Ladies and Gentlemen, the US Is Insolvent

24/05/2009 § Leave a comment

 

"We are out of money." Barack Obama May 23, 2009

Obama openly says what anyone with common sense has known for quite some time: the US is broke, and will not be able to honor in full its financial and fiduciary obligations.

The question remains how the US restructures that debt and how big a haircut the debt holders will take as a part of it.

20%? 30%? More like upwards of 50% at least in real terms.

And who are these debt holders? Anyone who has Treasury debt obligations and financial assets, from the Long Bond to the US Dollar, and financial assets guaranteed by the Federal Reserve and the Treasury.

Technically the debt will be serviced and the interest paid according to the terms of the agreements, with devalued US dollars.

The process will continue until the debt is restructured and the dollar is replaced with a new dollar. This may take some years.

Oh, don’t worry too much. There will be spin and qualifications piled upon this admission, most likely before the markets open in Asia on Monday. But this trial balloon of admission is how you start breaking the bad news to people unwilling and ill prepared to receive it.

But regardless of what is said, we are now in the endgame for a credit bubble of historic proportion.

Get Out While You Still Can!!

naked capitalism: Guest Post: Ladies and Gentlemen, the US Is Insolvent

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