Toro

eureka If you're eductated, its actually pretty easy to come work in the States. But Yaro said he had American citizenship and it only took him 6 months. I would be very interested in knowing how he did that. Maybe I could do it too!

If you have no family ties, it takes five years of residency, i.e., after you get your Green Card, in the United States before you can become a citizen. And, for most peopole, it usually takes at least 3 years to get a Green Card. So Yaro, if it took you 6 months, I would be very, very, very interested how you managed to swing that. Or at least PM me the name of your lawyer. I might hire him.

So anyways, Do the grown-ups have anything else to say about Greenspan being worried about the US economy?

What is also broken is the author's sense of proportion and perspective.

I don't think Hillary can win. If McCain gets the nod for the GOP, he'll crush her.

Bush did the same thing. We got a nice $600 cheque as a "retroactive tax cut."

No, I remember it. Have fun.

eureka Its not true that "almost all" of the gains have gone to the top 20%. For example, virtually any statistic you look at, the median household is better off. And as I run across these statistics, I will post them for you. Nor is it true that the bottom 20% are worse off. However, you are correct when you say that the wealthiest have benefitted more. The rise in income of the bottom 20% has dramatically lagged the rise in income of the top 20%. And again, if I run across those statistics, I will post them for you.

Sock-puppetry?

In all seriousness, if you want conservative voters, avoid the "corporations rule the world" and "brands are tyranny" Naomi Klein type rhetoric. That will get you NDP voters, but you won't get conservative voters. Many conservative voters are environmentalists since many like to fish and hunt, and you can't do that if everything in the forest is dead.

If they take all our soil, how are we going to grow anything?

I define "Stalin-esque, gulag-style communism" as any government program. I define "intelligent" as anyone who agrees with me.

I think the Green Party should scrap its commitment to Kyoto. Then you'd get some conservative voters...

August I meant I was beating a dead-horse using the same specific examples. I understand the argument of Ricardian equivalence, and that borrowing is future taxes. But what I've been saying is that, indeed, countries, governments or whatever you want to call them, can go bankrupt. The most drastic form of resolution to a corporate bankruptcy is liquidation. The bondholders sell off all the assets of a company to satisfy the debts and the company ceases to exist. With countries, the most drastic form of resolution is war. The country that is owed money by another country invades the borrowing country to recover its debt. Now, fortunately, this is rare, but it is an option. This is why I argue that, in the end, when a borrower reneges on his/her/its obligations, it is a transfer of wealth, no matter what mechanism through which that transfer occurs, be it through the courts, through legislation, through taxation, through war, etc. Governments are no (or not much) different than other entities in this regard. And that's why, to say that governments cannot go bankrupt is, in my mind, false. Otherwise, the term "bankrupt" has no meaning.

Again, I don't want to beat this dead horse much longer, but during the Asian currency crisis, the "risk-free" rate for fairly-well developed countries like Korea and Malaysia rose to 15-20%, and some higher, while overnight rates and repurchase agreements soared into the triple digits. That occurred because investors feared that the countries would go bust. Well, its lower, but not always "much" lower. The reason why its lower is both because the corporations within that jurisdiction use the currency issued by the government, of which the government has monopoly power to issue and thus any inflation that devalues the government bond will devalue the corporate bond, and because governments are far more powerful than corporations (understand that, anti-globalization types) and are able to expropriate the property of corporations through legislation. But from the context of a global investor, we compare cross-country, and thus your statement is not necessarily true. So a corporation whose bonds are rated AAA in a AAA rated jurisdiction, i.e. the United States or Canada, will often have a lower interest rate than a sovereign whose rating is lower. August, this simply isn't correct. Take a look at a map of the world 100 years ago and tell me that it looks exactly like it does today. One of the biggest borrowers in the 19th Century was the Austro-Hungarian Empire. And I don't disagree with that. I agree. No, that's not what I'm saying. I am, for example, against legislation banning deficit financing for governments at the national level (but not necessarily for provinces). What I am saying is that there comes a point at which deficit financing becomes unwise, as it can not only imperil the health of an economy but it can destroy a country. Currently, the imbalances in the global economy are worrying to the health of the economy, but the United States isn't going to go bankrupt.

