As for prudent budgeting, it's the Democrats, as opposed to the Republicans, who have done far better in this regard in the past 40 years or so.

If you look at the 60+ year record of debt since the end of WWII, starting with Truman’s term, the difference between the two parties’ contributions to our national debt level change considerably. Since 1946, Democratic presidents increased the national debt an average of only 3.2% per year. The Republican presidents stay at an average increase of 9.2% per year. Republican Presidents out borrowed and spent Democratic presidents by a three to one ratio. Putting that in very real terms; for every dollar a Democratic president has raised the national debt in the past 63 years Republican presidents have raised the debt by $2.84.

Taxes? Socialistic programs? Gun laws? Who are you, and what have you done with Mr. Bill?

But some of the brightest minds on this board say the Left don't care about economics. mmmm...

Given that in a typical sovereign default the investor loses 50% to 80% of the value of the investment, the losses suffered are not far short of default. Despite “strong dollar” official policies, a case can be made that the US is in the process of defaulting on its obligations via a systematic devaluation of its currency.

The US financial system has been badly affected by the current credit crisis. Financial institutions have incurred losses in excess of $500 billion. There is a strong likelihood that the losses will increase.

The claims on the government are by no means over. The Federal Deposit Insurance Corporation (“FDIC”) has around $ 45 billion in funds available to meet its obligations. Given the expected increase in bank defaults, it is possible that the FDIC may need added capital and funding from the government. Other GSEs, including the Federal Home Loan Banks, have aggressively increased mortgage lending and may also require re-capitalisation. Non-financial industries, such as the troubled automobile and airline sectors, may also need government support. Congress has already approved a $25 billion low cost loan to the automobile sector.

Additional government borrowings (perhaps up to an additional $2-3 trillion) may be necessary to support to the financial system. This would mean that US government debt would reach a level of around 70% of GDP, a level not seen since 1954, when the US was repaying the costs of World War II. The additional debt may ultimately lead to a review of the USA’s AAA rated sovereign debt rating.

While the rescue boosted financial markets, the long-term impact on the US budget and current-account deficit and ultimately the US dollar is unlikely to be positive.

In February 1988, Thomas Moore, a member of the Presidents’ Council of Economic Advisors recognised this: “We can pay anybody off by running a printing press, frankly… so it is not clear to be how bad [the transition to net debtor status] is.” In other words, the dollar printing presses could be run to service debt. In fairness, Mr. Moore was not advocating this as “sound policy”.

The special status of the US derives, in part, from the fact that the dollar is the world’s major reserve and trade currency. The dollar’s status derives, in part, from the gold standard that once pegged the dollar to the value of gold. The peg and full exchangeability is long gone. The aura of stability and a safe store of value based on the perceived strength of US economy and American military power has continued to support the dollar. In 2003, Saddam Hussein, when captured, had $750,000 with him – all in $100 bills.

Foreign central bankers are forced to purchase US debt with dollars to mitigate upward pressure on their domestic currency. The recycled dollars flow back to the US to finance the spending. This merry-go-round is a significant source of liquidity creation in financial markets. Large, liquid markets in dollars and dollar investments are both a result and facilitator of the process and assist in maintaining the dollar’s status as the world’s primary reserve currency.

The dollar’s dominance may be coming to an end. Recently, Wen Jiabao, the Prime Minister of China identified the need to “diversify” the global currency system. This is a subtle way of suggesting that the dollar’s dominant role as a reserve currency should be reduced.

I have nothing against social programs or subsidies. My only question is how much is it going to cost and who is going to pay? As for gun laws that is just common sense. In Canada they waste millions trying to register hunting rifles and shotguns, while for the most part handguns are in any case out of reach for the average person who does not belong to a gun club. Whereas in the USA the NRA opposes any sort of limitations on what someone can carry. Violent crime in Canada has risen as some of those guns have made their way into Canada. Sorry, but as a Canadian I believe more in law and order than in personal rights to bear arms.

Your government depends upon guns to collect taxes for your socialist programs. It's inconsistent to be for socialist programs and "against" guns at once. Tax collection is violent crime.

Your government depends upon guns to collect taxes for your socialist programs. It's inconsistent to be for socialist programs and "against" guns at once. Tax collection is violent crime.

Boy, you so don't get Canada. We are nothing like the Excited States of America and probably won't ever be. The idea of everyone being armed is so at odds with the circumspect, quiet and polite bunch up here.
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How do you get 100 Canadians out of the pool?
Just say, "Would you Canadians please get out of the pool?"

We all know the US is a technically bankrupt nation. What will happen when it becomes officially bankrupt? Can The US economy claim Chapter 12?

No creditor of the United States Federal Government will ever receive less than the face value of his or her bond upon maturity.

I would be willing to stake everything I own to this claim.

Default is the failure to honour contractual obligations; in the case of debt, non-payment of interest or principal payments due to the lender. The financial impact of default is the loss suffered by the lender.
Lenders to the United States (“US”) government have already suffered significant losses. The losses have not been from non-payment but because repayments have been in a constantly debased currency – the dollar.
Assume a Japanese investor bought 30 year US Treasury bond in 1985 when the $/ yen exchange rate was $1 = Yen 250. Based on an exchange rate of $1 = Yen 105, the investor has lost 58% of the investment. The investor can take comfort that at the low of $1=Yen 84, the investor would have lost 66%. European investors who bought US government bonds in recent years would have also suffered significant losses. Based on the highest $/ Euro exchange rate (Euro1 = $ 0.85) and recent trading levels (Euro1 = $ 1.56), the investor would have lost (up to) 46%.
Given that in a typical sovereign default the investor loses 50% to 80% of the value of the investment, the losses suffered are not far short of default. Despite “strong dollar” official policies, a case can be made that the US is in the process of defaulting on its obligations via a systematic devaluation of its currency.

