Friday, August 29, 2014

Why Defaulting on the US National Debt Would Be Moral

To simplify my banking career, my primary job was assessing the likelihood and probability that people we lent money out to would pay us back.  Of course this was a pointless task because management and bankers were paid by commission so they really didn't care about the quality of the borrower, just that the loan got approved and they got their commission.  This, naturally, led to me ramming heads with management (where I would almost always lose), but on a macro-economic scale also led up to the housing bubble and subsequent crash and Great Recession.

However, in my pursuit to find genuine, real silver linings to our current economic state, it didn't dawn on me until very recently that my experiences in banking also provided the 100%


rationale to default entirely and completely on the US national debt.

Permit me to explain.

While most of us would put the blame of our financial woes on the idiots who couldn't do 3rd grade math and borrowed way more than they could afford, it has to be pointed out that there were idiots that lent to such morons in the first place.  There will ALWAYS be math impaired entitled lazy cry-babies thinking they deserve a McMansion and a luxury car.  It's whether there are saner heads in the banking industry that would lend to these idiots.  This is called "due diligence" and was primarily my job back in my banking days.  Thus, while we certainly (and rightly) place blame on the idiots who borrowed more than they could afford, we must also place blame on the banks who were so stupid to lend to these idiots in the first place as well.

Here were have no argument from any side of any political aisle.  Everybody was against the bankster bailouts.  Everybody hates the banking industry and those that populate it.  And nearly everybody agrees that the banks should have taken their losses, never gotten bailed out, gone belly up and died never to be seen again.

So, riddle me this, riddle me that, why do we hate the bankers so much, but love our nation's creditors to the point we still concern ourselves with paying them back?

Understand they are one and the same AND they made the exact same mistakes.

Bankers lent money to people who couldn't afford to pay it back.
Lenders to the US government lent money to a government who couldn't afford to pay it back.

Bankers failed to do due diligence on the borrowers it was lending money to.
Lenders to the US government failed to do due diligence on the borrowers it was lending money to.

Bankers created a bubble that inevitably crushed the US economy
Lenders to the US government have DEFINITELY created a bubble that will DEFINITELY crush the US economy.

If that doesn't convince you, let's view lending to the US government much in the same terms as bankers view or analyze lending to regular banking clients.

First, who are these idiots lending to?

Well, the US government or the "American people."  But I think a better personification of this would be our chief representative to the world, Barack Obama.

Obama has never worked a real job in his life.  He has been an academia, a spoiled brat with his grandma paying for everything, who immediately went into politics and because of his youth, looks, and race won the lottery in the democrat primary to be president. 

His political platform has been to bribe voters with money that he borrows, while seeding envy and hatred against the only assets in the US that have the capacity to pay us back (entrepreneurs, hard workers, corporations, private sector, etc.)

But again, it is not so much Barack Obama US creditors are lending to, but the people who put such an idiot in office.  He is merely a proxy to the caliber and character of the country as a whole, and that country seemingly has no intention of paying anybody back, let alone concerning itself with government finances.

Second, what is the money being invested in?

Understand that banks don't just "lend out money for shits and giggles."  The proceeds of the loan must be invested in some kind of asset or business that generates an income.  AND NOT JUST AN INCOME, but MORE INCOME THAT WHAT IS BEING CHARGED IN INTEREST.  However, this is entirely a moot point because the proceeds of the loans lent to the US government do not go into ANYTHING even remotely resembling an investment.

1.  70% of government spending is income transfers, which is nothing more than bribes to the parasitic class to vote for democrats. 

2.  What money does make it to "education" is wasted on indoctrinating youth into socialism and not providing them the skills and jobs they need to support themselves, let alone work up the excess cash to pay back the national debt.  Worse still children are so removed from labor market realities they'll blow a trillion in federal tax dollars getting masters degrees in egos and hobbies before considered a trade.

3.  Health care spending is, sadly, but factual, mostly spent on people who will never work again and are just going to die soon (so again, mathematically just throwing money in a hole).

