Wednesday, July 13, 2011

A Run on the United States Government

A run is a mass withdrawal of cash funds from a borrower. We are in the midst of a continuing worldwide credit crisis, punctuated by "runs" of varying prominence and publicity.
These runs are rational, not panics and not due to quirks of psychology. They occur when investors realize that their funds are endangered in an institution. They try to get them out before they lose them.
The danger comes when the institution no longer is getting cash inflows in sufficient amounts to pay off all its obligations. In businesses, this comes about through sour investments. In governments, it comes about through wasteful spending that fails to be recovered in tax revenues.
The U.S. government has no credibility in terms of restoring America. The government is living off its past reputation, like a once great entertainer grown tired and going through the motions.
Under these conditions, trust in the dollar and all the other fiat currencies that are linked to the dollar will continue downwards.
Unless there is a change in these conditions, someday there will be a run on the United States government. I see nothing that suggests a change in these conditions.