# Talk of Default by The U.S.A. !!!



## dogleg (Feb 5, 2010)

Did anyone ever think you would live to see the day when the US was openly discussing default ? And the Canadian Min. of Finance calling the US to counsel them on avoiding default . Has the world gone completely off the rails ? But what to do with our money is the question. A time to buy MAYBE .


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## Mark Rose (Jun 14, 2011)

The US has two choices: default or hyperinflate (which is basically a form of default). Somebody or everybody will get screwed in the next few years.


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## the-royal-mail (Dec 11, 2009)

According to some on this forum, the US can do no wrong.

Anyway, should I get rid of my US Index fund?


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## w0nger (Mar 15, 2010)

please provide links to said rumours... thx.


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## gibor365 (Apr 1, 2011)

dogleg said:


> A time to buy MAYBE .


To BUY what???


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## Addy (Mar 12, 2010)

w0nger said:


> please provide links to said rumours... thx.


Links? To said "rumours"? Do you even pay attention to the world around you? You're at a computer, read the news for pete's sake, rather than insinuating someone is spreading rumours.


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## Addy (Mar 12, 2010)

I don't know whats worse, if they lift the debt ceiling (currently at what, 14 trillion or so?) or default. Either is not good, but I'm not sure which is worse, and how either would affect Canadians. 

It appears Canada and China both are quite concerned the US may default.

This is a bit scarey to look at: http://www.brillig.com/debt_clock/history.gif


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## gibor365 (Apr 1, 2011)

In case of hyperinflation in US, there will be the same hyperinflation in Canada. So, ppl will loose money in any case: stockmarket or cash. imho

the only hedges imo maybe : real return bonds, GLD, DBA ?

Or as alternative maybe to buy a loooooooooooot of vodka and viski?! 40% return and no expiary date! 
In USSR when money were worth nothing, vodka ws the best currency!


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## pedant (Apr 25, 2011)

the-royal-mail said:


> Anyway, should I get rid of my US Index fund?


And should I hold off buying my US Index fund?


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## gibor365 (Apr 1, 2011)

pedant said:


> And should I hold off buying my US Index fund?


no


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## andrewf (Mar 1, 2010)

Mark Rose said:


> The US has two choices: default or hyperinflate (which is basically a form of default). Somebody or everybody will get screwed in the next few years.


Nonsense. They could close their fiscal gap by cutting spending and raising taxes. They would stop paying grannies their social security before defaulting on their debt. This is all just posturing.


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## KaeJS (Sep 28, 2010)

andrewf said:


> Nonsense. They could close their fiscal gap by cutting spending and raising taxes. They would stop paying grannies their social security before defaulting on their debt. This is all just posturing.


^. 

Andrew, nice post.

There are some poor people in the US, but come on. There are some filthy rich mofo's, too. Tax em. And stop blowing up countries.

Anyone notice in that chart that after 9/11 happened the debt increased significantly, just as it was starting to trail off? wtf?

I'm quite the contrarian on this one, but I don't think the US will default. They will find a way to get around it. Raise taxes, raise debt ceiling, cut spending, cut projects.

I think they will do a little bit of everything.

If our cars cost more, our gas costs more, and we pay higher taxes, then i'm sure the americans can pay higher taxes, too.


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## HaroldCrump (Jun 10, 2009)

The US doesn't have the equivalent of the GST/HST.
Maybe that's the first step.
Income taxes are almost certain to go up, esp. for middle and high income earners.

Unfortunately, other than defense/military spending there isn't a lot of fat the US can cut.
Their social security and Medicare is already severly underfunded.
Their public sector is nothing like what we have in Canada.
Wages, benefits and pensions are much, much lower than private sector, unlike this side of the border.

The cuts will have to come from service cuts like infrastructure, public services, local law enforcement, etc.
If the Republicans/Tea Partists have their way, the cuts will be deep.


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## KaeJS (Sep 28, 2010)

HaroldCrump said:


> If the Republicans/Tea Partists have their way, the cuts will be deep.


And so they should be.

