Moon of Alabama Brecht quote
October 21, 2008

Where From Here? U.S. Default?

My general estimates on the economic future now gets gloomier each day. That may be the consequence of a severe cold I am working through or the reason for it. There is need for severe triage measures to be taken. Instead billion dollar band aids are applied to the bleeding arteries of Wall Street.

It seems I am not the only one to see problems in that.

Sharon recently pointed to GEAB as does Sustain26 in comments. That European prediction service now sees a U.S. default on its debt in the summer of 2009. That is a frightening possibility. I am not sure yet what the chances for that are, but they are now certainly quite above zero. What would be the consequences of a U.S. default on its international debt?

GAEB also points out that U.S. pension plans, which have been based on stock investments, are likely up in smoke. Something that is already assured and that U.S. media have yet to catch on to.

Maybe it is lunatic to think of a U.S. default, but here is a paragraph from the Wikipedia entry on course of events of the Russian financial crisis in 1998 edited to fit today's situation:

Prior to the culmination of the economic crisis, the [Treasury] bonds issuance policy was described as similar to a pyramid scheme or Ponzi scheme [..], with the interest on matured obligations being paid off using the proceeds of newly issued obligations.
Declining productivity, an artificially high [..] exchange rate between the [dollar] and foreign currencies to avoid public turmoil, and a chronic fiscal deficit were the background to the meltdown. The economic cost of the [..] war[s] was also a cause of the crisis. In the first half of [2005], the [U.S.] economy showed some signs of improvement. However, soon after this, the problems began to gradually intensify. Two external shocks, the [mortgage crisis] and the [increase in oil prices], also impacted [U.S.] reserves.

After the breakdown Russian retirees had to sell their last shirt to survive. Many didn't.

While Roubini still foresees the biggest decline since the Great Depression, other are as gloomy as I am and think that things may get worse than that.

At TomDispatch Mike Davis writes:

[L]ike the Grand Canyon's first explorers, we are looking into an unprecedented abyss of economic and social turmoil that confounds our previous perceptions of historical risk. Our vertigo is intensified by our ignorance of the depth of the crisis or any sense of how far we might ultimately fall.

He mentions one of my favorite indicators for the U.S. decline:

We are seeing the consequences of a perverse restructuring that began with the presidency of Ronald Reagan and which has inverted the national income shares of manufacturing (21% in 1980; 12% in 2005) and those of financial services (15% in 1980; 21% in 2005).

Tony Karon, the Rootless Cosmopolitan, builds on the above in an excellent piece about the depression he sees coming and remarks:

Restoring confidence in the credit system may prevent a cataclysmic meltdown in the U.S. economy, but it won’t fix the long-term decline based on fundamental ailments that the bubble-driven stock market and real estate booms of the past decade have simply deferred. Instead of manically watching the Dow yo-yo from day to day, we should simply recognize that it has been vastly overvalued for some time. Until such time as America’s economy (the real economy, not the fetish market of financial services) has been restored to some semblance of health — a generational project, unfortunately, given the devastation wrought by a generation of Reaganomics and, it must be said, by its “New Democrat” imitators — any dramatic recovery in the Dow will be brittle, based on false confidence or some new “bubble.”
To put this more bluntly, fixing America’s economy will require not only jettisoning the Reagan dogma of deregulation, shrinking government, and tax cuts as the cornucopia of economic growth, but also the Clinton legacy that turned the Democratic Party into as much of a friend to Wall Street as the Republicans had traditionally been. Wall Street is not the economy, and the last two decades have shown that the stock market can be hale and hearty even when the economy is being steadily denuded. It’s on fixing the real economy that voters should be forcing politicians to focus.

Lastly even the Wall Street Journal gets a bit gloomy as it now reports on the decline of the empire:

Mr. Fingar, the intelligence analyst, said in his speech that the post-Cold War period of overwhelming U.S. dominance was "anomalous." America's elevated status on the military, political, economic and possibly cultural fronts "will erode at an accelerating pace, with the partial exception of the military," he said.
Many nations, from Japan to Israel to European allies, continue to rely on Washington's power to guarantee regional stability. Asked Wednesday night if the U.S. was in decline, Defense Secretary Robert Gates responded after a recent tour of allied nations: "No. ... Every one of the countries wants to have better relations with the United States. They still see the country as the last, best hope."

If the U.S. defaults, will that still be the case?

