Is America financially bankrupt

[GB]

i deliberatly left off the question mark - caus im clever like that.
The foreigner's appear to have backed off buying treasuries as of late - if they cannot receive enough to cover the external deficit on a monthly basis which is running at 54 Billion then interest rates will have to increase enough to entice buyers - how high could that rate be - ?? ask the potential buyers - they might not want useless paper that will not get paid back - remember the yanks will take your gold as in 33 - they will not think twice about taking money from foreign nations - can u say sucker -

[GB]

%33 of treasuries is bought on average as opf recent years - last weeks auction of treasuries only found 3%

[thereslifeafter87]

Cantab,
It can also mean not having enough cash to meet existing liabilities.

America won't go bankrupt.

It will either print more money to pay for the deficits, causing inflation and the dollar to drop, or as GB says, raise interest rates to entice buyers back, maintain the dollar at current levels.

I think the first is more likely.

The second would be horribly bad for the economy - especially if they raise interest rates considerably. With the amount of debt in the US at the moment...... Although, that said, our rates are quite high by comparison in NZ, and we do have more debt as a percentage of GDP...

So I could be way off the mark

[thereslifeafter87]

Sorry, bad definition,

What I meant was, it can also mean not having enough free cash to meet your liabilities as they come due.

[rmbbrave]

Countries don't go bankrupt, at least financially. If their liabilites exceed their assets they can always default.

However, I agree that the US government is bankrupt, but not financially, morally.

[Steve]

quote:Originally posted by rmbbrave

However, I agree that the US government is bankrupt, but not financially, morally.


Damn RMB, you took my line...;)

[belgarion]

GB,

Welcome back ... It's been lonely telling people (and taking abuse from the ignorant) as to the state of the US finances.

'Bankrupt' is a strong word and Id suggest you used to to provoke discussion. Good on ya!

My view is that everything is in place for 'short-to-medium term reasessement of the corporation that is represented by the USD'. (Translation: the USD is still hugely over valued!)

If one compares the USD to TRH, there are many similarities. There is considerable 'value' in the US economy, however and primarily for political reasons, the badly needed 're-alignment' of relative values won't occur until after Nov 2. I don't believe it will matter who wins, the 'floodgates' of 'value based decisions' will open and the USD, the share that values the US economy, will be open slather.

This will be fun! And wise macro players who have positioned themselves accordingly will enjoy the opportunities.

Americans have only their ignorance to blame. The rest of the world doesn't give a fig for their media that spouts 'american is great' in the face of facts to the contrarary. The rest of the world only invests in the 'good old U.S. of A' for profit. The fact that ignorant americans seem to believe that 'faith based decision making' equates to good economic policy ... simply is an amusement to other non-US based investors ...

From my calcs of forward contracts, hedged currency transactions, etc ... Whoever inherits this mess is unlikely to be remembered fondly ... Thus, VOTE FOR BUSH!!! :D

[corsair]

Speaking of the OPEC Countries replacing the USD with the EURO I have read a few interesting articles proposing that it was that switch that was the primary driver for invading iraq. Iraq had switched to the Euro and Saudi Arabia and Iran were looking to follow suit so the United States decided to make an example of Iraq.

[Steve]

I notice that none of our American share-traders have contributed their thoughts to this thread as yet...

[Paper Tiger]

Does the average American care if America is financially bankrupt?
A few do.

Does the average American care who will be president of the USA after the election?
About half of them do.

Does the average American care whether the St Louis Cardinals or the Boston Red Sox win the [Baseball] World Series next week.
lots.

[craic]

Hardly!
At Google, Earnings Soar, and Share Price Follows
By JOHN MARKOFF
Google's already soaring stock price rocketed even higher
after reporting strong growth in its first quarter as a
public company.

http://www.nytimes.com/2004/10/22/technology/22google.html?th

..................

More Business News
http://www.nytimes.com/pages/business/index.html?th

----------------------------------------

- TECHNOLOGY -


At Google, Earnings Soar, and Share Price Follows
By JOHN MARKOFF
Google's already soaring stock price rocketed even higher
after reporting strong growth in its first quarter as a
public company.

http://www.nytimes.com/2004/10/22/technology/22google.html?th

..................