The US has had it made for a long time.
It's about time they stop "partying" so much and get down to business. Too many debt crazy people over there.

Throw a higher tax on cigarettes, booze and gasoline.


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## Rico (Jan 27, 2011)

Obama won't institute a consumption tax pre-2012 election since American voters would be pissed and not re-elect him. He might after 2012 though since reelection won't matter.

If Obama loses, then the Republicans will come in and do a former Alberta Premier Ralph Klein-style cut-o-rama, thus "saving" the economy but doing it hard-core style (making everyone hate them and love them at the same time).

Eventually the realization will be that everyone must feel the pain (you know, like when your household debt is too high so you stop eating out, then cancel your satellite subscription, then buy cheaper brands at the grocery story, then stop driving to work, then get a second job, then . . . ack!).


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## KaeJS (Sep 28, 2010)

Rico said:


> Eventually the realization will be that everyone must feel the pain (*you know, like when your household debt is too high so you stop eating out, then cancel your satellite subscription, then buy cheaper brands at the grocery story, then stop driving to work, then get a second job, then . . . ack*!).


That is exactly what needs to be done, though.
That IS the solution.


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## bmckay (Mar 10, 2011)

But everyone is unwilling to make those sacrifices. You keep on putting a bandaid on it only to further delay the inevitable.


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## HaroldCrump (Jun 10, 2009)

KaeJS said:


> That is exactly what needs to be done, though.
> That IS the solution.


Easier said than done, my friend.
Greece, Spain, etc. are trying to do just that and see how that's playing out.

The lower and middle classes in the US aren't exactly the nice, warm, fuzzy American Dream households that you'd think.
There's hardly any breathing room in their budgets any more.

The well-off ones are the professional and executive classes.
Taxing them is not easy, either.
One, they have ways of avoiding taxes.
Secondly, you can't tax the professional and high income earners in a society and expect to generate growth.
The end result is you choke them and scare them off.

It aint' easy...if raising taxes and cutting spending were that easy, smart people like Obama would have figured it out by now, don't you think.

Which is probably why they are trying to devalue and inflate their way out of the crisis.
Not that this is particularly smart either, IMHO.


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## Eder (Feb 16, 2011)

mmm....I like it when I start seeing these posts....hopefully blood in the streets by months end?


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## w0nger (Mar 15, 2010)

Addy said:


> Links? To said "rumours"? Do you even pay attention to the world around you? You're at a computer, read the news for pete's sake, rather than insinuating someone is spreading rumours.


i wasn't insinuating anything... i was being sincere, i hadn't had the chance to read the news yet and quite honestly, the only site i found after a quick google was fp... there wasn't even an article on BNN.... so.. i think asking for some more information here wasn't a bad idea....

apparently it was.


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## Belguy (May 24, 2010)

The Dow has now experienced seven straight weeks of losses and the last time that occurred was back in March 2001. Also, we may not be done yet with more weeks of losses ahead of us and potentially even a more severe sell-off if the Vix volatility index, now at a three month high, means anything. What it seems to be telling us is that this may not be a temporary situation but a sign of a much more prolonged downturn.

Time will tell.

Don't you just love economics??


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## andrewf (Mar 1, 2010)

KaeJS said:


> Throw a higher tax on cigarettes, booze and gasoline.


But then what will Howard get to harp about being cheaper in Florida?


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> But then what will Howard get to harp about being cheaper in Florida?


Guns


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## sags (May 15, 2010)

Didn't I read recently that Canada and the US were in discussions about a common currency? Presumably the US dollar, I would think.

Interesting time to bring up a default on their debt.


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## Mark Rose (Jun 14, 2011)

gibor said:


> In case of hyperinflation in US, there will be the same hyperinflation in Canada. So, ppl will loose money in any case: stockmarket or cash. imho


Yes. At least stocks will be tied to something real, but a lot of stocks will become worthless as companies go bankrupt (especially those with a US focus). Commodity and associated stocks will do much better than average -- people still need to eat. And once the government gets out of the way and lets the crash-then-recovery happen, raw materials will be needed as productive capacity is rebuilt. There is such a productive deficit in the US that it will take at least a decade before a proper recovery takes hold, and that's once the government gets out of the way (lowers taxes to a sane level, deregulates, etc).

