushing frugal ideas so he can sell more copies of his book? Isn't it possible all the people in the investment threads in this forum own the investments they are pushing? Maybe we should all stop using this forum?

trfie
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Re: US Defaulting on debt

Post by trfie »

suomalainen wrote:
Mon Sep 24, 2018 5:21 pm
Even a broken clock is right twice a day.
Does not apply. The example implies that recessions are inevitable and so someone predicting them continuously will eventually be right. But all the previous recessions have occurred for actionable reasons. There is no reason that recessions are inevitable, it would be possible to have slow rates of growth indefinitely. But this not even what Peter Schiff is talking about. He is predicting a mega-recession that will be worse than the great depression. There have only been 2 in the past 100 years, 1929 and 2008. So he does not have to be right at some point.

ajcoleman22
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Re: US Defaulting on debt

Post by ajcoleman22 »

We have defaulted before, I see no reason we won't default again. When is the real question?

Riggerjack
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Re: US Defaulting on debt

Post by Riggerjack »

But keep in mind that if the govt and individuals reduce their debt and solve all the underlying problems, then there's no reason for this upcoming mega-crash to happen.
Amen, brother. Let me know when this happens. Or even a viable plan for how.
The example implies that recessions are inevitable and so someone predicting them continuously will eventually be right. But all the previous recessions have occurred for actionable reasons.
Citation needed.
There is no reason that recessions are inevitable, it would be possible to have slow rates of growth indefinitely.
You gotta stop camping on that bong, man.

Thanks for the morning chuckle, but I'm afraid that's all I got from that. You have a lot of bold statements, but I'm not seeing any backup. If you can make a case for no recessions, I am listening.

Mister Imperceptible
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Re: US Defaulting on debt

Post by Mister Imperceptible »

Recessions are inevitable but the washing out of market signals by the central banks are setting the stage for something worse than the garden variety recession.

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