Lehman Brothers, Round II

Default or No Default, We're in a Crisis 23x Worse than Lehman

Written by Brittany Stepniak
Posted October 10, 2013

As Obama and Boehner carry on like old high school rivals, the rest of the nation has grown weary of this dog and pony show...

With the threat of default looming and no compromise in sight, the American public is anxiously awaiting actual news, not just a confirmation of the lingering stalemate that has been going on for the better part of two weeks now.

The U.S. government has made a fool of itself, and it's going to take a miracle (or perhaps personal responsibility and/or maturity on the part of our leaders, which seems like a lofty requirement these days) to get out of this pickle — before the government runs out of money in seven days.

Talk is Cheap

The Wall Street Journal recently ran a piece in which William Galston draws on a lesson learned during the Cuban missile crisis: Stand down before it's too late. Otherwise, Galston says, this gridlock will reign — and the U.S. government will run out of money on October 17.

Meanwhile, both parties are sitting back and collecting paychecks as they gear up for day ten of finger-pointing.

Although Boehner has allegedly assured fellow Republicans that he will not let the U.S. default on its debt for the first time in history, a deal has yet to be made.

Until an official plan is in place, the potential for default is still on the table.

Even if we don't default, this playground spat has already drawn quite a bit of unflattering global attention... Uncle Sam's reputation and credibility are on the line, regardless of whether a concise debt ceiling plan is formulated by October 17 or not.

The shutdown has been seen from all views of the world stage, and no one's quite sure just how badly this has already damaged our credibility. Surely, it will only continue to chip away at what we have left.

Default or no default, we've still got a big fat crisis on our hands — one that could have serious ramifications for the entire global economy.

It's Hurting Emerging Markets

The United States' power and influence in the global market comes with great responsibility. Failing to maintain this responsibility will be met with consequences.

As Charles Murray put it, responsibility is that part of a free society that can be "harsh, Darwinian, unforgiving of human frailty."

And "everybody, sooner or later, sits down to a banquet of consequences," according to Robert Louis Stevenson.

Right now, the U.S. government is playing the blame game in an attempt to skirt the whole responsibility thing.

No one wants to go down in history for being responsible for our nation's first period of default... but nobody is taking the initiative to avoid it, either.

Our political leaders must put aside their delusional, narcissistic tendencies, or else they're going to destroy the very system they all claim they're trying to salvage.

Unless they start considering the big-picture consequences of their self-serving actions, emerging economies like Brazil, India, and Russia are also going to be up a creek without a paddle.

Beijing has come forward, urging he U.S. to do what it can to avoid the pending default. China holds nearly $1.3 trillion in U.S. Treasury debt.

And the Treasuries aren't even the biggest concern; if this default does come to fruition, major economies like China are more concerned about the negative impact on their products and exports. Other export-dependent Asian countries like Japan, Taiwan, and Korea (all of whom also hold Treasuries) would also experience hardship in the midst of a U.S. default.

The issue, of course, is much more complex than these creditors "not getting paid on time." It's the fact that the calamity associated with a U.S. default will have a damaging ripple effect throughout the entire global economy.

Our tentacles are everywhere.


Lehman Brothers, Round II

Because we are such a key player in the global economy, this ripple effect would mimic the chain of events that occurred in the aftermath of the Lehman Brothers' collapse...

Yes, dear reader, it seems as though we've circled right back to where we started.

**Newsflash: We're still in a crisis. With a default inacted, this one will be 23 times worse, because our debt is 23 times higher than it was in September 2008!**

This time, interest rates will skyrocket to historic levels. The dollar will consequently plummet.

If the U.S. stops paying its bills on time, creditors will jack up interest rates and inflation will skyrocket across the board as a result.

These super-spikes will have extremely adverse effects on American families trying to put food on their tables and gas in their cars... and as a result, both the U.S. government and its people would no longer be able to pay their bills on time.

Investor Reaction

Surprisingly, gold prices have remained flat in lieu of these threats.

Then again, this makes sense, since most Americans can't even fathom an actual default. Indeed it'd be ludicrous if we actually do default. I'd be lying if I said I think we will.

The bigger concern here is the fact that our politicians are turning our government into a mockery, and even if we are able to pay our bills on time, that colossal debt will still be there to haunt us for decades.

If we do default, I think the anticipated investor reaction is obvious: Central banks and individuals alike would immediately flood the gold and silver markets. Gold would stand a real chance of regaining its position as the reserve currency. Long-term gold bugs would relish in it, finally reaping the rewards for their patience in holding in lieu of current sluggishness.

Cut the Crap, Reduce the Waste

No matter what happens, everyone needs to buck up and buckle down.

It's time for our nation's leaders to actually lead the country in a positive direction, instead of acting like this situation is akin to an elementary squabble.

We must limit spending and cut out exorbitant luxuries granted to those in cushy government jobs.

And we must crack down on big bank fraud and corruption at large.

These things are costing us more than those pretty pennies we're borrowing from China...

They've already cost us our reputation as the greatest nation in the world. If we want that title back, we're going to have to earn it — without cutting corners.

To become what we once were, our national character must refocus its vision of "life, liberty, and the pursuit of happiness" via individual responsibility, hard work, and an understanding of the big picture consequences of every single action.

Default or no default, we've got a lot of shaping up to do to prevent impending doom.

Farewell for now,

Brittany Stepniak Signature

Brittany Stepniak


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