What do you see happening if the U.S. defaulted on its debt? 1 1

[jtryka]

On 5/20/2023 at 11:13 AM, GoldFinger1969 said:

Hasn't been a default...yet...unless you consider the abrogation of the Gold Clauses that I read about in AMERICAN DEFAULT.  

1814, 1933, 1971, 1979 and arguably multiple times during the Civil War when payment in specie was suspended.

[GoldFinger1969]

On 5/20/2023 at 3:02 PM, jtryka said:

1814, 1933, 1971, 1979 and arguably multiple times during the Civil War when payment in specie was suspended.

Legal mumbo-jumbo comes into play.  I'm not familiar with the "default" of 1979, clue me/us in.

The Civil War and 1933 instances were discussed at length in the book.  I presume 1814 was a hangover from the War of 1812.  1971 was mostly for foreign institutions since American citizens weren't really on the gold standard and couldn't exchange paper for gold.

It's tough to run a gold standard fixed exchange regimen.  If you check out the charts I posted in the RWB Double Eagle Book thread, you can see that gold was hoarded by the U.S. and France in the late-1920's.  But the requirement is that if you are a global reserve power, you will agree to LOSE gold and not hoard it...to run a current account deficit (capital account surplus).  It's tough to do that because gold reserves are a physical asset that is valued by a government, a central bank, and even the populace.

It's one thing to run a CA deficit and print extra money (so long as it's not inflationary)....that's what the U.S. is required to do now and which has driven the French and Europeans nuts as our "exorbitant privilege" over the decades.  Not every government, if given the chance, would choose to do so if it led to loss of manufacturing jobs, overpriced agricultural products, loss of tourism, rising commodity/oil prices, etc.

But.... with great power comes great responsibilities.  I think Milton Friedman said that.....

 

Edited May 20, 2023 by GoldFinger1969

[VKurtB]

On 5/20/2023 at 6:56 AM, zadok said:

...theres a rumor that if u have the number 1 registry set they let u live longer??....

Who is “they” in this context?

[VKurtB]

On 5/20/2023 at 2:25 PM, GoldFinger1969 said:

Legal mumbo-jumbo comes into play.  I'm not familiar with the "default" of 1979, clue me/us in.

The Civil War and 1933 instances were discussed at length in the book.  I presume 1814 was a hangover from the War of 1812.  1971 was mostly for foreign institutions since American citizens weren't really on the gold standard and couldn't exchange paper for gold.

It's tough to run a gold standard fixed exchange regimen.  If you check out the charts I posted in the RWB Double Eagle Book thread, you can see that gold was hoarded by the U.S. and France in the late-1920's.  But the requirement is that if you are a global reserve power, you will agree to LOSE gold and not hoard it...to run a current account deficit (capital account surplus).  It's tough to do that because gold reserves are a physical asset that is valued by a government, a central bank, and even the populace.

It's one thing to run a CA deficit and print extra money (so long as it's not inflationary)....that's what the U.S. is required to do now and which has driven the French and Europeans nuts as our "exorbitant privilege" over the decades.  Not every government, if given the chance, would choose to do so if it led to loss of manufacturing jobs, overpriced agricultural products, loss of tourism, rising commodity/oil prices, etc.

But.... with great power comes great responsibilities.  I think Milton Friedman said that.....

 

Nope, Spider-Man. 

[World Colonial]

On 5/20/2023 at 3:25 PM, GoldFinger1969 said:

Legal mumbo-jumbo comes into play.  I'm not familiar with the "default" of 1979, clue me/us in.

The Civil War and 1933 instances were discussed at length in the book.  I presume 1814 was a hangover from the War of 1812.  1971 was mostly for foreign institutions since American citizens weren't really on the gold standard and couldn't exchange paper for gold.

Claiming 1933 and 1971 wasn't a form of default is using form over substance.

It's a pretense.  

