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Why savers are getting screwed

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Geithner admits USA bankrupt to US Senate

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World economies on verge of currency revaluations to deal with debt

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“The really big risk factors, be it in Iceland or the UK, the US or Ukraine, can no longer be easily factored into a spreadsheet.”

iceland debt default riots

The Financial Times is reporting …

“In recent months, some of the brightest minds at Moody’s rating agency have been mulling a fascinating question: should they introduce a formal rating of “social cohesion” into sovereign debt indices, when they judge whether a government is likely to default on its debt – or not?”

By social cohesion what they mean is will the natives get restless like they did in Iceland or Greece?  It is of course a business question not a moral concern when people start rioting and the social structure breaks down the risk of default increases.  FT again…

“In the past few years, when markets have tried to judge the risk attached to western government bonds, they have typically done so looking at hard macro-economic data, such as projected gross domestic product. Such data, of course, continue to be critically important, given the size of the western fiscal hole.

What is becoming clear is that hard numbers do not tell the entire tale. What will be equally crucial in the coming years is not the sheer scale of debt, but whether governments can implement a rational and effective way of cutting it – and potentially allocating pain – without unleashing (at best) political instability, or (at worst) full blown revolution.

Does a country, in other words, have enough political and social “cohesion” to take truly tough choices, or even rewrite the social contract?

The way I interpret this our debt is out of control.  Social Security is going broke sooner then expected another million jobs lost, consumer credit has plummeted to an all time record low. As Bill Bonner said “People without jobs can’t buy stuff – neither the kind of stuff you get at the grocery store…nor the kind of stuff you get from real estate agents. Since they don’t buy stuff, manufacturers don’t make stuff. And since they don’t make stuff, they don’t need the stuff that stuff is made of, nor the employees who turn the raw stuff into the finished stuff.

Result: the stuffing gets knocked out of the economy” and coupled with rapidly dwindling tax receipts when the time comes and they raise taxes after already looting the citizenry they fear revolt!

“However, in the US, the government has less experience of dividing up a shrinking pool of resources. Instead, in a land built by pioneers, Americans prefer to spend time thinking about how to make the pie bigger – or to find fresh frontiers – than about making shared sacrifices.

Thus it remains an open question whether Washington will be able to slash without real political or social upheaval. Signs of tension are already there: Bill Gross of Pimco, for example, this week warned that “our [American] government does not work any more; or perhaps more accurately, when it does it works for special interests and not for the American people”.  They even mention Iceland!

“Or will they do what Icelandic voters have done this week – and derail a government plan?”

“The really big risk factors, be it in Iceland or the UK, the US or Ukraine, can no longer be easily factored into a spreadsheet.”

I think they are right to be concerned like Gerald Celente famously said “Those who have nothing to lose, lose it!” and Americans from all political persuasions are waking up.  In addition to job loss $7 Trillion was lost in the stock market (401k’s,Pension Plans) and another $6 Trillion in the housing market.

Foreign countries are sick of funding our debt as a result the Fed has been monetizing it. “Monetizing” debt, by the way, is larceny on the grandest scale. Rather than honestly repaying what it has borrowed, a government merely prints up extra currency and uses it to pay its loans. The debt is “monetized”…transformed into an increase in the money supply, thereby lowering the purchasing power of everybody’s savings. Remember the citizens are still bailing out the banks.  Now I know why they wanted to brand the Americans who participated in Tea Party’s as Extremists.  If I were Moody’s I would price in the cost of Revolution!

Villagers with pitchforks

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This entry was posted on Saturday, January 9th, 2010 at 1:56 am and is filed under Europe. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

1 Comment

  1. January 9, 2010 @ 6:20 pm


    A revolution may be the tough medicine that is needed, indeed. We’re heading for an economic train wreck–and the consequences could very well be our liberties. What will we tell our children when liberty is an outlawed word with no meaning as we all become slaves on the federal plantation.

    Will some stand and fight and say not on my watch when they point the guns at us?

    God, I hope so.

    Posted by Ian

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