Amazon's Profit Triples, Driven by Free Shipping
By LAURIE J. FLYNN
But the company's guidance for next year failed to top Wall
Street's estimates, and its shares fell in after-hours
trading.

http://www.nytimes.com/2004/10/22/technology/22amazon.html?th

..................


Sales of PC's Buoy Results at Microsoft
By MATT RICHTEL
Buoyed by continued strong worldwide sales of personal
computers, Microsoft reported strong growth even as it
faces the challenges of being a mature technology company.

http://www.nytimes.com/2004/10/22/business/22soft.html?th

..................

[kura]

My thinking for last few months has been to limit exposure to companies who sell commodoties denominated in USD (with exception of Energy) to mitigate fallout from continuing decline of USD

[thereslifeafter87]

A good hedge would be to buy US companies that have large levels of international earnings. That way, if the dollar drops their earnings should increase (as they will get more dollars for their products), offsetting the drop in s/p value relative to the $NZ.

Thats the theory anyway...

[pago]

imo ,there is an increased risk right now of a decrease of value in the us dollar,which is likely, which will impact on earnings for nz and aust. exporters, dependant upon their hedging arrangments,which will likely depress share prices.this is not the end of the world,just another adjustment ,but one to be watched.cheers pago.

[Cooper]

Cantab... increasing taxes chokes off growth... it doesn't just happen without effects... consumer spending will decrease. Also, George Bush has indicated he wants to lock in his tax cuts.
The problem will occur when the growth in the debt due to interest starts to outweigh their long term growth percentage, which from memory is about 3.5 - 4%.

[corwen]

The simple answer is no! Their debt ratio is lower than ours.

[Cooper]

Corwen: Does that figure in their Fiscal deficit, which is attributable to taxpayers as well?

[GB]

Corwen - i dont know where you get your figures from - our gdp to debt is %25 - the usa is 285%- anyway - cheers Belg - i see you have been taking some stick - and as cap would say - anyone passionate about their beliefs will always get their neck somewhat shortened after the process of sticking it out

[thereslifeafter87]

quote:Originally posted by GB

Corwen - i dont know where you get your figures from - our gdp to debt is %25 - the usa is 285%- anyway - cheers Belg - i see you have been taking some stick - and as cap would say - anyone passionate about their beliefs will always get their neck somewhat shortened after the process of sticking it out


GB, where did you get that figure from?

I thought our debt was at over 100% of GDP, and the US's was at around 60 odd%

[GB]

cantab - on a personal basis the average American owes $8500 more than they own- on a national basis they owe $123 000 per 4 person family- and that is the admitted debt - i suggest a book by Harry Figgie " bankruptcy 1995- sure he got the timing wrong - but the basic premise still stands
btw figgie is a slf made billionaire- and was on the grace commission for cutting debt - all the recommendations of the grace commission were shelved -!! put in the too hard basket - and that was 15 years ago-

[GB]

our gdp is 100 billion our debt non private is 25 billion- %25
down from %42

the yanks have 7.2 trillion in debt( admitted) gdp of 10 trillion - plus liabilities on future payments from money taken/stolen from medicare - pension funds equalling 34 trillion - some estimate as high as 54 trillion which would be 540% of gdp- i suggest a look at www.financialsense.com - i think if my memory is correct Lawerence Kotlikoff and some others have done the work on this - cheers-

[GB]

Cantab you have always maintained and rightly so that buying precious metals in nz dollar terms has been a dead duck - how right you are - however some of us that have been buying see 2 possible eventualities-
1 all currencies will drop against gold/silver
2 we see this current period intime as being subsidised by an artificially high Kiwi dollar-
i will add a third reason - it could well happen that gold no longer in the future is valued soley in US dollars- and could indeed be sold in Euros- or oil or a combination of both -??

[thereslifeafter87]

GB,

They can always default on the social security/medicare debts...