On 5/20/2023 at 3:25 PM, GoldFinger1969 said:

It's tough to run a gold standard fixed exchange regimen.  I

True, still doesn't change whether it was or wasn't one.  Claiming it is one is just contrary to the personal preference of those who think it shouldn't be considered one.

[VKurtB]

On 5/20/2023 at 10:13 AM, GoldFinger1969 said:

Hasn't been a default...yet...unless you consider the abrogation of the Gold Clauses that I read about in AMERICAN DEFAULT.  

There have been NO defaults, period. Who says so? The final arbiter - the Supreme Court of the United States. They are infallible because they ARE final, until they say otherwise. 

[VKurtB]

On 5/20/2023 at 6:17 PM, World Colonial said:

It's a pretense.

Call it what it really is - it’s a LIE!

[VKurtB]

My political complaint turned out to be prescient. The whole debt ceiling debate went über-partisan Friday evening. More so than ever before.

[zadok]

On 5/20/2023 at 7:13 PM, VKurtB said:

Who is “they” in this context?

...i thought it was the all being but more likely is the AI thats consuming the metaverse....

[VKurtB]

On 5/20/2023 at 7:45 PM, zadok said:

...i thought it was the all being but more likely is the AI thats consuming the metaverse....

Can it? Please? Can we get AI to consume the metaverse? So overdue, so necessary.

[zadok]

On 5/20/2023 at 2:44 PM, R__Rash said:

I heard a similar rumor but longevity was dependent upon the alloy used in the minting process of the set. ?

...im going with iridium .9999....

[GoldFinger1969]

On 5/20/2023 at 7:17 PM, World Colonial said:

Claiming 1933 and 1971 wasn't a form of default is using form over substance.  It's a pretense.  

1933 was interesting, as a strict interpretation of the Gold Clauses would state that the SCOTUS erred.  I do agree that the argument that the clauses interfered with the implentation of monetary policy is (somewhat) persuasive.  I think FDR and the U.S. Treasury could have worked around revaluing gold to $35 an ounce.  I went into the book feeling 100% sure that the abrogation was wrong.  I still think it -- but I understand where FDR and his crew were coming from in early-1933.  You wonder if they did nothing if the nadir of The Depression had already passed anyway and the natural healing of the economy would have improved things without the monetary and fiscal gyrations.

I do wonder if the revaluation of bond principal amounts to 1.69x face value ($35/$20.67) was so harmful, why more amicus curiae briefs weren't submitted by the $100 billion in private bond issuers protesting the hardship.  Maybe it would have been difficult but they realized they made a losing bet and had to pay up.  Or maybe they even entered the contracts thinking that if gold moved up it would revalue to $22 or $25, not all the way to $35 an ounce.  I guess the Civil War experience didn't teach them. 

As for 1971.....after 1933 and the 1968 adjustments and the talk of gold runs, nobody should have been surprised.  Fixed exchange rates simply are difficult to adhere to.  External adjustments via inflation and exchange rates are easier to correct exogenous shocks than an internal adjustment via falling real prices or wages.

Edited May 21, 2023 by GoldFinger1969

[World Colonial]

On 5/20/2023 at 11:50 PM, GoldFinger1969 said:

1933 was interesting, as a strict interpretation of the Gold Clauses would state that the SCOTUS erred.  I do agree that the argument that the clauses interfered with the implentation of monetary policy is (somewhat) persuasive.  I think FDR and the U.S. Treasury could have worked around revaluing gold to $35 an ounce.  I went into the book feeling 100% sure that the abrogation was wrong.  I still think it -- but I understand where FDR and his crew were coming from in early-1933.  You wonder if they did nothing if the nadir of The Depression had already passed anyway and the natural healing of the economy would have improved things without the monetary and fiscal gyrations).