Posted by b on October 21, 2008 at 19:33 UTC | Permalink


Chinese President Hu holds telephone talks with Bush

BEIJING, Oct. 21 (Xinhua) -- Chinese President Hu Jintao on Tuesday spoke over phone with his U.S. counterpart George W. Bush about international cooperation to cope with the ongoing global financial turmoil.
Bush said the United States hopes to make joint efforts with the international community to seek measures to overcome the crisis and maintain the stability of the world economy.
The government of China will continue to assume a responsible attitude toward the Chinese people and people of other countries, and to work closely with the international community to maintain the stability of the global economy and financial markets, President Hu said.
Doesn't sound reassuring to me. Why did Bush call Hu in the first place?

Posted by: b | Oct 21 2008 20:01 utc | 1

you can palpably feel how powerless they are & how far the situation is out of control when you hear the paulsons, the bernanke's or bush, sarkozy or merkel - strauss kahn or whomever - not only are they unable to hide the fear they so evidently feel but you have a sense they are also completely incapable of hiding the immense hole where their ideology went

Posted by: remembereringgiap | Oct 21 2008 20:29 utc | 2

vijay prashad - counterpunch

Posted by: remembereringgiap | Oct 21 2008 20:36 utc | 3

"Chavez gets this. After meeting Sarkozy in Paris in late September, Chavez told the press that such a meeting must “not be confined to the Group of Eight.” He’s having a good laugh. Reflecting on the equity stake in the banks, Chavez said, “Comrade Bush is to the left of me now.”
vijay prashad

Posted by: remembereringgiap | Oct 21 2008 20:37 utc | 4

from the bbc Further banks may fail, says IMF

More European banks "may fail" as doubts persist about the viability of their business models, the International Monetary Fund has warned.

Private funding is "virtually unavailable" and banks will have to rely on public intervention, asset sales and consolidation, it said.

The six-monthly study also warns that eurozone economic growth will almost grind to a halt next year.

Growth in the 15 euro countries will fall to just 0.2% in 2009, it forecast.

The report argued that disruptions in the US financial system have "heightened the risk of a systemic financial crisis in Europe further".

However, it maintained that a full-blown crisis "remains improbable".


"While containing inflation remains a policy concern, nurturing the recovery is likely to gain policy prominence," it said.


Posted by: annie | Oct 21 2008 20:38 utc | 5

michael hudson - counterpunchl

Posted by: remembereringgiap | Oct 21 2008 20:41 utc | 6

michael hudson - counterpunch

Posted by: remembereringgiap | Oct 21 2008 20:41 utc | 7

As the quality and maturity structure of nationalized assets gets worse, we can look forward to a 3rd-world-style Kindleberger crisis as the debt gets rolled over faster and faster, more and more reluctantly. But there's a lot of room for currency debasement and sovereign spread expansion before default becomes inevitable. Abrupt loss of reserve currency status would also seem to be a requisite precursor. Boy, though, that would be a hell of an October surprise.

The worse, the better.

Posted by: ...---... | Oct 21 2008 20:47 utc | 8

The US still has one ace up its sleeve, the power to just print money to pay creditors. I bet that is the sword that they will dangle over the other nations heads at the upcoming 'summits'.

Posted by: Dick Durata | Oct 21 2008 20:54 utc | 9

An unexpected companion for B'S presentiment:
Mourn, mourn for this great city,
Babylon,so powerful a city,
doomed as you are within a single hour".
There will be weeping and distress over her among all the traders of the earth when there is nobody left to buy their cargoes of goods; their stocks of gold and silver, jewels and pearls, linen and purple and silk and scarlet....
All the fruits you had set your hearts on have failed you; gone for ever. Never to return is your life of magnificence and ease.
It goes on like this in the Book of Revelation. Odd that B should have reached the same conclusion.

Revelation chapter 18.

Posted by: jlcg | Oct 21 2008 21:22 utc | 10

it's interesting that although Europe has continued to invest in manufacturing and infrastructure, the eurozone appears at least as fragile as the US economy.

Europe has subsidized non-competitive manufacturing while the US has just looted its manufacturing base. it is not clear that one course is significantly worse than the other.

Posted by: | Oct 21 2008 22:33 utc | 11

Let's think the unthinkable: After a term of misery in the 'real economy' and hardship on the street level, a third party finally comes to power in the US with a whole new critical outlook - paleocon or socialist, let's say. They realize they cannot continue to pay for previous decades of madness and keep the country fed at the same time, so they default on foreign debt. Happens (all too rarely) in developing countries, should happen in the US, too. I for one would applaud it, and it would serve China, etc, just right for bankrolling the psychotic empire.