Exactly. Thus, governments can go bankrupt. That's the point I've been making. August, you might want to check your facts. Canadian short-term bonds yield below US bonds currently. Deustchebunds and Japanese government bonds yield below T-bonds. Any deficit now are taxes in the future. But it is an esoteric argument because any default is a transfer of assets from lenders to borrowers, no matter who those may be. Governments are different, but not as different as you are saying. Countries, like corporations, may not survive, or may split, or may be annexed, etc., and thus not able to pay off its debts. So to say that governments are entirely different from any other borrower is simply false. A bit different, yes, but any entity is different. A government's credit rating, like that of a corporation, is based on its ability to pay its debts. And that rating is a reflection on the probability of a sovereign going bankrupt. Same with the interest rate. All interest rates have a risk premium imbedded to account for this possibility. You are being pedantic. In financial markets, there is no difference. If you on a trading floor and made that argument, you wouldn't be trading for much longer. Besides, this is a message board, not a meeting of the Privy Council, so loosen your tie a little.

It is very obvious when a government defaults. Its when they don't pay. We can argue all day what the meaning of "is" is, but the capital markets know what a default is. That's what matters. This has become a silly esoteric argument. Geez August, stop being so anal.

Of course, any currency is based on faith, including gold. But you make a good point. I think the US government has done more to undermine the greenback over the past 5 years than at any time since the 1970s. And ironically, given the title of this thread, Greenspan is as much responsible for this as anyone. Its healthy to have an alternative reserve currency. But unless Europe adopts more pro-growth policies, its unlikely the euro will displace the dollar. That is, assuming the Americans don't undermine their currency and force investors away from dollars, which may happen one day. The UK lost its place both because it laid exhausted after WWII, and because another country had become the pre-eminent global economy.

Does he actually have a criminal record?

thelonius If by "on the brink" you mean, "recession", that is quite possible, and I would expect one at some point in the future, perhaps soon. If, on the other hand, you mean "collapse", then that's not going to happen. The US economy is simply too dynamic and too strong to do so, at least in the forseeable future. Having said that, there are tremendous imbalances that do worry me. The budget deficit isn't too much of a worry, but the trade deficit, combined with the fiscal imbalance is a worry. Certainly, the war in Iraq is a drain on US resources. Vietnam was as well, and was a big factor to the inflation and economic dislocation of the 1970s. This argument that trading oil in euros would have a dramatic effect on the value of the dollar is an odd one. The total value of oil traded relative to the global economy is a mere fraction, and much of the trade in oil is settled between countries where the dollar is used merely as a reference while the actual transactions occur in other currencies. This argument originally popped up when the euro was dramatically appreciating against the dollar, including from Saudi Arabia, which caused the financial markets take notice. But now that the currencies have levelled off, you don't hear it anymore, well except maybe from the conspiracy-laden Fringe Left (not you thelonius). Plus, there are concerns about the long-term viability of the euro. Imports are only about 10% of the US economy, far less than Canada. So its difficult to conclude that the US economy is geared to living off international gravy.

August In capital markets, when a bondholder renegades on his debt, no matter who it is, its a default. You can call it whatever you want, "bankruptcy", "tax", "risk premium payment", "asset transfer", or whatever, the effect is the same. But that makes a country no different than a corporation, or an individual because they do the same thing. Thus, saying that a country cannot go bankrupt because they can transfer assets through a taxation system is like saying corporations and individuals cannot go bankrupt because they too can transfer assets through the capital markets, financial system and the courts. Thus, the term "bankruptcy" has no meaning. A nation defaulting can be more serious than a corporate bankruptcy because it can impovrish a nation, even tear it apart. Argentina did abandon their currency regime. They also defaulted. The two were part of the macroeconomic problems of the country at the time. But the government stopped payment on its debt and the capital markets consider that bankrupt.

