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theymos
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February 14, 2018, 02:02:47 AM
 #1

The idiot Republicans in the US congress just massively increased spending. Over the next few years, the yearly deficit will probably double from $600 billion to $1.2 trillion as a result. I have very little faith in congress, and there's a long history of the Republicans and Democrats working together to recklessly increase both military and domestic spending, but even I was surprised by just how ridiculous this spending increase was.

Previously most people would say that although they didn't want to balance the budget this year, in the future it could be balanced. Republicans would sometimes lay out plans to balance the budget in 15 years or some such nonsense. But people will soon be realizing that this is never going to happen now. In a few years just the interest on the debt will be 5% of GDP or more, and this will grow exponentially.

I think that this will come to a point of crisis within the next decade. How do you guys see things playing out? Several possibilities come to my mind:

 - The US prints money like crazy, probably to the point of hyperinflation.
 - The US explicitly defaults on its bonds. This'd basically be armageddon for everything in contact with the fiat financial system (eg. banks, stocks, retirement funds, etc.), worldwide.
 - Taxes are massively increased. Income tax increases probably wouldn't be sufficient; they'd probably need a national VAT of 15-25% to even begin to bring the budget in order. But there are serious political and legal impediments to such a thing.
 - I really can't see them cutting spending in any significant way, but maybe it'd be possible if tons of politicians were replaced and/or the crisis grew large enough.
 
What I'd recommend they do is default on the bonds and just live with the few years of massive fallout, while simultaneously cutting spending massively. But there's very little chance of that. The hyperinflation route seems most likely to me.

(In any case, it's probably good for crypto...)
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February 14, 2018, 04:13:17 AM
 #2

You hit in right on the head theymos. I expect to see more quantitative easing by the Fed and interest rate hikes. Americans are going to get into more and more debt, wages will still be at an all time low, no matter what the govt. says. They're just digging us into a bigger hole. It's never ending, or better yet...it's not going to end well.
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February 14, 2018, 07:37:44 AM
 #3

The ultimate problem is entitlement spending, which makes up of over 2/3 of federal outlays verses ~48% 20 years ago. The increase in entitlement spending over the last 20 years is more than enough to account for the entire federal deficit.

Without entitlement reform, government borrowing will spin out of control regardless of what happens to defense and "discretionary" spending.

A default on our debt would likely result in massive deflation because so much of the economy relies upon this debt being worth face value (less losses due to interest rate increases), which would result in the economy essentially coming to a halt.

I am conflicted if this (or hyperinflation) will result in a net benefit for crypto, as there would be the (increased) risk of miners being seized because of gov/police corruption, which may result in more double spend attacks, which would lead to decreased confidence in crypto.
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February 14, 2018, 10:26:43 AM
 #4

The ultimate problem is entitlement spending, which makes up of over 2/3 of federal outlays verses ~48% 20 years ago. The increase in entitlement spending over the last 20 years is more than enough to account for the entire federal deficit.

If I was made emperor of the US but I was for some reason forced to maintain some level of statism rather than tearing the whole thing down, I think I'd resolve entitlements by:

1. Shut the programs down completely.
2. Calculate a dollar amount that people are "owed" due to "paying into" the programs.
3. The federal government owns 640 million acres of land (28% of the US landmass). Distribute as much of this as possible to the people owed money in entitlements, proportional to how much they're owed.

Example: Say that 600 million acres of the 640 million acres can be disposed of. The social security trust fund has received a total of about $20 trillion over its history. So for every $33k that you personally contributed to the trust fund, you'd get an acre of federal land chosen randomly (which you can sell if you don't like it). Or something in that general vein.

This would IMO be more honest than increasing the social security retirement age to 80 or whatever they'd have to do to get entitlements under control now, it'd put an end to the disastrous programs once and for all, and it'd reduce the government's size / control over assets.

(There's zero chance of them actually doing this, of course.)

Quote
A default on our debt would likely result in massive deflation because so much of the economy relies upon this debt being worth face value (less losses due to interest rate increases), which would result in the economy essentially coming to a halt.

I'm more imagining 90% of banks and other financial institutions collapsing. Deflation seems like a comparatively minor issue. But getting rid of this cancer on the economy would be worth the short-term pain IMO, even from a statist perspective. I think that there'd be pure economic hell for only a year or two, and things would be better than before within a decade, on net.