As for why Bush called Hu, I saw this earlier today in Brad Setser's latest post:

One irony of the past year is that the US was borrowing far more from China than it was buying from China.

Who else should Bush call, if not Hu?

Posted by: Alamet | Oct 21 2008 22:42 utc | 12

Nothing personal, b., but this post of yours makes me wanna put down the popcorn and coke* and grab for the quaaludes and maalox.

*for some strange reason unbeknownst to me, southerners refer to all sodas as cokes

Posted by: Cynthia | Oct 21 2008 22:56 utc | 13

They realize they cannot continue to pay for previous decades of madness and keep the country fed at the same time, so they default on foreign debt.

it would be a hard pill to swallow to be born into a generation laden with more debt @ birth than they could pay off in their lifetime. it's enough to re think the concept of money all together.

Posted by: annie | Oct 21 2008 23:28 utc | 14

If the risk of a US default increasing, why on earth is the dollar reaching new highs, and US treasury yields pushing new lows? Forward inflation measures are also testing all time lows.

The slump in 10-year TIPS pushed yields on the securities to within 0.87 percentage point of benchmark notes on Oct. 10. The so-called breakeven rate, a measure of what investors expect the rate of inflation to be over the life of the securities, fell to the lowest level since January 1999.

Posted by: vaudois | Oct 21 2008 23:42 utc | 15


cynthia is making the appropriate connections - quaaludes & maalox - & by the look of it cynthia, it would seem barbituates are the thing on wall street these days

Posted by: remembereringgiap | Oct 21 2008 23:49 utc | 16

"If the risk of a US default increasing, why on earth is the dollar reaching new highs, and US treasury yields pushing new lows?"

If the free market is working freely, then why are physicals of precious metals on eBay and at dealers approaching 150-200% of the spot price? The t-bill is a security blanket, and the powers that be are cooking the books to make it look far more secure than it is.

Posted by: Li | Oct 22 2008 0:49 utc | 17


A thing works until it doesn't. The DOW was at 14000 one year ago. Stuff happens, things change.

Never mind the markets. What is the basis to think that the US could ever pay off its debt?

Posted by: jeff65 | Oct 22 2008 1:53 utc | 18

The US reminds me of the Phillippines under Marcos, or Pakistan under Bhutto. The administration is looting the country, running up debts on behalf of the population that can never be repaid. It is one thing for a country to borrow capital to invest in developing ports, railroads, highways, dams, mines, education or even healthcare. It is another to borrow simply to avoid having to admit you are getting poorer. I think the US has been doing the latter.

As for the currency; there is a huge de-leveraging going on as all the funds - pension, hedge, bank and otherwise - are getting margin calls from their lenders. One of the largest games in finance has been the carry trade - borrowing in USD or JPY to invest in higher yielding currencies. To unwind these trades all of these other investments and currencies must be sold ASAP and converted back to dollars and yen; this at a time when global liquidity has all but disappeared. This has a very short term, but very powerful, effect on foreign exchange prices.

Once this is cleared lenders will be looking at the US' ability to pay not just interest but principle on a $10-20trn debt; from a budget already $1trn in deficit, from an economy whose 'miraculous' finance is now seen to be a sham, where wages are falling and taxes cannot be raised much without killing off any economic recovery.

Would Russia buy Alaska? Could Japan buy Hawaii? This might be preferable to default, because if the US is forced to balance its budget times will truly be harsh.

Recently credit default swaps on the USA traded higher than those on MacDonalds.

Posted by: PeeDee | Oct 22 2008 2:11 utc | 19

The US will not default in 2009 on its debt. First, the US and other countries that were hoarding oil by creating excessive reserves have stopped. The war will slowly come to an end, so the basis for high oil prices is coming to an end. As you can see from the commodities market copper, coal, steel, corn, oil are all falling. So, many of the basic building blocks, mainly oil are falling in price. If you listen to Ravi Batra you can print all the money you want and not create inflation as long as prices are steady and falling.

