Thursday

An email I sent to a friend, in response to this video:

Yet Standard and Poor's shouldn't have downgraded our debt to AA+.

It's all a farce. We can't pay this debt back and everyone knows it. At the last Treasury auction, the Chinese and private pension funds didn't show up. It won't be long until only the Federal Reserve (acting through the Preferred Dealers like Goldman) are the only ones buying it. And then there will be the default. We'll print the hell out of money--or the Federal Reserve will quantitatively ease the hell out of it--and then the U.S. will pay back the trillions and trillions with worthless currency. There's no other way out (as proven by the stats offered by the video).

Unfortunately, this method of default will ruin the middle class, like it did the middle class in Weimar Germany. If you're holding onto lots of cash and stocks that require a strong dollar, you're gonna get crushed.

One other possibility (but I can't imagine we'd ever be this honest): Partial default. We admit we can't pay it and creditors get paid 20 cents on the dollar over the course of five years, just like a Chapter 11.

We could also grow our way out of the debt, but we'd have to experience STUNNING economic growth. Currently, the government isn't pro-business enough to allow businesses to generate enough taxable profit to pay current government's expenses, much less eat away at the debt. Plus, the government has already crowded out private business in many areas, reducing profit areas. It's a freakin' mess.