Trump actually talked about partially defaulting on treasuries (ie. a "haircut") during his campaign, so maybe it's not entirely outside of the mainstream. Some have speculated that he's pushing for all of this spending because he knows that the whole debt & USD system will collapse at some point, so he wants to build up long-lasting capital in domestic infrastructure and military equipment while the ponzi scheme is still running. (I don't really buy this theory personally, though.)
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February 14, 2018, 03:57:47 PM
 #5

I think they will create a massive incident somewhere - maybe a war. There is also the situation with DeutscheBank, don't they owe more than the US? and then there is the EU - nobody has mentioned how they are going to repay the UK for their share of the EU assets after Brexit.

Somehow, they have to shove the US dollar under the bus, and create a new crypto based currency for the US. I believe that Bitcoin was created as an experimental project in preparation for this currency. Well they must be pretty close to announcing it now.
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February 15, 2018, 07:34:36 AM
 #6

I think an optimum solution for social security would be to first significantly raise the retirement age to be more in line with morality rates, and advancements in medicine that allow people to live and work longer. Social security should also be transformed into a 401k type system in which workers (and employers) contribute a mandatory percentage of their earnings into an investment account in which they can invest in a broad range of investments, including both an immediate and deferred annuity sold by private companies. A small amount of what gets deposited into this accounts can be taken and given to the very poor, so most people get 99% of what they put in, and the very poor get much more than 100% of what they put in.



The above is not the best system or the most in line with my personal beliefs, however it does give citizens personal responsibility to invest their retirement savings as they deem best, takes away significant amounts of government control over retirement accounts, while having certain features that makes it unlikely that the program would be entirely undone the next time progressives have supermajorities in congress along with the white house, which will eventually happen.

My concern about giving away government owned land is that a lot of the land is only valuable in very large potions, so a $33k parcel would often have little effective value, and also the value of many parcels would likely change by a lot when certain groups of parcels get developed, while others do not.

Another concern about outright dismantling the social security system is that the next time progressives have super majorities, they can just create a new social security-like system, potentially one that gives government even more control, and creates an even bigger welfare state.

Quote from: theymos
I'm more imagining 90% of banks and other financial institutions collapsing. Deflation seems like a comparatively minor issue. But getting rid of this cancer on the economy would be worth the short-term pain IMO, even from a statist perspective. I think that there'd be pure economic hell for only a year or two, and things would be better than before within a decade, on net.
Banks rely so heavily on US government debt being repaid on a timely basis that almost all of them would likely fail if the US government were to default on their debt obligations. This would also result in the FDIC failing, which would mean that account holders would only receive a small percentage of their deposits.

I don't think banks are all that bad though. For deposit holders, they keep money safe from theft, and pay a small amount of interest. Deposit accounts are not very profitable for banks, carry a lot of risk of losses, so they probably would not offer deposit accounts if they are unable to lend some of their deposits out. If everyone had to keep all their money in physical dollars in their house (or other property), there would probably be a lot more violent crimes, including robberies because it would be known that everyone has large amounts of cash in their homes. The deposit services that banks offer also make traveling less risky because without deposit services you would need to carry sufficient cash to cover all expenses of your trip when traveling and getting robbed on the highway would leave your stranded.

Banks lending out money is not all that bad either. Banks have relied upon the assumption that depositors as a whole will not withdraw large amounts of their deposits (which has held true) to lend out a portion of their deposits, which makes offering deposit accounts profitable. Banks lending money for things like houses and cars also allow people to pay for things over a time that is closer to the time they will use said items verses up front. I believe that forcing people to pay for everything up front, or renting property would likely eventually result in entities very closely resembling a government owning nearly all of property who rents out property to citizens, effectively exerting control over citizens that rivals places like North Korea.   
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February 15, 2018, 03:52:14 PM
 #7

The idiot Republicans in the US congress just massively increased spending. Over the next few years, the yearly deficit will probably double from $600 billion to $1.2 trillion as a result. I have very little faith in congress, and there's a long history of the Republicans and Democrats working together to recklessly increase both military and domestic spending, but even I was surprised by just how ridiculous this spending increase was.

Previously most people would say that although they didn't want to balance the budget this year, in the future it could be balanced. Republicans would sometimes lay out plans to balance the budget in 15 years or some such nonsense. But people will soon be realizing that this is never going to happen now. In a few years just the interest on the debt will be 5% of GDP or more, and this will grow exponentially.