The plains states and eastern Rockies states will do better than the coastal states. They're generally more business friendly (especially in the south) and they still produce things, mainly agriculture products, hydrocarbons, and mining.

Likewise, Canada will fair better, especially the west. Expect Ontario to suffer badly, as both the financial and US-export driven manufacturing sectors are hit hard. If McGuinty had half a brain, he'd open the north to mining (which would also help alleviate the damage from his profligate ways).

Quebec, it's hard to say. They're already used to being an economic disaster, but with their no longer being a player in the majority government situation, they might have to get used to a little less of Canada's money. On the other hand, Charest is talking about opening up the province for resource extraction. That would be very smart.

The Maritimes I don't know much about. High debt and high taxes don't lead to economic prosperity. A low tide lowers all ships.

Newfoundland will continue to prosper as long as they don't undo Danny Williams' work. 



> the only hedges imo maybe : real return bonds, GLD, DBA ?


All bonds will be junk in real terms if hyperinflation happens. We're already in a period of high inflation. If Carney keeps the rates low (they should probably be around 10% now), we're going to see a _lot_ more inflation here. Inflation is how governments get rid of their obligations when they don't want to honestly default. Bonds tied to inflations, such as TIPS in the US, are tied to phony government inflation numbers. In real terms, they will become nearly worthless.

If you want to protect yourself, think about the larger trends at play: rapidly devaluing fiat money, increasing world population, shrinking oil supply, and a commodities bull cycle. _Physical_ gold or silver in your possession is a safe store of value. Stock up on canned goods (they'll be more expensive later). People aren't trusting fiat money (which used to be gold certificates)... what makes you trust a different piece of paper that says you have gold somewhere?

If you want to profit, that is keep ahead of inflation, you'll have to get ahead of the major trends. Maybe get into cost effective energy sources (which are fossil fuels, nuclear, geothermal, not solar or wind). Or as food prices continue to go up as both input costs rise and demand increases from more mouths to feed, figure out a way to play agriculture. Perhaps fertilizer, agribusiness, bulk transportation? DBA is a good idea. I'd certainly take it over any bond or GLD.

Companies that service areas where people are wealthy tend to have an easier time, so think of where a company's customer base is before investing. You'd think luxury goods companies like Coach would be having a tough time now, but they're not: they're selling their expensive goods overseas instead of to Americans.



> Or as alternative maybe to buy a loooooooooooot of vodka and viski?! 40% return and no expiary date!
> In USSR when money were worth nothing, vodka ws the best currency!


Speculation at its finest! More hassle than silver rounds though.

I don't think we'll see a total collapse in Canada. Once Carney gets a brain and stops trying to chase Bernake down the printing press rat hole, Canada will do okay. We still have a massive property bubble, massive provincial debts, massive underfunded liabilities in the CPP... but we also have what the world wants. So maybe a decade of high inflation will fix that here (think of losing 80% or 90% of the value of a dollar over the decade instead of the usual 25%).


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## Mark Rose (Jun 14, 2011)

andrewf said:


> Nonsense. They could close their fiscal gap by cutting spending and raising taxes. They would stop paying grannies their social security before defaulting on their debt. This is all just posturing.


No, they can't. Cutting spending in half, at a minimum, this year, would work. Chop the military by 75%, and raise social security and medicare eligibility to 70 and it might do it.

Raising taxes would only lower revenue. They're well ahead of the peak of the Laffer Curve.



Eder said:


> mmm....I like it when I start seeing these posts....hopefully blood in the streets by months end?


Not this month. Probably not this year or the next. I strongly expect another round of stimulus, probably with "Jobs" in the title. It'll be the last hurrah to get the current crop of politicians re-elected. It will almost certainly kill the currency. I'd say blood in the streets come 2013-2014. Well, that is if you ignore the constant warring of gangs, etc. No jobs, no income... people turn to a life of crime to feed themselves.

