»The Daily Reckoning by Bill Borner

Debt is Debt. It needs to be paid off or written off
6 OCTOBER 2011

Paris, France

Japan...wither thou goest...

The US and other developed countries continue to follow Japan.

The Dow rose 131 points yesterday. The 10-year note fell, to yield 1.9%.

Gold rose $25.

What to make of it?

Some reports tell us that Europe is getting close to a deal that will save Greece and other 'Olive Country' debtors. Maybe, but IMF chief Christine Lagarde says they have a $3 trillion hole to fill. That's probably the one and only thing she is right about. The size of the problem is big...bigger than anyone realized.

Some of the biggest banks, for example, have tried to buy time by under-estimating the size of their losses. Societe Generale has written off 21% of its Greek debt. But Mr. Market says its down more than 50%. And what about the rest of them? Spain, Italy, Portugal...they've got big losses too.

"You can't trust Greeks," said a friend last night. "That's just the way they operate. It's probably some Mediterranean genetic code. The Southern Italians are just as bad. It's crazy to think that they can operate with the same currency and the same interest rates as the Dutch and the Germans."

"Well, I'm not so sure..." we replied. "People from California and New York share the same currency."

"Yeah...and you can't trust either one of them either."

"And what about Ireland? They don't even have olive trees. But they're probably in as deep a hole as anyone."

"Yeah...but you can trust the Irish. They're not crooks. They're just stupid.

"I don't know...but this whole mess is going to explode. People owe too much money. You can talk about bailing them out, but that doesn't make the debt go away. It just moves it around. And even if the Germans could and would pick up the whole tab, so what? It's still got to be paid or written off.

"I don't know what they can do...except what Japan has done. The Japanese savers lent money to the government so it could keep spending and keep the economy going."

Our friend was making a good point. Debt doesn't go away. Even if you succeed in managing it, you still have to take the debt and subtract it from someone's balance sheet. Excess debt is a like a hand-grenade after you've pulled the pin. You can pass it around the table. But, it's going to explode anyway.

In theory, it doesn't matter who has the debt. Debt is debt. It is a claim on wealth. Current wealth or future earnings. When growth rates decline, debt gets heavier. Growth would make the debt seem lighter and smaller. Without growth, debt must be subtracted from current wealth...not future wealth. That's what a write down or default is all about. The debtor admits he cannot pay. The creditor admits that his has been a fool..

Many economists have the wrong idea about debt. For every debit there is a credit, they say. Don't worry about it.

But what about when the credit goes bad? The lender lent money. The debtor used the money to buy resources...and use them up. Then, the debtor has no more resources...the debt can't be paid...and the creditor realizes that he should have held onto his money. The credit disappears...the debt disappears...the resources have long since disappeared...and the lender blows his brains out. He's broke and disgraced.

Well, he would be taking this thing far too seriously. But sometimes people get more worked up about money than they should. C'mon...it's just a game! It's supposed to be fun...

Besides, the Japanese have been playing the game for two decades. Instead of forcing borrowers to admit they couldn't pay, the Japanese feds lent everybody money...and spent a lot of money themselves. This kept the economy turning over.

Our Daily Reckoning best guess is that that is what Europe and America will do too... They will go where the Japanese went.

But wait...what happened to all that money that Japanese savers lent to the government? How will they get it back? Doesn't the Japanese government get stuck holding the hand-grenade...and won't those poor mom and pop savers have to admit that they were fools?

Yes...of course. But we'll worry about that later...

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*** What a delight it is to have an empire!

Do the Swiss get to send out drones to kill people they don't know in countries they've never been? No! The poor yodelers go around with long faces and visit their shrinks. Americans have troops in 170 countries. Where are the Swiss? Only in Switzerland and the Vatican. Alas, they will never know the joys of nation building and people murdering.

We hear that Ron Paul was booed in the Republican presidential debates. Why? He suggested that we get out of the empire business, bring the troops home and become a civilized nation again. What a party pooper... a wet blanket...a killjoy!

An empire is so much more entertaining. We already have three wars going on...at last count...and quasi-wars in several other places.

Having an empire is like having a football team that plays for mortal stakes. It's fun to watch...at least when your team is winning. And now, Team USA is kicking butts all over the planet. That's why at football games, for example, (or so we've heard) images of the football team are sometimes mixed with images of US combat troops. The flag flies. The lumpen salute. They don't want to think about it; they just want the homeland team to win!

And we have so much to look forward to. At least, we moral historians and ironic economists do. Gone is habeus corpus...forgotten is the presumption of innocence...into the wastebasket has been thrown the spirit of liberty. All that guff is in the past. In their place are hit squads and precision guided assassins. Now, the killer drones are only used abroad. But as the empire matures it is only a matter of time before they are used on more dangerous enemies - those at home! Yes, dear reader, if you can kill US citizens overseas, without any charges filed, let alone proved, you can certainly kill them where they might do the most damage -- in the homeland. It is just a matter of time before the drones fly in Los Angeles and Baltimore, so watch out, Ron Paul.

You want to know what lies ahead? Just read the classics...particularly the history of Rome. Empires have roles to play too. They have scripts to follow. They have plots they must respect...and destinies they must fulfill.