Now is the perfect time to flood the economy with money. You have a slowing economy and falling prices at the core inflation level. The leaders are greedy and sometimes real stupid, but they are smart enough to realize you pump money in in slowdown and during falling prices. Then you sop up the money with taxes after the next cycle gets rolling. Obamas tax hikes. We have officially went from supply side to Keynesian economics due to the economic crisis. The casino is over, a reality based economics must take place. Look for a new economic order shortly, but the US will still be dominant but more cooperative with others players. The Bush and Reagan era is long gone.

For the oil producing states, well they must do their part. They threaten oil production cuts but keep pumping at the same level. Inventories are high and new discoveries are just enough to get us into a economic cycle that focuses on alternatives. Oil could hit $50 or below before building a base to the next cycle.

Default no, money pump, yes.

Posted by: jdp | Oct 22 2008 2:17 utc | 20

If it bleeds, it leads. So what? Only a manic-depressive stays depressed.

Come on! Already the "$80 down and $80 a month" grifters are back in business!
Already "hurry, hurry, government foreclosures as little as $1200" are singing!
There's marvelous opportunities for someone with a steady hand who has savings!
These are the 10¢ on the $1 buy opportunities your grandfather told you about!

For the rest, the unfortunates, the left-outs, the have-less's, there's this:

McCain-Palin 2008!
"Because We're More Equal Than You!"

Posted by: Chew Bakka | Oct 22 2008 5:24 utc | 21

as long as i can remember china was a communist country... oh, right, now the usa's are communist tooo!!

oh, my!
the japanese as well!
Japan's young turn to Communist Party as they decide capitalism has let them down

[ . . ]
i'm just waiting for the moment when yuppies are gonna start to fall from the skies, just like that scene in "the happening"
i know this is quite a perversion, but, hell, i didn't had my quaaludes today...

Posted by: rudolf | Oct 22 2008 6:15 utc | 22

from the same director:
"I see Communist People"

Posted by: rudolf | Oct 22 2008 6:19 utc | 23

@ 10 -- I used Revulsions 18 20 years ago in the closing lines of Fortress of Arrogance:

Fortress of Arrogance,
I've seen you going down in flames,
yes I have.

You think you're so holy,
but that's just a lie.
Like all of your lovers,
you too will soon die.

In the space of an hour,
on one wicked day,
all wasted away...

Yes, it's true!

The Fortress of Arrogance is a fortress from where the resources of our world are sucked dry and in return the world receives an endless supply of excrement.

Posted by: Chuck Cliff | Oct 22 2008 6:37 utc | 24

The US can never default since its debts are all in a currency that only its central bank can print. And print they will.

So the question is not if they will default but what at rates will people lend to the US Treasury or how will trading partners respond when the Fed monetizes Treasury debt?

Posted by: ab initio | Oct 22 2008 8:10 utc | 25

The USA as such is not likely to default, but the individual states can, and several are in such dire shape that it is not unlikely that they will be closing down universities and other social/public services next year.

Posted by: ralphieboy | Oct 22 2008 9:52 utc | 26

Vijay Prashad -- counterpunch

Stephen Martin -- counterpunch

if the G7 (EU/USA/Japan) could continue to impose its prescriptions (globalization, finance/banking, regulation, currencies, reserves, protectionism, commodity-exchanges, foreign trade ...) on the rest of the world, it would. But non G7's like India, Russia, China, Brazil, Saudi, Iran, Venezuela ... will now act in their own interests (often in concert or as a larger group) regardless of what the G7 does. Some of this has already been going on for a while.

we are probably looking at a new international economic order in which economic prescriptions by the USA / EU will be viewed with a high level of suspicion. Every nation in the world will in its dealings with G7 nations be focused on what they actually do rather than what they say. In particular, the USA's internal regulatory & fiscal policies will be watched very carefully.

and it was funny a couple of months ago when the Saudi's were insisting that high oil prices were due to USA/EU oil-exchange activity rather than tight supply (the conventional wisdom in G7 countries). And to prove their point, in a rare moment the Saudis publicly offered crude-oil at quite generous discounts below Platts & hardly any buyers jumped on it.