I find The Economic Collapse blog a good way to keep tabs on the situation. You may think the author is biased, but you can feel the deep pain he feels for his country.


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## andrewf (Mar 1, 2010)

Do you have any evidence that they are past the peak of the Laffer curve? I call bullsh*t.

There is plenty wrong with the rest of what you've written, but I'll pick another thing out: what evidence do you have that rates should be at 10%? That's just nuts, and completely unjustified.


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## andrewf (Mar 1, 2010)

sags said:


> Didn't I read recently that Canada and the US were in discussions about a common currency? Presumably the US dollar, I would think.
> 
> Interesting time to bring up a default on their debt.


No serious discussion. It is not and will not be in Canada's interests to share a currency with the US. Having a floating exchange rate allows our economy to adjust more rapidly and less painfully to changes in economic conditions.

The biggest problem right now is that Alberta is allowing totally unmoderated growth in the oil sands, and is using all of the resource rents from the oil and gas they are extracting to fuel current consumption and investment, hugely amplifying the pro-cyclicality of their resource boom. It's terribly irresponsible economic policy, and is contributing to the high Canadian dollar.


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## andrewf (Mar 1, 2010)

I'll provide some evidence that they are _not_ past the peak of the Laffer curve. They cut taxes substantially in the last decade, and revenues fell. QED.


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## ddkay (Nov 20, 2010)

In the 21st century how can you really see people trading goods with PMs? Enough already hate carrying change in their pockets. It's impractical, a step backwards.

A debt collapse or any financial crisis will bring a ridiculously strong currency, it happened in 2008 to the USD, it's happening now in the Eurozone, it's happening now in Japan after the quake and Fukushima.

As for nuclear, it's short-sighted. Forget the possibility of a meltdown, we don't even know where to keep spent fuel. How can you even say TEPCO will be around in 400 years to maintain their nuclear fuel? I would rather bet on population control policies than constant, exponential growth. If you think American debt is not sustainable, you should also study the root of the problem - American consumption.


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## fatcat (Nov 11, 2009)

The chinese are once again buying treasuries along with a lot of other people. 

Whatever is wrong with the usa (and there is a lot wrong) is tempered by the fact that there is a lot wrong with europe and there is nowhere to put your money that feels safe. Asia is still highly dependent on a consuming west.

Gold is still a very risky play since either a recovery or deflation would hurt gold. The rampant inflation that gold is designed to hedge hasnt appeared and deflation is a bigger problem. 

It appears that Bernanke has actually called this just about right so far.


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## andrewf (Mar 1, 2010)

All that 'spent' fuel still has over 95% of the fissionable material left. It is 'lightly used' fuel. It can be reprocessed and used in breeder reactors. Even still, you can store this fuel in dry casks very safely.


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## ddkay (Nov 20, 2010)

You can't move spent fuel rods into casks until they spend 10 years under water with component cooling. Dry casks are also usually kept right beside processing facilities. In a worst case scenario, there is no safety. Which is why it's so difficult to get private insurance while constructing nuclear power projects. Which is also why governments end up subsidizing them.


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## liquidfinance (Jan 28, 2011)

andrewf said:


> No serious discussion. It is not and will not be in Canada's interests to share a currency with the US. Having a floating exchange rate allows our economy to adjust more rapidly and less painfully to changes in economic conditions.



Too right it isn't just look at the state of the Eurozone  I am so very glad the UK has stayed clear of the Euro or I think the news may have been much the same as for Ireland, Greece, Portugal...

Look at how Iceland is starting to get themselves back on track. Independant countries need an independant currency.


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## andrewf (Mar 1, 2010)

Well, private insurance against an enormous catastrophe of unknown probability (a black swan event) is never going to be offered or work.

So far, with hundreds of operating plants, nuclear has proven to be very safe in terms of lives lost.


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## Mark Rose (Jun 14, 2011)

andrewf said:


> Do you have any evidence that they are past the peak of the Laffer curve? I call bullsh*t.





andrewf said:


> I'll provide some evidence that they are _not_ past the peak of the Laffer curve. They cut taxes substantially in the last decade, and revenues fell. QED.


