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Economics Discuss First a default, then a depression? Some think so at the Political Forums; First a default, then a depression? Some think so Damage from a U.S. credit default would be more than bad ...

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Old 10-03-2013, 08:12 PM
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Default First a default, then a depression? Some think so

First a default, then a depression? Some think so

Damage from a U.S. credit default would be more than bad public relations—it could affect everyone from bankers to pensioners to holders of supposedly sacrosanct money market funds.

In a research note analyzing the various consequences of a debt default, banking analyst Dick Bove pointed to a variety of areas:

Quote:
Money market funds, which would "break the buck" and deliver negative returns; banks, which would not be able to lend because of the plunging value of the debt securities they own; and Social Security recipients and pensioners, for whom there would be a shrinking pool of funds, also because of the declining value of Treasurys, which are heavily owned by SS funds and institutional retirement plans.

Indeed, dismissal of the government shutdown as a threat to markets has turned to dismay over the potential of a debt default that could have far worse consequences.

For the first three days of the shutdown, equity market prices experienced just a mild net selloff while bond yields held tight.

Thursday brought a change to that trend, though, as investors heeded a dire message from President Barack Obama, who intimated in a CNBC interview Wednesday that Wall Street was taking the crisis too lightly.

Consequently, stocks sold off sharply and the Treasury Department warned of the dire consequences that might result from a full-blown debt default.
Quote:
Picking up on that message, Bove said the situation could be more dramatic: A Depression that would cause severe and lasting economic damage.

"The devastation to the United States would be so severe that it would take decades to recover from the Depression caused by a default and the attendant dumping of trillions of dollars of U.S. Treasury securities on the global financial markets," said Bove, vice president of equity research at Rafferty Capital Markets.

Bove also pointed to the Federal Reserve, which has been buying $45 billion a month of Treasurys that now comprise 54.5 percent of the central bank's nearly $3.8 trillion balance sheet.

"A default in the Treasury debt would cause the value of these securities to plunge," he said. "This would raise the question of what is behind the value of the dollar. Depending on the size of the decline it could wipe out the equity at the Fed."

Though Bove is known for expressing strong and sometimes alarmist assertions, he is not alone in his default warnings.
Quote:
In a public statement, the Treasury Department said default would be "unprecedented and has the potential to be catastrophic."
Thus far, economists have been mostly sanguine about the possibility of the U.S. missing debt payments, reasoning that Congress would never let things get that far.

The focus has been primarily on the shutdown, which ultimately poses a discomfort and some modest damage to economic growth, but would have little lasting effect after government reopens.

That narrative has begun to change, however, with warnings that previous shutdowns may not serve as accurate templates for the current standoff.

Citigroup strategist Jeremy Hale outlined the dynamics in an analysis:


In 1995, House Speaker Newt Gingrich received the US public's ire while President Clinton caught a wave of popular approval that helped him to re-election later in 1996. Markets may believe that this makes a deal more likely. But market complacency may ignore the risk that U.S. politics are far more polarized now than then, and that both sides may believe that they have something to gain from holding out


Hale, too, worries that investors aren't taking into account a worst-case scenario:

With the debt ceiling there is far more danger. Government shutdowns lead to small and temporary output losses as public workers are typically paid in arrears when government re-opens. But not raising the debt ceiling means a potentially damaging fiscal drag and, eventually, default risk. We assume that even partisan politicians know this and that the ceiling is indeed raised. However, some politicians are reportedly comparing the summer 2011 US sovereign ratings downgrade to an outright default as evidence that it may not matter.


Jeelee Wheely, what a buncha poop heads
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Old 10-03-2013, 08:21 PM
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Default Re: First a default, then a depression? Some think so

There has been NO recovery we are still in a depression
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Old 10-03-2013, 08:32 PM
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Default Re: First a default, then a depression? Some think so

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Originally Posted by Topcat View Post
There has been NO recovery we are still in a depression
don't ever say thinks can't get worse.
yeah if we dont make our payments with things already going in the terlet money wise AND people are furloughed/ripple affect for awhile...
is that the plan?
i mean i guess ur still a new-republican, do you guys want a depression/do over or what? I'm curious.
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Old 10-03-2013, 08:36 PM
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Default Re: First a default, then a depression? Some think so

The way I feel tonight I'm wishing for armageddon
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Old 10-03-2013, 08:49 PM
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Default Re: First a default, then a depression? Some think so

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Originally Posted by Topcat View Post
The way I feel tonight I'm wishing for armageddon
I noticed that , but hey, please just wish it at ur house
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Old 10-03-2013, 08:55 PM
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Default Re: First a default, then a depression? Some think so

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I noticed that , but hey, please just wish it at ur house
It's already ON my house!
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Old 10-03-2013, 09:49 PM
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Default Re: First a default, then a depression? Some think so

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Originally Posted by saltwn View Post
First a default, then a depression? Some think so

Damage from a U.S. credit default would be more than bad public relations—it could affect everyone from bankers to pensioners to holders of supposedly sacrosanct money market funds.

In a research note analyzing the various consequences of a debt default, banking analyst Dick Bove pointed to a variety of areas:






Thus far, economists have been mostly sanguine about the possibility of the U.S. missing debt payments, reasoning that Congress would never let things get that far.

The focus has been primarily on the shutdown, which ultimately poses a discomfort and some modest damage to economic growth, but would have little lasting effect after government reopens.

That narrative has begun to change, however, with warnings that previous shutdowns may not serve as accurate templates for the current standoff.

Citigroup strategist Jeremy Hale outlined the dynamics in an analysis:


In 1995, House Speaker Newt Gingrich received the US public's ire while President Clinton caught a wave of popular approval that helped him to re-election later in 1996. Markets may believe that this makes a deal more likely. But market complacency may ignore the risk that U.S. politics are far more polarized now than then, and that both sides may believe that they have something to gain from holding out


Hale, too, worries that investors aren't taking into account a worst-case scenario:

With the debt ceiling there is far more danger. Government shutdowns lead to small and temporary output losses as public workers are typically paid in arrears when government re-opens. But not raising the debt ceiling means a potentially damaging fiscal drag and, eventually, default risk. We assume that even partisan politicians know this and that the ceiling is indeed raised. However, some politicians are reportedly comparing the summer 2011 US sovereign ratings downgrade to an outright default as evidence that it may not matter.


Jeelee Wheely, what a buncha poop heads
If it takes a depression and the sale of California Canada in order to return the nation or fiscal sanity and an orientation on personal liberty, I'm all for it.
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Old 10-03-2013, 09:55 PM
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Default Re: First a default, then a depression? Some think so

Quote:
Originally Posted by Topcat View Post
The way I feel tonight I'm wishing for armageddon
I'm sorry.

I feel that I've let you down.

My Horse is at the farrier's today.


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╠═════════════════════════════════════╣

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Or if you're a traditionalist,
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And children, say it like you mean it!

╠═════════════════════════════════════╣
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Old 10-03-2013, 10:02 PM
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Default Re: First a default, then a depression? Some think so

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Originally Posted by Topcat View Post
It's already ON my house!
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Old 10-03-2013, 10:24 PM
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Default Re: First a default, then a depression? Some think so

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Originally Posted by Oftencold View Post
If it takes a depression and the sale of California Canada in order to return the nation or fiscal sanity and an orientation on personal liberty, I'm all for it.
fools rush in where angels fear to tread
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