USA - Ron Paul: "We Will Default Because The Debt Is Unsustainable" (US When a country is indebted t

[mrcritic]

When a country is indebted to the degree that were indebted, the country always defaults. We will default because the debt is unsustainable," Rep. Ron Paul (R-TX) said on the House floor today.

"If we dont understand this, this default will not be because we don't send out the checks. We will send out the checks. It will be defaulted on because people will get their money back, or they will get their Social Security checks and it won't buy anything."

In strict terms, the default being discussed will occur if the U.S. fails to meet its debt obligations, through failure to pay either interest or principal due a bondholder. Proponents of raising the debt ceiling claim that a default on Aug. 2 is unprecedented and will result in calamity (never mind that this is simply an arbitrary date, easily changed, marking a congressional recess). My expectations of such a scenario are more sanguine.
The U.S. government defaulted at least three times on its obligations during the 20th century.
-- In 1934, the government banned ownership of gold and eliminated the right to exchange gold certificates for gold coins. It then immediately revalued gold from $20.67 per troy ounce to $35, thus devaluing the dollar holdings of all Americans by 40 percent.
-- From 1934 to 1968, the federal government continued to issue and redeem silver certificates, notes that circulated as legal tender that could be redeemed for silver coins or silver bars. In 1968, Congress unilaterally reneged on this obligation, too.
-- From 1934 to 1971, foreign governments were permitted by the U.S. government to exchange their dollars for gold through the gold window. In 1971, President Richard Nixon severed this final link between the dollar and gold by closing the gold window, thus in effect defaulting once again on a debt obligation of the U.S. government.

Default will be painful, but it is all but inevitable for a country as heavily indebted as the U.S. Just as pumping money into the system to combat a recession only ensures an unsustainable economic boom and a future recession worse than the first, so too does continuously raising the debt ceiling only forestall the day of reckoning and ensure that, when it comes, it will be cataclysmic.

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[ealtaf]

US Regulators Close Down 3 more Banks

Sat Jul 23, 2011 7:51AM GMT

The logo of the United States Federal Deposit Insurance Corp (FDIC)

US regulators have shut down three more banks in the states of Florida and Colorado, bringing the total number of bank foreclosures in the country this year to 58.


On Friday, the Federal Deposit Insurance Corp (FDIC) seized Southshore Community Bank in Apollo Beach, Florida, with USD 46.3 million in assets and USD 45.3 million in deposits, LandMark Bank in Sarasota, Florida with USD 275.0 million in assets and USD 246.7 million in deposits, and Bank of Choice in Greeley, Colorado, with USD 1.07 billion in assets and USD 924.9 million in deposits, AFP reported Saturday.

American Momentum Bank, based in Tampa Bay, Florida, agreed to assume all the deposits and assets of both Florida banks, while Bank Midwest, National Association, of Kansas City, Missouri, is assuming all deposits and assets of Bank of Choice.

This year's bank failures illustrate the problems facing small community banks, many of which are hard hit by the sluggish US economy and their exposure to the troubled commercial real estate market.

Most of the banks that have failed so far this year have had less than USD 1 billion in assets.

According to the FDIC, the total number of bank failures in 2010 was 157, 140 in 2009, 25 in 2008 and just 3 in 2007.