I should expand on what I said a bit. It's not just the Laffer Curve, but what else effects the Laffer Curve. Having competition from abroad for investment dollars shifts the peak to the left. Even if the US hasn't increased taxes, countries world wide are cutting theirs. The US also continues to pile regulations on small businesses, which is effectively a tax. Obamacare is the most notorious as of late. States continue to increase sales taxes and income taxes, too.

The US has the second highest effective tax rate in the world. It's no wonder why the economy is shrinking rapidly and tax revenues are dropping. 



> There is plenty wrong with the rest of what you've written, but I'll pick another thing out: what evidence do you have that rates should be at 10%? That's just nuts, and completely unjustified.


I agree, to implement a 10% interest rate now would immediately bankrupt half the western world. The problem is that rates never should have been as low as they have been, allowing countries/provinces/states/cities to balloon their deficits and debt.

Why should interest rates be at about 10%? For an economy to grow, it needs real capital to create new productive capacity. Fake capital, that is fiat currency from thin air, doesn't work as it only devalues already existing currency when it is created. It doesn't add wealth, or we'd all be rich. In order for people to hold on to their wealth -- in other words, to save and accumulate capital -- interest rates much be higher than the perceived rate of inflation. Otherwise people will spend their money now before it loses value.

Real inflation rates are around 10% in most of the world. If interest rates aren't close, wealth will be wasted away on what can be bought quickly instead of invested for the future. Most people aren't smart enough to find investments that pay much more than inflation. You certainly won't get it at the bank or at a mutual fund right now. People innately know this. 



ddkay said:


> In the 21st century how can you really see people trading goods with PMs? Enough already hate carrying change in their pockets. It's impractical, a step backwards.


Some people do. And remember that a silver quarter is worth about $4 today. It's still a novelty at the moment.

What you'll likely see is a return to a gold-backed currency. Think a debit card that instead of tracking dollars and cents tracks grams of gold. There's no reason why it can't be done today.

I do doubt a return to carrying precious metals around. Maybe in a major collapse, but not long term.



> A debt collapse or any financial crisis will bring a ridiculously strong currency, it happened in 2008 to the USD, it's happening now in the Eurozone, it's happening now in Japan after the quake and Fukushima.


Yes, as long governments don't print money to stop the debt collapse and keep their friends from going bankrupt.



> As for nuclear, it's short-sighted. Forget the possibility of a meltdown, we don't even know where to keep spent fuel. How can you even say TEPCO will be around in 400 years to maintain their nuclear fuel?


Yeah, nuclear certainly has its share of problems. It could be done 10 times better, today, with the technology we have now, but instead of replacing the old reactors with new, vastly safer reactors, we keep the old ones running. It's retarded.



> I would rather bet on population control policies than constant, exponential growth. If you think American debt is not sustainable, you should also study the root of the problem - American consumption.


Interestingly, wealth is the best population control policy. The richer people are, the fewer children they have.

The American consumption problem will fix itself shortly. Goods are going to get a lot more expensive and they will consume less as their paper wealth evaporates (either through default and lack of faith in US bonds, or through hyperinflation).


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## andrewf (Mar 1, 2010)

I wonder why goldbugs extol the virtues of gold back currencies, but have conveniently forgotten the downsides. There is a reason no one wants a gold-backed currency, and it's not a government conspiracy.


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## fatcat (Nov 11, 2009)

1) obamacare is not in any way a tax ... its a too little too late attempt to get a grip on health care spending which is going to bankrupt the country .... whatever its faults (and there are plenty) at least it is an attempt to get something done to ....

2) the usa has high coporate taxes but also offers more tax loopholes than just about any other country ... witness general electric which often pays zero income tax

3) there isn't enough gold to implement a gold standard


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## gibor365 (Apr 1, 2011)

In order to resolve det issues US don't need to increase any taxes. First of all they should stop giving away billions of $$$ for Foreign Aid .

I didn't find last year numbers , but in 2009 US spent almost 45 billions on it.