I do wonder if the revaluation of bond face values to 1.69x face value ($35/$20.67) was so harmful, why more amicus curiae briefs weren't submitted by the $100 billion in private bond issuers protesting the hardship.  Maybe it would have been difficult but they realized they made a losing bet and had to pay up.  Or maybe they even entered the contracts thinking that if gold moved up it would revalue to $22 or $25, not all the way to $35 an ounce.  I guess the Civil War experience didn't teach them. 

It get why it happened.  It doesn't change anything.

On 5/20/2023 at 11:50 PM, GoldFinger1969 said:

As for 1971.....after 1933 and the 1968 adjustments and the talk of gold runs, nobody should have been surprised.  Fixed exchange rates simply are difficult to adhere to.  External adjustments via inflation and exchange rates are easier to correct exogenous shocks than an internal adjustment via falling real prices or wages.

This is a much clearer default.  At least in 1933, the $20 someone got immediately after the executive order was worth the same.  Not so in 1971.

[Zebo]

[GoldFinger1969]

On 5/21/2023 at 8:46 AM, World Colonial said:

It get why it happened.  It doesn't change anything.

This is a much clearer default.  At least in 1933, the $20 someone got immediately after the executive order was worth the same.  Not so in 1971.

It only affected foreign central banks.

Interesting Tidbit from the book:  the U.S. government continued to pay for international treaty obligations in gold, so as not to disrupt the apple cart.  Panama Canal lease payments were cited.  Eventually, the gold clauses faded even there and they reached agreement on new annual payment levels that took into account the no-gold policy.

[World Colonial]

On 5/21/2023 at 10:45 AM, GoldFinger1969 said:

It only affected foreign central banks.

Interesting Tidbit from the book:  the U.S. government continued to pay for international treaty obligations in gold, so as not to disrupt the apple cart.  Panama Canal lease payments were cited.  Eventually, the gold clauses faded even there and they reached agreement on new annual payment levels that took into account the no-gold policy.

Yes, I know that.  It doesn't change what I told you.

[GoldFinger1969]

On 5/21/2023 at 11:06 AM, World Colonial said:

Yes, I know that.  It doesn't change what I told you.

So you would have adjusted the nominal face values of the bonds upwards, much as modern day TIPS bonds do ?

[VKurtB]

Hey @GoldFinger1969, you’re an investments / finance guy, right? Question: In 7 trading days, my worst performing equity became my best performing equity, on a percentage basis. It pays no dividend, and is a shadow of its once great former self. I speak of Eastman Kodak. I’m trying to figure out what flipped the switch. Yes, the earnings call was SLIGHTLY better than expected, but nothing that explains this. Do you think somebody decided to acquire it? By the way, I LOVE the CFO’s name - David Bullwinkle. “Say, Rock…”

[World Colonial]

On 5/21/2023 at 11:41 AM, GoldFinger1969 said:

So you would have adjusted the nominal face values of the bonds upwards, much as modern day TIPS bonds do ?

I think that would be "fair".

My point in these posts is that claiming a default didn't happen because the nominal value was/can/will be paid is irrelevant.  What matters is the value you get back.  Default doesn't mean you necessarily get zero.

[GoldFinger1969]

On 5/21/2023 at 12:35 PM, VKurtB said:

Hey @GoldFinger1969, you’re an investments / finance guy, right? Question: In 7 trading days, my worst performing equity became my best performing equity, on a percentage basis. It pays no dividend, and is a shadow of its once great former self. I speak of Eastman Kodak. I’m trying to figure out what flipped the switch. Yes, the earnings call was SLIGHTLY better than expected, but nothing that explains this. Do you think somebody decided to acquire it? By the way, I LOVE the CFO’s name - David Bullwinkle. “Say, Rock…”

It's been a "meme stock" in the past, subject to daytrader volatility.  They could have also put out a press release saying they use AI -- boom !!  Your stock goes up 20%. 

It's basically a portfolio of patents and some minor businesses, as I understand it.  I believe their upstate NY facilities might be part of lithium recycler LICY.

