From Minyanville

Debt Repudiation



"Hear me, people: We have now to deal with another race – small and feeble when our fathers first met them, but now great and overbearing. Strangely enough they have a mind to till the soil and the love of possession is a disease with them. These people have made many rules that the rich may break but the poor may not. They take their tithes from the poor and weak to support the rich and those who rule."
- Chief Sitting Bull, speaking on Capitol Hill following passage of the Bank Bailout Bill earlier this month

Actually, that little gem was delivered at the Powder River Conference in 1877. But it could have been delivered last week. Which is to say, some things - like The Rich living by different rules - never change. But so what? Well, for starters, one unintended consequence of the repudiation of debt could be a rejection of terms by the debtor class.

As the government inevitably attempts to nationalize more industries and bailout more companies, there is an increasing chance that the societal angst that follows could trigger a consumer debt revolt.

For example, take Capital One (COF), which today was among a handful of banks that "accepted" a $31 billion "capital infusion" from the federal government. At a point, you have to wonder how much more consumers take before they wake up and say, "Wait a minute, I have a Capital One credit card. So they're charging me a pretty high interest rate on my revolving debt while simultaneously using my tax dollars to support themselves?"

Where will it end? The incentive being inadvertently created by the federal government here is for consumers to begin to demand their bailout money too... and I don't mean a check in the mail for $600. At a point, people may simply decide to stop paying their revolving debt.

Government interventions will always have unintended consequences.