_In fiscal year 2009, the U.S. government allocated the following amounts for aid:

Total economic and military assistance: $44.9 billion

Total military assistance: $11 billion 
Total economic assistance: $33.9 billion _


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## andrewf (Mar 1, 2010)

fatcat said:


> 3) there isn't enough gold to implement a gold standard


Well, you could implement a gold standard, but the relative price of gold would skyrocket.


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## andrewf (Mar 1, 2010)

gibor said:


> In order to resolve det issues US don't need to increase any taxes. First of all they should stop giving away billions of $$$ for Foreign Aid .
> 
> I didn't find last year numbers , but in 2009 US spent almost 45 billions on it.
> 
> ...


$45 billion is the money the US finds in its couch cushions. They've borrowed trillions in the last three years.


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## the-royal-mail (Dec 11, 2009)

It would also help if the US would stop minding other countries' business so much. They could have a fighting chance (no pun intended) of saving themselves if they would bring their troops home.


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## m3s (Apr 3, 2010)

the-royal-mail said:


> It would also help if the US would stop minding other countries' business so much. They could have a fighting chance (no pun intended) of saving themselves if they would bring their troops home.


They do spend too much GDP on military, but they also make a lot from the defense industry, rebuilding countries with US firms and equip etc etc. Not to mention what would have happened to the price of oil. Do you really think they're there to mind other's business?


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## kildozer (Mar 29, 2011)

they could cancel Medicare, Medicaid, and Social Security ... then they could keep the important spending such as military, tax cuts for the wealthy ( hey, Jon Stewart ... the rich have worked hard ... they shouldn't have to pay income tax ... that's for shlumps), the banks who have saved the country from financial ruin, .... you know, for a country with so much wealth and innovation the two words that come to mind about them politically ...bottom feeders"


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## CB1021 (Mar 28, 2011)

US Government debt is perpetual. The well-being of the economy is dependent on it. And yes, the economy is great right now (not being sarcastic). If the fed raised interest rates and decreased the supply of loans, then you may appreciate the current economic state. 

You think petro consumption for your car is a waste of money and "should be reduced"? Now try driving to work while feeding coal into a steam engine, it's cheaper. You're gonna get fired for being late everyday. Now tell me which is better for your personal economic well-being.

Bottom line, IMO, US will take on more debt, nothing will change, economy will go trotting along. The division of wealth between ppl will continue to increase in distance.

That said, if you got investments which are going downhill, don't blame/depend on the economy. The guys on the top floor of that fancy building are playing the same economy, but with shorts and options. Capitalists make money either way. No need for this "US should this, US should that" talk, they don't need advice, the banks who are running the economy are making tons of money.


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## HaroldCrump (Jun 10, 2009)

gibor said:


> In order to resolve det issues US don't need to increase any taxes. First of all they should stop giving away billions of $$$ for Foreign Aid .


It is not pure altruism - it is an investment for the US.

The foreign "aid" that they provide has strings attached to it...many different kinds.
A lot of it is channeled back to US corporations in the form of contracts, supplier-of-choice agreements, sole source supplier agreements, discounts, etc.
Given that most of this aid goes to developing countries, many of which have military-led dictatorships or other types of authoritarian regimes, it is easy to secure such terms and agreements.
The US corporations benefit from this aid directly.

The aid also helps maintain US-friendly regimes in unstable regions.

Given the fact that the foreign aid is funded by tax payers, it is essentially a transfer of wealth from the working population to the corporations.

It's a self-sustaining cycle - workers pay tax, govt. sends foreign aid, aid secures business for US corporation, which hires workers and generates employment and dividends.

There is no free lunch.

They can't/won't stop the aid program because it will impact US corporations and workers negatively.


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## gibor365 (Apr 1, 2011)

Harold. i know very good that you are talking about.... I lived in Israel and know that certain percentage of military aid to Israel , Israel should spend buying only American weapon etc, so military corporation shaould make money producing crap.
On other hand US playing dirty games , look who is the biggest receiver of this aid? Old friend Israel and Egypt (and other arabic countries).
But still except military, there is a huge economical aid. The problem with States, that they wonna be a "world cop", instead of concentrating on their own problems IMHO


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