I think if you include our private debt GB you will get a different picture. From memory it is much higher than the US's private debt...

[thereslifeafter87]

Cantab,

Check out http://www.thereslifeaftertheoilcrash.net and you might not be so confident...

[belgarion]

tla87,

The point you make, and others have made (me, not the least), is that asset 'values' will need to be re-aligned Very, Very signifcantly as the price of oil rises.

Thus, unless one has done their homework, something that is $1 in today money, due to earning related to historically 'cheap' oil, might be worth just 0.25 in the days of expensive oil. The converse is also true ... and it is the converse that savy investors will be persuing.

Was $55 a barrel a shock? Not to people who saw it coming ... Belgarion started the Energy doom and gloom ... (http://www.sharetrader.co.nz/topic.asp?TOPIC_ID=17076&SearchTerms=doom,and,gloom) in Nov 2002 ... when the cost of oil was ... sub $30!!!

[thereslifeafter87]

Belg,

I was thinking last night about what asset class will prosper from the oil shocks to come. I couldn't think of any.

The way I see it, every asset class will suffer.

What do you think?

[skinny]

quote:Originally posted by thereslifeafter87

Belg,

I was thinking last night about what asset class will prosper from the oil shocks to come. I couldn't think of any.

The way I see it, every asset class will suffer.

What do you think?



I imagine real estate in downtown Riad will do pretty well :D
More seriously the oil money doesn't just disappear, this shock is a positive one for the Middle East and the net oil exporting countries. Obvious places to think about are the more investor freindly Gulf states (Qatar & Dubai), Norway and last but no means least Canada. I've also been looking at sheep meat prices going hmmmm ;)

Beyond oil I think Cantab is 110% right. The world is entering into a period of unprecedented prosperity now that the two most populous nations on Earth have unleashed capitalist forces. This is no time to be playing chicken little :D The high oil and other commodity prices is just a bump in the road and it should also be recognised that the largest FDI flows to these countries has been from good old corporate USA :D

[srotherh]

Skinny,Cantab

Considering The dollar is the common stock of USA Inc

One question ??

Would you buy the $US?

[skinny]

Aspex - yes labour practices are shonky in China still and every life lost is a tragedy. All I can say is that the scale is miniscule compared to what occurred under autarky - its estimated 20 million died under the famine induced by the mad policies of the cultural revolution. Moreover I've read the suicide rate (the 5th largest cause of death in China) has plummeted as labour flows have moved to the cities (less access to pesticides and better opportunities for women) and life expectancies are rising.

The job creation in China & India dwarfs the jobs lost in the US. On net terms the world, as perhaps best measured by the shear number of people climbing out of poverty and entering middle classes, is getting wealthier which is my main point. UN and World Bank studies unambiguously document this.

As for would I invest in the US hell yes! Cantab and I hold US stocks and have made no secret about that. Though most of my holdings have been in oil and gas stocks which effectively hedge a USD decline, no need to go completely against the flow...

[thereslifeafter87]

Once you understand that the entirety of the prosperity of the 20th century has been based on one thing - cheap energy in the form of oil - you realise that it cannot last.

Everything that is cheap now will become much much more expensive because there is simply not going to be enough energy to make as much stuff (by stuff I mean everything from the keyboard I'm typing on to the chicken I ate for dinner) as there is at the moment.

What I want to know, is what asset will allow me to protect what I have and what I hope to have when these shocks become apparent.

I can't see any asset at the moment that will withstand such shocks. Buying oil futures is mostly useless because they are in US dollars, and the US dollar will collapse as the government prints more and more to buy increasingly more expensive oil that it must have in order to sustain its economy. Same goes for gold.

China is f*cked - it imports huge amounts of oil, and its prosperity depends on Americans being able to buy the its cheap export goods.

Food commodity futures might be the best idea. The cost of making, growing, packaging, raising, killing, and transporting food is going to increase exponentially as we go past peak oil. Thus the price of food must rise also. This is probably the only hedge against rampant inflation that will occur in every country that imports oil.