For example, in the US, it is probably only a matter of time before a weak president is replaced by a strong emperor. A senate may be able to rule a constitutional democracy, but a real empire needs a real emperor, someone who can make decisions without getting caught in the gridlock of Congress. Besides, the public will love it. Yes, a popular general is sure to cross the Potomac sooner or later...from the Pentagon to the White house. The crowds will cheer. Garlands will be hung. Flowers will be strewn in his path. Finally, someone will bring order to the US...slay its enemies and reward its friends with war booty (military contracts).

And then, of course, there will be civil war. Once a government can be taken by force, rather than the fraud that is customary in democracy, force will be used to compete for it. Perhaps the Democrats will have their military men...the Republicans will have their own forces. They will fight it out for control of the empire.

And then, to stop the killing and the destruction, the army will get together and decide to put its own man in the top position. Inevitably, this will lead to more struggles for power...

...and much comedy. The military forces will choose even bigger morons than the voters. They will come and go quickly...with two, three...maybe a dozen new leaders in a single year. Some will be dangerously incompetent. Others will be dangerously able. Some with be lunatics.

How long will it before an American Caligula appears? Will he force the senators' wives to become prostitutes? Will he proclaim himself a god? Will he be murdered by his own guards and companions? We hope so.

Of course, it won't the America we knew. Or even the one we want. But it should be a treasure trove for future historians and stand-up comedians.

Below, a former Assistant Secretary of the Treasury, from the Reagan administration, pinpoints the moment when America, as we knew it, died:

The Day America Died

- by Paul Craig Roberts

September 30, 2011 was the day America was assassinated.

Many expected President Obama to re-establish the accountability of government to law. Instead, he went further than Bush/Cheney and asserted the unconstitutional power not only to hold American citizens indefinitely in prison without bringing charges, but also to take their lives without convicting them in a court of law. Obama asserts that the US Constitution notwithstanding, he has the authority to assassinate US citizens, who he deems to be a "threat," without due process of law.

In other words, any American citizen who is moved into the threat category has no rights and can be executed without trial or evidence. On September 30 Obama used this asserted new power of the president and had two American citizens, Anwar Awlaki and Samir Khan murdered. Khan was a wacky character associated with Inspire Magazine and does not readily come to mind as a serious threat.

Awlaki was a moderate American Muslim cleric who served as an advisor to the US government after 9/11 on ways to counter Muslim extremism. Awlaki was gradually radicalized by Washington's use of lies to justify military attacks on Muslim countries. He became a critic of the US government and told Muslims that they did not have to passively accept American aggression and had the right to resist and to fight back. As a result Awlaki was demonized and became a threat.

All we know that Awlaki did was to give sermons critical of Washington's indiscriminate assaults on Muslim peoples. Washington's argument is that his sermons might have had an influence on some who are accused of attempting terrorist acts, thus making Awlaki responsible for the attempts.

Obama's assertion that Awlaki was some kind of high-level Al Qaeda operative is merely an assertion. Jason Ditz concluded that the reason Awlaki was murdered rather than brought to trial is that the US government had no real evidence that Awlaki was an Al Qaeda operative. Having murdered its critic, the Obama Regime is working hard to posthumously promote Awlaki to a leadership position in Al Qaeda. The presstitutes and the worshippers of America's First Black President have fallen in line and regurgitated the assertions that Awlaki was a high-level dangerous Al Qaeda terrorist. If Al Qaeda sees value in Awlaki as a martyr, the organization will give credence to these claims. However, so far no one has provided any evidence. Keep in mind that all we know about Awlaki is what Washington claims and that the US has been at war for a decade based on false claims.

But what Awlaki did or might have done is beside the point. The US Constitution requires that even the worst murderer cannot be punished until he is convicted in a court of law. When the American Civil Liberties Union challenged in federal court Obama's assertion that he had the power to order assassinations of American citizens, the Obama Justice (sic) Department argued that Obama's decision to have Americans murdered was an executive power beyond the reach of the judiciary.

In a decision that sealed America's fate, federal district court judge John Bates ignored the Constitution's requirement that no person shall be deprived of life without due process of law and dismissed the case, saying that it was up to Congress to decide. Obama acted before an appeal could be heard, thus using Judge Bates' acquiescence to establish the power and advance the transformation of the president into a Caesar that began under George W. Bush.

Attorneys Glenn Greenwald and Jonathan Turley point out that Awlaki's assassination terminated the Constitution's restraint on the power of government. Now the US government not only can seize a US citizen and confine him in prison for the rest of his life without ever presenting evidence and obtaining a conviction, but also can have him shot down in the street or blown up by a drone.

Before some readers write to declare that Awlaki's murder is no big deal because the US government has always had people murdered, keep in mind that CIA assassinations were of foreign opponents and were not publicly proclaimed events, much less a claim by the president to be above the law. Indeed, such assassinations were denied, not claimed as legitimate actions of the President of the United States.

The Ohio National Guardsmen who shot Kent State students as they protested the US invasion of Cambodia in 1970 made no claim to be carrying out an executive branch decision. Eight of the guardsmen were indicted by a grand jury. The guardsmen entered a self-defense plea. Most Americans were angry at war protestors and blamed the students. The judiciary got the message, and the criminal case was eventually dismissed. The civil case (wrongful death and injury) was settled for $675,000 and a statement of regret by the defendants.

The point isn't that the government killed people. The point is that never prior to President Obama has a President asserted the power to murder citizens.

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