Posted by: jony_b_cool | Oct 22 2008 11:36 utc | 27

the issue that I still have not seen anyone address is -- what will or should be the key features of the USA's economy in 5 or 10 years ?

its an important issue because the failure to address this issue responsibly 10 years ago is the reason we are where we are today. The USA has increasingly re-aligned into a service economy to a large part in response to China's growing export power & further assisted it by exporting much of its own manufacturing base to China. Essential regulations were tossed & interest rates lowered to fuel financial services & mortgages. Wage-stagnation followed, likewise massive debt across the board as the financial sector boomed & leveraged. Obviously a poor plan that was not sustainable.

we are now seeing a reversal of roles in the levels of scrutiny of G7 vs. non-G7 and this issue is probably getting far more attention outside the G7 countries than at at home. Like politicians everywhere, the G7 focus will be on stabilizing the debt situation & bringing back a sense of normalcy. If that is all that is done in the next few years, its going to be inadequate. There has to a re-alignment of the USA's economy into a sustainable mode thats consistent with its economic & trade ties with the rest of the world.

one key marker the rest of the world is going to be watching is the USA's military budget. If its not trimmed substantially in order to ease the debt crisis, the rest of the world is going to throw up its arms in frustration.

Posted by: jony_b_cool | Oct 22 2008 13:22 utc | 28

True, r'giap, you know that Capitalism has hit rock bottom when Chavez, of all people, says, "Comrade Bush is the left of me now." On second thought, there's always been something phony-topped-with-cronies about American-style Capitalism!

Posted by: Cynthia | Oct 22 2008 13:40 utc | 29

great website and great comments. thanks to all.

fascinating that the market is hugely losing value just at a time when boomers are going to start drawing massive amounts of retirement pension payments. "plunge protection team" might be renamed "plunge certainty team". (i.e. "ok, let's get the money out now so we don't have to pay them".) (see

looks like the financial engineers were more brilliant than given credit.

Posted by: darkcloud | Oct 22 2008 13:57 utc | 30

@11 - Europe has subsidized non-competitive manufacturing while the US has just looted its manufacturing base. it is not clear that one course is significantly worse than the other.

What non-competitive manufacturing has Europe subsidized?

@15 - vaudois - If the risk of a US default increasing, why on earth is the dollar reaching new highs, and US treasury yields pushing new lows? Forward inflation measures are also testing all time lows.

The end of the carry trade in my view. For years Europe had significant higher interest rates than the U.S. and the dollar was going down.

People borrowed in U.S.$, bought Euros and used those to buy and hold European assets.

Now that great deleveraging has started, people sell those assets, buy dollars for their Euros and bring the money (what's left of it) home. Therefore there is currently a higher than normal demand for dollar and a lesser for Euros.

The low treasury yields can only be explained by a 'flight to security'. China and others have been selling agency debt (Fannie&Freddie) and bought treasuries. Others changed from the stock market into money-market funds which bought treasuries.

Both effects are quite big. Both effects are shortterm. Both effects are temporary.

Posted by: b | Oct 22 2008 14:34 utc | 31

@ r giap yes they are very afraid, as was Paulson right at the start, when he initially proposed the first version of the BailOut, and not just for his buddies and so on.

From Switz: propping up UBS was lauded or accepted by the right; the left, that is Socialists, are trying to retro-actively change the rules. The ‘bail out’ itself was ordered under something similar a ‘special decree’ (tailored for war time) by the Federal Council.

This speaks not only to differing US/EU left/right political stances but to the fact that conventional ideology is out the window - feeble bleatings to warm-hug cold citizens and keep them rooting for team A or B while the real action is out of sight.

The Swiss National Bank’s gifted 54 billion (apart from 6 billion that are covered under another arrangement) were borrowed - from the US Fed. The BNS then lent the money to UBS, at one-month dollar LIBOR rates, plus 2.5% (very stiff. - from an article in Le Temps on 17 oct.) It is a game of desperado musical chairs.

Argentina to nationalize private pension funds:>link

Default concerns, Argentina, from bloomberg:>link

The US anyway won’t be the first...

Posted by: Tangerine | Oct 22 2008 15:12 utc | 32

54 billion were borrowed - from the US Fed
Are they shrewd schemers betting on the US and Fed going through default and bankruptcy in a few months, or are they just idiots?

Posted by: Clueless | Oct 22 2008 15:40 utc | 33

54 billion were borrowed - from the US Fed
Are they shrewd schemers betting on the US and Fed going through default and bankruptcy in a few months, or are they just idiots?

Those were swaps I believe - the Fed got swiss franc for it and I am sure there is agreement on the re-swapping mechanism and value. (unless the Swiss are dumb bankers, which I don't think they are.)