This is terrible for the rest of the economy as consumers will have far less discretionary income to spend on consumption of sh*t they don't actually need but think they want (TV's, iPods, playstations, clothes, shoes, computers, luxury beautycare items etc).

Then again, if things go as badly as they could, world commerce is pretty much done for, famines are a given, and its unlikely that such paper assets will be honoured.

Maybe its time to get back to my roots and try out basic agriculture? - as well as recruiting a loyal band of followers to protect the property with assault rifles...

Maybe I'll start a commune...


Seriously. This could actually happen.

What sets this century apart from every other? Unprecedented economic growth, industrialisation, technological advance. All brought about by one thing - cheap energy. Without such cheap energy in the form of abundant oil supplies and the ability to harness this energy, the world is going to regress to a 19th century economy.

This is going to happen sooner rather than later.

China imported 30% more oil this year than it did last year. India is growing. The US is still growing - although slowly. New supply cannot come online fast enough to keep up with this growth, let alone to make up for the fields that are declining/running dry.

This is a hella serious situation.
Its got me kinda worried.

How to maintain your net worth - your livelihood, your assets in an economy where there is no growth? Where paper money becomes worthless? Where the financial system collapses and the promises in promissory contracts are broken?

Where people can no longer afford to buy the products of the companies you own because they have to spend all their "money" (barter?) on food?

Think about it for a second before you laugh it off as doomsday bullsh*t.

Some of you real oldies might not have to worry too much, but I'd say everyone under 40 will be affected.

Soemthing to think about anyway.

[skinny]

TLA87 - you've got me on a verbose day. Take a chill pill dude, I'm well under 40 and am not even remotely concerned in the longer run [8D] Why? Because market mechanisms are already working. The price of the current main alternative energy sources, i.e. uranium, natural gas and coal have risen and provided incentives for extraction industries to go and get the stuff. The drillers for conventional oil have never been happier (nor are investors in them for that matter). Spending on more exotic technologies (solar power, hydrogen fuel cells, wind, etc) has stepped up considerably to improve their efficiency and lower their per-unit costs. Even if the promise of these exotics fail and peak oil comes sooner rather than later its still not over - we already know that natural gas reserves dwarf conventional oil (this has long been OPECs main strategic concern) and Canada's non-conventional oil sources are larger than the oil reserves in Saudi Arabia.

In the short run the main problem isn't the availability of energy at all, its more that energy distribution and infrastructure is lacking (not enough VLCC's, lack of sour oil refineries in the US, lack of LPG plants, lack of NG pipelines, lack of NG and LPG at the pump, etc). Again this is something the investor can profit well from if they do just a little homework ;)

[Packersoldkidney]

I reckon the US sharemarkets could be heading for rocky waters. That's 'could be', not will. The US economy, however, could be quite different: its a big sucker. Very diverse. Run by an enthusiastic bunch of guys and dolls who could sell vegemite to Australians. (!) Seppoes are always looking for the next angle, and can smell a dollar if it was hidden under ten tonne of Abdab's camel poop. Think the US dollar is overvalued etc etc, and the markets may have a correction, but cant see it affecting US companies from turning a quid. Structural change undergoing the US economy at the mo is the loss offshore of a lot of its jobs. Only going to continue. Helps the bottom line as labour is a bigger factor in costs then raw materials. This of course means less household expenditure in the US, but US companies are increasingly getting their revenues from overseas. These two factors (loss of US jobs overseas, plus more profits from global avenues) will work in tandem for some time. Wouldn't like to be a worker in the manufacturing sector in the US at the moment. Would like to be a kidney in Australia about to have a beer.

Not that this kidney is about to do that. (snigger)

[thereslifeafter87]

Sorry Cantab,

That link should be http://www.lifeaftertheoilcrash.net
I must have had my username in mind when I typed it in...

Valid points guys...

I guess we will see in the years to come..

If the price of oil gets high enough Cantab, I will sell my ATR. China won't be able to afford to import the oil required to run the power stations that ATR needs for its factories....
Hence they will be down the gurgler.
But at 8x forward earnings you can't go too far wrong...