[GoldFinger1969]

On 5/21/2023 at 1:50 PM, World Colonial said:

I think that would be "fair". My point in these posts is that claiming a default didn't happen because the nominal value was/can/will be paid is irrelevant.  What matters is the value you get back.  Default doesn't mean you necessarily get zero.

As you are probably aware, various price indices over the life of the bonds were flattish.....giving the holders 69% more in face value would constitute an unjustified windfall according to the courts. 

[VKurtB]

On 5/21/2023 at 10:20 PM, GoldFinger1969 said:

It's been a "meme stock" in the past, subject to daytrader volatility.  They could have also put out a press release saying they use AI -- boom !!  Your stock goes up 20%. 

It's basically a portfolio of patents and some minor businesses, as I understand it.  I believe their upstate NY facilities might be part of lithium recycler LICY.

The movie film portion of Kodak’s business is doing better than it has for decades, and their (extremely) large scale digital press business is leading that sector.

[jtryka]

1979 was a "mini default" where the Treasury failed to pay principal and interest on about $122 million in T-bills owned by individuals.  The result was a 60 bps spike in rates but the holders were paid eventually.

[GoldFinger1969]

On 5/22/2023 at 7:23 PM, jtryka said:

1979 was a "mini default" where the Treasury failed to pay principal and interest on about $122 million in T-bills owned by individuals.  The result was a 60 bps spike in rates but the holders were paid eventually.

I think that was a technical glitch and bookkeeping snafu.  I was still in high school but I recall reading about it a few years later.

[zadok]

On 5/22/2023 at 8:53 PM, GoldFinger1969 said:

I think that was a technical glitch and bookkeeping snafu.  I was still in high school but I recall reading about it a few years later.

...u dont know just how accurate ur use of "snafu" is to describe our gov't...it is a military jargon term, they usually get rite to the point....

[GoldFinger1969]

On 5/23/2023 at 9:24 AM, zadok said:

...u dont know just how accurate ur use of "snafu" is to describe our gov't...it is a military jargon term, they usually get rite to the point....

Computerization was in its infancy back then.  Still working out the bugs, I guess.

Hey, a few years ago the bond trustee (I think Citibank) accidentally paid OFF a bond with like $500 MM that wasn't supposed to be paid for YEARS.  They tried to claw it back and ran into obstacles (I remember folks asking how this might apply if an ATM gave you $2,000 instead of $200).

It's on the internet, forgot how it resolved itself.

 

[GoldFinger1969]

Here it is, they settled:

https://www.reuters.com/markets/us/citigroup-wins-appeal-over-mistaken-revlon-wire-transfer-2022-09-08/

[zadok]

On 5/23/2023 at 11:06 AM, GoldFinger1969 said:

Computerization was in its infancy back then.  Still working out the bugs, I guess.

Hey, a few years ago the bond trustee (I think Citibank) accidentally paid OFF a bond with like $500 MM that wasn't supposed to be paid for YEARS.  They tried to claw it back and ran into obstacles (I remember folks asking how this might apply if an ATM gave you $2,000 instead of $200).

It's on the internet, forgot how it resolved itself.

 

...no, thats not what it means, but close nuf for gov't work....

[Henri Charriere]

On 5/19/2023 at 11:06 AM, VKurtB said:

Why are everyone else’s political threads allowed and I get warnings???

It is an application of local custom. Perhaps coincidental, but not personal.

[Henri Charriere]

On 5/19/2023 at 1:09 PM, ldhair said:

And we don't have an alt to come back as.

Actually, you do. If you wish to change your legal name, you take the matter to court. An "alt," as you refer to it, is nothing more than a User Name change which is an administrative matter handled internally. There is a subforum called "Ask NGC/NCS."  I presented my case drawing an analogy to Dr. Samuel Alexander Mudd who set the ankle of Lincoln's assassin, John Wilkes Booth, drawing a term of imprisonment for conspiracy.  The expression, "my/his name is mud[d]" was derived from that historical incident. NGC granted my request.