4.  Wars, no matter how called for, usually are not profitable for either side.  Even if the US went into the mid east "for oil," they've done a spectacularly bad job of profiting off of it.

In short, I'd rather lend to a cancer-ridden, faux 55 year old "DudeBro" "businessman" whose Beemer is leased, his house mortgaged to the hilt, and who has a trophy wife with a horse hobby farm that wants to start a bar, because at least a BAR is somekind of an investment.

Welfare bums, single moms, dying old people, tanks, and socialist indoctrination camps are NOT investments.

Third, how are we getting paid back?

You're not!  Any basic financial analysis of the government's finances already tells you it is loth to run a surplus.  And, once again looking at the caliber of the people in charge of the government, they have no intention of voting in fiscally conservative and astute people into office.  The American people are no different than the spoiled suburbanite children and trophy wives of the beleaguered and insolvent failing "businessman" who desperately comes to the bank, begging and pleasing to be lent more money so he can keep the facade up for another 6 months.

Since repayment is not an option, banks naturally then look at the repossession of the collateral.

Fourth, what do they have for collateral?

Creditors to the US government have "the full backing and faith of the US government" for its collateral.

Translated into English?


There is no collateral.

And the reason there is no collateral is because if any creditor dared tried to repossess say a piece of land or some islands or some other form of US assets a la "South Beach Tow" the full might and strength of the US military would come crushing down on it.

In other words, simplifying it a lot, people who lent money to the US government were just as spectacularly stupid and naive and negligent in their lack of due diligence that they fully deserve the US government to default on it and never pay them back. 

The Chinese and foreign creditors?  You were just as dumb lending money to an Obama America as you were building all those ghost towns and ghost malls that populate your landscape.

Pension funds, mutual funds and 401k plans?  You were just as dumb lending money to Americans as you were actually believing social security was a great way to retire.

And even you parents who thought "teaching your little children about interest" by having them invest in a Series EE bond, are going to instead teach them a much more advanced economic lesson on government bond defaults.

My simple economic take on this is why not make it easy?  Simply acknowledge the emperor has no clothes, default on it now and be done with this once and for all.  Creditors to the US government will get what their ignorance deserves, and we'll all be free of the national debt...that is until you idiot creditors lend this country of spoiled, entitled brats more money and start the whole cycle over again.

Enjoy the decline.


swiftfoxmark2 said...

The majority of US Debt is being held by the Federal Government and the Federal Reserve.

The Chinese own less than one trillion.

Now ponder that and try not to pull your hair out.

Bob Smith said...

This would be a great idea if government spending was reduced to match income. If not, as is most likely, more debt will continue to be generated and the default will have accomplished nothing.

Quartermain said...

Would the concept of odius debt come into play here:

In international law, odious debt, also known as illegitimate debt, is a legal theory that holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation, should not be enforceable. Such debts are, thus, considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state. In some respects, the concept is analogous to the invalidity of contracts signed under coercion.

Anonymous said...

You're missing a trick Cap. Why would anyone want to repossess US assets when they get a steady flow of tax income. The US government pays 2% of GDP this way (nearly 4% here in the UK). The US citizenry can't jump ship like a tenant in a mortgaged house so they're stuck having their financial lifeblood sucked away in tax. Any good bank knows you never want the client to pay back the debt, so long as they keep up their interest payments. The US creditors are fine with this situation.

As for the US government's position in a default, first there would be a massive liquidity crisis. The government would likely be unable to plug that financial hole fast enough and would completely collapse, being unable to pay its own workers. Secondly, the US still has nearly as much investment overseas as foreign investment on its own shores. Much of this is in European and east Asian countries that the US would be in no position to declare war on, especially in its weakened state. The investors would get most of their money back.

In short, the status quo works just fine for the powers that be. The only people being shafted are the taxpayers.

sth_txs said...

Captain, one thing I've noticed for years that as people's standard of living has declined, some have no choice but do many things on credit.