Its not a theoreticaly fantasy August. It happens. It happened with Argentina a few years ago. (Bondholders recently settled with Argentina for less than 30 cents on the dollar.) It happened with Russia. It happened during the Asian Crisis. It happened during the Tequila Crisis of Mexico in the mid-90s, and again in Mexico in the 1980s. I had a perch watching the Asian Crisis directly and it was absolutely fascinating. Private lenders stopped lending to those countries. Just stopped and many countries couldn't roll over their debts. The countries did not have the cash to operate and it lead to rioting in Indonesia, and ultimately lead to changes of government in Indonesia, Malaysia, Korea and Thailand. These countries were bailed out by the international community. There comes a point when the private market says that's enough. To say that its merely a fantasy is to ignore what has happened in global capital markets over the past 20 years. Yes, but the government doesn't have de facto unlimited power to tax because if the government taxes too high, then the economy will slow or contract. Plus, in some countries, it doesn't matter how high the taxes are, people won't pay them. Again, this happened most recently in Argentina. The government was borrowing too much during a recession, and was caught in a Catch-22 because it had to close the deficit but couldn't because spending cuts or tax hikes would have driven the economy further into recession. The only option was default, which is what happened. The idea that government can tax to their heart's content isn't true. Certainly, the rules are different for governments than anyone else. But governments do not work in an vacuum and "the risk-free rate" is set in global capital markets if that country borrows too much. It doesn't matter if a foreign government can tax all it wants if I own a dollar-denominated bond and the funding gap for that government is too wide and the debt cannot be repaid. So, for example, in the countries I mentioned above, the "risk-free rate" soared from 4-5%, to 15-20% in a matter of days. What's risk-free about that? Even in Europe, some countries had to spike up repos and overnight rates to literally in the 1,000+% during the 90s because capital markets just dried up. But not if all that tax causes my friends and family to stop working. You're assuming that the economic behavior would be the same at any tax rate. At some point, it wouldn't, and that's where you assumptions break down. What would happen if my friends and family stopped working because I taxed them too much and suddenly I couldn't pay my debts because I bought a monster home based on my thinking I'd have unlimited resources? The mortgage holders would start getting nervous that I wouldn't have the cash flow to pay him back. The value of my mortgage would fall and the "risk-free rate" would rise. That's what happens in global capital markets. If we go by your definition then, any transfer of assets is a "tax". The risk premium I mentioned earlier is a "tax". Both have the exact same effect but work through different mechanisms. For example, US Air has been bankrupt twice in the past 4 years. Each time it went through the bankruptcy process, it extracted concessions from bondholders. In other words, bondholders had to give up part of their capital to the borrowers of US Air. The effect of using a tax to transfer assets from one group, the debt holders, to another, the debtors, is the same as negotiating a settlement in bankruptcy court that relieves debtors of their obligations. Its a transfer of wealth. Argentina defaulted on its debt and paid bondholders less than 30 cents on the dollar. Convertibility was one of the causes of bankruptcy, but what happened was not merely a devaluation since Argentina stopped paying its debts. Now there may not be any equivalent of Chapter 11 in the global capital markets, but that's considered to be a bankruptcy. Here's one of many articles on Argentina's default.

Actually, they can't August. They cannot borrow if no one will lend them money. If you view a government default as a "tax", then any default could be considered a "risk premium payment," no matter who the defaulter is - the government, a corporation, a household, etc. The "risk premium payment" is the cost the bondholder bears for committing to the capital markets. However, this is not what most people think of as "bankruptcy". For practical purposes, bankruptcy is an inability to meet ones debt obligations, violates the terms of an agreement, and those who lent are not made whole. And thus, countries have gone bust, Argentina being the most recent example. What you are talking about isn't bankruptcy August. What you are talking about is a transfer of assets through the capital markets, and it isn't privy to just governments.

Then why would anyone care? Why would Greenspan ever make any statement about it? What about it's direction? Bush needed tax hikes, not tax cuts....I realize you state however, how is it possible to claim "I promise to take in less and less, and promise to spend more and more"? True for you though, that they are in not much of a different position than a bank, stable unless everyone calls in their chits at the same time. But there has to be rules amd limits, or else everyone and their dog could be an international banker.The US is on the brink. I am not hoping for their demise, even as a 'leftist', because I believe that they were once a great nation and can be again. However, they do not now have a 'long term, winning policy', and unless there are some serious fundamental changes, they are one 'serious' war away from collapse. Even one 'phyrric victory' would kill them. <{POST_SNAPBACK}> August Governments aren't like families, but they still cannot borrow ad infinitum. Thelonius What evidence do you have that the US is on the brink?

He's also one of the largest shareholders in Citigroup and Time Warner. I don't think its a big deal.