Posted by: b | Oct 22 2008 16:44 utc | 34


The political bind is that we have to move left, which means organizing the working class, the poor, as well as threatened sectors of the middle class. But with the right in power, they have a short-term interest in having money pumped into the system to preserve their very lives. If the working class is destroyed, there is no social force for change, and the best we can hope for is for the Chinese to start opening up soup kitchens in the U.S. maybe 50 years down the line.

There is no equivalency between keeping food on the tables of working families and funding the parachutes of the rich. But the rich want to play it that way. And unfortunately, liberals and progressives buy into that logic, some gleefully, some kicking and screaming, but nonetheless buying in.

I wish I had clear answers. But thank god you're asking the right questions.

Posted by: jeff roby | Oct 22 2008 18:35 utc | 35


Your first link @ 32 is broken. Here is a proper piece of news reporting to offset the hyena calls in financial media about Argentina's move:

ARGENTINA: Govt Announces End of Private Pension Funds

Posted by: Alamet | Oct 22 2008 18:56 utc | 36

i have been looking into moving dollars into other currencies, and just read a post by midtowng,someone whose pov is usually quite solid, pointing out that it is often a disastrous move. he then discusses what a mess eastern europe, turkey and pakistan are in. he also refers to argentina and notes that a similar action - taking money from pensions - occurred just before the collapse. the question he asks is who will be next after iceland.

about geab, estouxim very kindly sent me geab's nr. 27 bulletin which surprised me by predicting a mccain victory. it was written on september 16. they go so far as to state that they no significant statistical uncertainty putting the military demographic firmly behind mccain, viewing palin as countering mccain's age problem, and deciding that the u.s. is a racist country that will not be able to elect an african american. they believe that obama was selected to keep hillary clinton out of the white house, but to lose to mccain in the end by feckless democratic party leadership. if anyone else would like to read it, please let me know and i will gladly forward the 26 page pdf. personally, this piece about mccain has me scratching my head wondering how they reached this conclusion and hoping to hell that they are wrong. someone i know bases her investment decisions on their releases and has done well by it, but in this case for the sake of the world i hope they are wrong.

Posted by: sharon | Oct 22 2008 23:20 utc | 37

Today oil fell below $67 a barrel. This will help household balance sheets get healthy real fast. Look for $50 oil and $2.00 a gallon gas by winter in the US.
There is a glut of oil and few buyers.

My predictions above will take place. The Dow will be above 10,000 by January and maybe 13,000. It will track back and test the lows again in January. But with a massive investment package going through congress the market will bet on forward earnings and economic recovery. The market is adjusting to an Obama win.

I'm sorry to burst the doom bubble, but a direction change to more a Keynesian type economics will heal a lot of wounds. Call me the contrarian on this one.

Posted by: jdp | Oct 22 2008 23:37 utc | 38

Need the visual on what a global financial collapse really looks like??

Remain Calm and Stay In Cash

Posted by: Remain Calm | Oct 23 2008 4:26 utc | 39

Finally a professional is calling for my recipe to save the markets at Bloomberg TV: Chua Says New Credit-Default Swaps Should Be Banned

Posted by: b | Oct 23 2008 10:53 utc | 40

update, i now have a copy of the geab nr. 28 report predicting u.s. default - thanks to the generosity of estouxim. if others would like to read it, i will gladly forward the pdf. hit me with an email though rather than leave a comment as i am up to my eyeballs between work and school.

bernhard, there are some strong posts on cds on they encourage others to post on economic issues and i expect they would welcome a post from you and include a link to moa.

Posted by: sharon | Oct 23 2008 21:27 utc | 41

one more thing. i see that roubini and others are predicting massive hedgefund closures. i haven't read the nr. 28 geab yet, but will not be surprised if that is part of what they are referring to as the "decanting" phase.

Posted by: sharon | Oct 23 2008 21:30 utc | 42

Just read the Geab and found it interesting. We'll see what happens. I do believe the Euro will some day take over the reserve currency status. I doubt the US will default though. A fix will take place and remember, $2.3 trillion of US debt is to Social Security. If anything take place, I would bet that interest payments would be suspended and actual debt would be paid down. Usury could be outlawed tomorrow.

Posted by: jdp | Oct 24 2008 1:08 utc | 43

Those were swaps I believe - the Fed got swiss franc for it and I am sure there is agreement on the re-swapping mechanism and value. (unless the Swiss are dumb bankers, which I don't think they are.)

that is correct.

Posted by: Tangerine | Oct 24 2008 16:35 utc | 44

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