Tires, clothes, and too many other things to list. It disgust that this whole parasitic system is partially because of the income tax that steals quiet a bit from even a person making $40k. I would argue that some Americans, even if they do the right thing still take in the butt.

And regarding the banking system, I would like to know why Congress did not mandate that those with great credit and 100% payment history did not qualify first for those 4% mortgage refinancing rates. It does anger me that if I had another $500 of my income in my pocket I could certainly pay off the house a hell of a lot faster. But no, let us not have anyone have a real asset. If could get back the last 10 years of SS looted from and my employers, I could pay off my home.

Koop said...

Correction: We, the citizenry, ARE the collateral. Our future wage-slave productivity, and that of our potential progeny, are the co-signing suckers for all of the government's crazy expenditures.

The fallout from accepting "free money" in the form of government programs will be enslavement to their demands in the end.

Anonymous said...

Hey Cap,

it may be "moral" but it would not be the right thing to do for the well being of the US. Do you have any example of a country honestly defaulting on it's debt that ended up working well for it's people?

One thing the 'educators' never tell people about the great depression is the sovereign debt defaults of 1931. They love talking about the stock market crash of 1929, but never the many countries that defaulted or stopped payment of their debts in 1931. The economy and market were slowly starting to recover until 1931. After the defaults, which destroyed capital formation, things just got worse and the markets crashed even lower due to it.

Now, I agree with you that we need to do something about the national debt, as 70% of it is now accrued interest. That is money that never when to pay for anything! Not to 'help the poor', or 'education' or 'defense', 70% of what we owe is just rolled over interest payments!

I think there are no good ways to discharge the debt, only less bad ones. I think maybe one of the less bad ideas to deal with a part of the US debt would be for the US to exchange all foreign held debt with a voucher. These vouchers could only be used to invest within the US private sector, and would have an expiration date about, say, two to five years out from the date of issue. So foreigners would take all this money, and invest in the US private sector, making their decisions on what to invest in based on economic thinking as apposed to political thinking. They would want to invest in something with a rate of return. Since it would not be the US government investing in things (like Obama's pet project, Solyndra), much of the investments would go to things that actually grew the US economy.

Now, this would have some inflationary impact in the short term in some sectors of the economy, but I think having people investing based on what they think would grow and make money is better then having the government do it. Also, there would be a TON of job creation.

What do you think?

Dave said...

Anonymous 2:47, the taxpayers are shafted until they realize it's cheaper to shoot the tax collectors, or just not pay them.

Look what the bankers are extracting from Greece. They attached a new 1000 euro/month tax to everyone's electric bill and cut power to 1000 homes a day when they didn't pay. So people steal electricity, and the electric company goes broke and has to ask the bankers for a bailout.

Forcing the American people (or the unarmed liberal portion thereof) to repay the debt would be like kidnapping a hungry hobo and holding him for ransom.

Anonymous said...

So Cappy - why did your bank, as an institution with a profit motive, target its managers on the number of loans given out rather than the amount of interest actually paid back?

Was there some kind of gubbernment interference going on or was this just them failing as capitalists?

Adam Lawson said...


What would happen to *me*, a citizen who (as far as I amaware) have no money lent to these fools?

I don't depend on the government for handouts. I don't invest in it. What happens to the average American on default?

I've never seen a clear, rational description of that -- just wild ghost stories.

Kristophr said...

What will happen is a Cyprus style haircut, where depositors have their savings removed, and are given bonds that the bank can pay off in the distant future.

Get your money out of US banks.

Trust me, if the US government defaults, the banks will do their best to make the pain flow downhill.

Unknown said...

Captain, one thing I've noticed for years that as people's standard of living has declined, some have no choice but do many things on credit. Tires, clothes, and too many other things to list. It disgust that this whole parasitic system is partially because of the income tax that steals quiet a bit from even a person making $40k. I would argue that some Americans, even if they do the right thing still take in the butt.

People don't need to buy things on credit.