US problems are evident from other indicators. The US national debt as of March 2008 stands at $9.4 trillion. This equates to over $30,000 per person in the US population or a little over $60,000 per head of the US working population. The US national debt has grown by $3 trillion (50%) since 2000, when it was $6 trillion. In 2007 alone, it grew by $500 billion, from $8.7 to $9.2 trillion. In 2005, it was 67% of US GDP, up from 51% in 1988. Prior to the current crisis, the Office of Management and Budget projects that total debt will rise to $12.3 trillion in 2013.
Of the $4.7 trillion in private hands, $2.4 trillion (51%) is held by foreign investors. Japan holds around $600 billion (24%) and China holds $500 billion (around 20%). U.K., Brazil and the oil exporting countries own about 6%. Middle East and Russian holdings may be higher as Belgium, Caribbean Banking Centers and Luxembourg (8%) may be vehicles for investments by oil-exporting countries wishing to avoid disclosure. As James Fallow writing in The Atlantic noted: “every person in the (rich) United States has over the past 10 years or so borrowed about $4,000 from someone in the (poor) People’s Republic of China.”

The debt figures do not include significant private sector debt (both corporate and consumer). It does not include “hidden” liabilities - unfunded public (Social Security) and private pension arrangements or unfunded medical and health obligations (Medicare and Medicaid).

In June 2008, Peter Orszag, Congressional Budget Office Director, did not mince words when testifying before the Senate Finance Committee: “…the US economy faces the long-term threat of ‘collapse’ unless major reforms on health care spending are instituted in the coming years.” The federal budget, according to Orszag, is on an “unsustainable path” with health care costs growing much faster than the overall economy. Unless health care spending is brought under control, Orszag noted that the American economy faces crippling problems that “would make our current economic difficulties look tiny”. In July 2008, Richard Fisher, head of the Dallas Federal Reserve Bank, speaking in a private rather than official capacity noted that “the unfunded liabilities from Medicare and Social Security...comes to $99.2 trillion over the infinite horizon”. This equates to $1.3 million per family of four - over 25 times the average household's income.
The debt figures also do not include “off-balance sheet” liabilities - the approximately $6 trillion plus in debt and guarantees of the government sponsored enterprises (“GSE”) - Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation). This is supported by modest levels of capital (about $81 billion). In mid 2008 these obligations became de facto part of US national debt with astonishing speed.

Ultimately, the US may be forced to finance itself in foreign currency. This would expose the US to currency risk but most importantly it would not be able to service its debt by printing money. The US, like all borrowers, would become subject to the discipline of creditors
Walter Wriston, then chairman of Citigroup, opined that: “Countries don't go broke”. In 1982, shortly after this statement, Mexico, Brazil and Argentina defaulted inflicting near mortal losses on Citibank.

“Governments tend to default specifically when they must increase spending quickly (for instance, to prosecute a war), experience a sudden shortfall in revenues (because of a severe economic contraction), or face an abrupt curtailment of access to bond and loan financing (e.g. because of political instability). He further observed that: “governments with large exposures to currency mismatches and interest rate or maturity risks are, of course, particularly vulnerable.”

In short: the crisis Obama faces, whether Biden and Powell are proven correct in that it arises from an outside source, is one of a country on the verge of insolvency- bankruptcy - default, call it whatever you like. And the treatment is going to be either another war, or an extremely painful period of adjustment, not just economic and monetary, but psychological

That the US is Insolvent, while difficult to grasp for the population at large is I think within the grasp of most Peak Oilers.

The debts of the Nation-States are tied into the SAME system as the Corporate Debts, the Hedge Fund and the CDS contracts they ALL hold.

In the twentieth century, the US and the dollar overtook Great Britain and the Pound Sterling as the pre-eminent global economic power and currency. A similar epochal tectonic shift in the global economic order may be commencing.

The shift is not inevitable. There is much to admire about the US. It remains wealthier than other nations including the new titans - China and India. America remains a science and technology powerhouse. It accounts for 40% of total world spending on research and
development, and outperforms Europe and Japan. For example, between 1993-2003 America’s growth rate in patents averaged 6.6% a year compared with 5.1% for the European Union and 4.1% for Japan. America’s economy with its growing population, secure legal and property rights and well-developed financial markets has been attractive to investors.

However as Warren Buffett in his 2006 annual letter to shareholders observed: “Foreigners now earn more on their US investments than we do on our investments abroad ... In effect, we’ve used up our bank account and turned to our credit card. And, like everyone who gets in hock, the US will now experience ‘reverse compounding’ as we pay ever-increasing amounts of interest on interest. .... no matter how rich you are, borrowing on top of borrowing is not a great long-term financial plan. I believe that at some point in the future, US workers and voters will find this annual 'tribute' (of interest payment on the debt) so onerous that there will be a severe political backlash ... How that will play out in markets is impossible to predict – but to expect a
'soft landing' seems like wishful thinking.”

The Economist magazine wrote that: “...public credit depends on public confidence...The financial crisis in America is really a moral crisis, caused by the series of proofs ...that the leading financiers who control banks, trust companies and industrial corporations are often imprudent, and not seldom dishonest. They have mismanaged...funds and used them freely for speculative purposes. Hence the alarm of depositors and a general collapse of credit...” The words appeared over 100 years agoon 2 November 1907 during the 1907 crash.

The US faces a challenge to reestablish its economic credentials. Without drastic and radical action, America’s ability to continue to borrow from foreign investors to meet its financing requirement is likely to become increasingly difficult.