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View Diary: The Great Depression Pt. III (172 comments)

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  •  There are many possible bad resolutions (3+ / 0-)
    Recommended by:
    Sparhawk, bablhous, BlueOak

    ... to the preposterous financial mess that the financial boys have gotten us into. Our job is to find the good solution.

    How will we repay our huge debt? And why should the world continue to fund new US debt?

    A possible answer to the second question is, becasue it is in their interest to do so. For all our many faults, the US is still the largest single piece of the global economy. If we collapse, everything collapses.

    Keep in mind, anyone with money to buy T-bills is doing well within the current financial reality. If that system collapses or changes radically, what reason to they have to believe they will still do as well in whatever the successor state of things turns out to be?

    Here's another way to look at it: why have China etc been funding our debt up to now? Whatever their reason have been in the past, they still have those reasons. What is new is that there is now evidence that the US has not used the money wisely (to say the least-- heh). But if the Obama adminstration (and the rest of us) can convince lenders that new investment will be used wisely, then there is still reason for them to invest new money. It's too bad about the waste of the previous investment, but, outrage aside, that's water under the bridge.

    Now for the first question-- what about our existing debt. I have long argued that this is substantially uncollectable. Presumably, the holders of that debt know this. In business, situations like this are often resolved through restructuring of the debt-- lower interest, longer repayment schedule, and/or partial cancellation. The reason that creditors agree to restructuring is that some repayment is better than no repayment. So while they could demand full payment, they know we can't do it, and therefore there's no point in demanding it. It's true that they have a "gun to our head", but we also have our finger on a dead-man trigger that is wired to a bomb that blows up the entire world economy. No one wants to go there.

    I have no idea how we get out of this in the long term. But then again, in the long term we have to  overhaul the entire world economy in order to deal with the sustainability crisis. We've known that for a long time. The thing that would make me happiest would be if I thought the People In Charge knew that too, because if they don't, then nothing else we do or don't do about the economy will make any difference at all.

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