I think that this will come to a point of crisis within the next decade. How do you guys see things playing out? Several possibilities come to my mind:

 - The US prints money like crazy, probably to the point of hyperinflation.
 - The US explicitly defaults on its bonds. This'd basically be armageddon for everything in contact with the fiat financial system (eg. banks, stocks, retirement funds, etc.), worldwide.
 - Taxes are massively increased. Income tax increases probably wouldn't be sufficient; they'd probably need a national VAT of 15-25% to even begin to bring the budget in order. But there are serious political and legal impediments to such a thing.
 - I really can't see them cutting spending in any significant way, but maybe it'd be possible if tons of politicians were replaced and/or the crisis grew large enough.
 
What I'd recommend they do is default on the bonds and just live with the few years of massive fallout, while simultaneously cutting spending massively. But there's very little chance of that. The hyperinflation route seems most likely to me.

(In any case, it's probably good for crypto...)



thanks for sharing this post. I agree with you. I like to add some other cases for this content.

1- the costs of Administration of the country will be increased in the recent year, so they most Print more money
2-money printing will cause falling the value of $ so
3- valuable goods like Gold, CryptoCurrencies will increase more
4- They will have to increase the tax heavily.

so what will be happened:

they have to create other BTC for Compensation of this conditions.
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February 15, 2018, 04:16:02 PM
 #8

As weird as it might seem to some, I do believe that Bitcoin will replace banks quite a lot in our lifetimes.
There really isn't that high of risk for robbery when you use Bitcoin, as it is hard to know if the victim really has another paper wallet hidden somewhere.

Lending money still is something banks will do however, but I don't think that such control of the currency that we have today will be left in the hands of governments and banks for too long.

I think that this will end with mainstream adoption of Bitcoin, but that is just my opinion.
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February 15, 2018, 06:55:28 PM
 #9

As weird as it might seem to some, I do believe that Bitcoin will replace banks quite a lot in our lifetimes.

No.  The Blockchain will enhance banks in the coming years, but Bitcoin as a currency will probably not survive, the same way the Model T was outdated by newer inventions.

Back to OP topic, The US will eventually become the United States of China.  :/
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February 15, 2018, 08:56:27 PM
 #10

Of course inflation is the most likely outcome because it requires the Congress to do what they do best - absolutely nothing.

There is a non-zero chance of Democrats taking control of the Congress this year (or in 2020) and hiking the taxes up but they won't reign in spending. So we might have a twofer - massive inflation AND massive taxes.

There are also some state-level actions possible, although not being able to print their own money and not being able to opt out of federal taxes limits what they can do. But some states might try to challenge military spending or entitlement spending in court if the fiscal situation gets really bad. With the courts (including SC) being stuffed with abject demagogues this could end up in many unexpected ways.
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February 15, 2018, 11:32:29 PM
 #11

The ultimate problem is entitlement spending, which makes up of over 2/3 of federal outlays verses ~48% 20 years ago. The increase in entitlement spending over the last 20 years is more than enough to account for the entire federal deficit.

If I was made emperor of the US but I was for some reason forced to maintain some level of statism rather than tearing the whole thing down, I think I'd resolve entitlements by:

1. Shut the programs down completely.
2. Calculate a dollar amount that people are "owed" due to "paying into" the programs.
3. The federal government owns 640 million acres of land (28% of the US landmass). Distribute as much of this as possible to the people owed money in entitlements, proportional to how much they're owed.

Example: Say that 600 million acres of the 640 million acres can be disposed of. The social security trust fund has received a total of about $20 trillion over its history. So for every $33k that you personally contributed to the trust fund, you'd get an acre of federal land chosen randomly (which you can sell if you don't like it). Or something in that general vein.

This would IMO be more honest than increasing the social security retirement age to 80 or whatever they'd have to do to get entitlements under control now, it'd put an end to the disastrous programs once and for all, and it'd reduce the government's size / control over assets.

(There's zero chance of them actually doing this, of course.)

Some of that land is probably very expensive, and most of it probably very cheap, getting it instead of 33K$ would not be a good deal.
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February 15, 2018, 11:41:49 PM
 #12

I think they will create a massive incident somewhere - maybe a war. There is also the situation with DeutscheBank, don't they owe more than the US? and then there is the EU - nobody has mentioned how they are going to repay the UK for their share of the EU assets after Brexit.

War, the US is definitely trying in Korea (and failing) and with Iran. Attacking Iran would be an extremely bad idea though, unless the goal is to lose once more, and pile on the debt and dead soldiers.

Deutsche Bank must not be that worrisome, I listen to a business radio (here in France) and they haven't mentioned it in months.

The UK will be paying, not the other way around.
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