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What if US defaults?

  • #1
  • First Post: Apr 19, 2011 12:47am Apr 19, 2011 12:47am
If this worst scenario happens, what would we do? It seems like it's inevitably the US could not reduce its large deficit and her huge amount of debt!!
  • #2
  • Apr 19, 2011 1:23am Apr 19, 2011 1:23am
reset the whole economy worldwide
  • #3
  • Apr 19, 2011 1:25am Apr 19, 2011 1:25am
Quoting visser300
If this worst scenario happens, what would we do? It seems like it's inevitably the US could not reduce its large deficit and her huge amount of debt!!
forgive me if im wrong, im not sure about what goes on in the US, but didnt the government introduce a stimulus to try and reduce the dollar? cos during the recession when the dollar lowered in value exports boomed? i assume that must be part of the plan. (i'm not from the US)
  • #4
  • Apr 19, 2011 1:48am Apr 19, 2011 1:48am
Quoting ishii1
forgive me if im wrong, im not sure about what goes on in the US, but didnt the government introduce a stimulus to try and reduce the dollar? cos during the recession when the dollar lowered in value exports boomed? i assume that must be part of the plan. (i'm not from the US)
you are comparing apples with pears.

Large debt being the apples, and the dollar being the pears.

Yes, a low dollar would allow exports to increase.
But a large debt which can't get paid back will make the US default regardless of how high the usd is. Once the lenders are not willing to lend anymore, or once the premiums for US bonds go up, then guess what, the debt burden will be higher and higher until finally nobody thinks that the USA can ever pay that debt back.

Anyways, I hope that they can avoid a default it by increasing exports, since domestically everybody is already on his 4th credit card and can't possibly contribute to consumption anymore. But I seriously doubt it. Cause to whom should they export? To china? Unlikely, since china is producing everything. To europe? Well, there won't be lots of products that europe doesn't produce itself.

Just my belief.
  • #5
  • Apr 19, 2011 1:56am Apr 19, 2011 1:56am
Quoting visser300
If this worst scenario happens, what would we do? It seems like it's inevitably the US could not reduce its large deficit and her huge amount of debt!!
Yes, world economy would be reset with a better model. Always something really bad has to happen before a new (better) model can be established.
  • #6
  • Apr 19, 2011 2:05am Apr 19, 2011 2:05am
Quoting Custos
you are comparing apples with pears.

Large debt being the apples, and the dollar being the pears.

Yes, a low dollar would allow exports to increase.
But a large debt which can't get paid back will make the US default regardless of how high the usd is. Once the lenders are not willing to lend anymore, or once the premiums for US bonds go up, then guess what, the debt burden will be higher and higher until finally nobody thinks that the USA can ever pay that debt back.

Anyways, I hope that they can avoid a default it by increasing exports,...
naturally they will export whatever resource they are high in(could be parts or whatever) and lowering the dollar will make that more attractive, what you are saying is like saying what can NZ offer that other BIGGER countries don't already have.

but i can't argue because i dont know what is going on in the US, but the US companies in australia are leaving because a few cents that australia has over the USD has contributed to an $800m loss
  • #7
  • Apr 19, 2011 2:06am Apr 19, 2011 2:06am
im saying the $800m as what we know thats going on
  • #8
  • Apr 19, 2011 3:45am Apr 19, 2011 3:45am
Quoting ishii1
naturally they will export whatever resource they are high in(could be parts or whatever) and lowering the dollar will make that more attractive, what you are saying is like saying what can NZ offer that other BIGGER countries don't already have.

but i can't argue because i dont know what is going on in the US, but the US companies in australia are leaving because a few cents that australia has over the USD has contributed to an $800m loss
in uncertain times, countries tend to do a lot of protectionism
  • #9
  • Apr 19, 2011 3:57am Apr 19, 2011 3:57am
Quoting Custos
in uncertain times, countries tend to do a lot of protectionism
i think its more of the fact that they are losing than subject to competition over here. in other words not worth it
  • #10
  • Apr 19, 2011 4:09am Apr 19, 2011 4:09am
Quoting visser300
If this worst scenario happens, what would we do? It seems like it's inevitably the US could not reduce its large deficit and her huge amount of debt!!
There is a zero percent chance that the US will default on its debt. Option #1: Print enough $1,000 bills to pay off all or part of the debt. Causes a lot of inflation but who really cares? Option #2: The US Government officially states that the value of gold is $10,000 an ounce. Then, the US transfers a portion of its 8,800 tons of gold reserves to pay off all or part of the debt. Again, there are negatives to doing this, but who really cares? Option #3: Impose a tax on anyone holding US debt, up to a number equal the amount of debt you hold. Just a one time tax, and poof, no more debt. Also, keep in mind that the entire debt does not have to be retired, so if the "problem" can be solved by retiring $3-4 trillion, then the impact of any of the above is somewhat lessened. Too many people equate their debt issues (your mortgage, credit cards, etc) to the government's debt issues. If you had a net worth of $75 trillion dollars, could print money to pay your bills, or tax anyone and everyone to raise money, how would you behave?
  • #11
  • Apr 19, 2011 4:37am Apr 19, 2011 4:37am
Quoting GEfx
There is a zero percent chance that the US will default on its debt. Option #1: Print enough $1,000 bills to pay off all or part of the debt. Causes a lot of inflation but who really cares? Option #2: The US Government officially states that the value of gold is $10,000 an ounce. Then, the US transfers a portion of its 8,800 tons of gold reserves to pay off all or part of the debt. Again, there are negatives to doing this, but who really cares? Option #3: Impose a tax on anyone holding US debt, up to a number equal the amount of debt you hold. Just...
printing the way out of debt will cause a serious hyperinflation. No economy can sustain that and nobody would want to lend to the US anymore. Would you want to lend your money to zimbabwe?
How can the US tax people not living in the USA? Most of the debt is held by chinese. How would you wanna tax them?

And again, if you try to not pay back part of the debt, then the creditors (china and india) will definitely not lend to you (the USA) anymore. And that by itself would make the USA default as well. Cause they are dependent on creating new debt for being able to pay off the old one.

The usd would lose its status as a world reserve currency.

They can't get out of it, except by economic activity and no more debt creation.
  • #12
  • Apr 19, 2011 4:59am Apr 19, 2011 4:59am
Quoting Custos
printing the way out of debt will cause a serious hyperinflation. No economy can sustain that and nobody would want to lend to the US anymore. Would you want to lend your money to zimbabwe?
How can the US tax people not living in the USA? Most of the debt is held by chinese. How would you wanna tax them?

And again, if you try to not pay back part of the debt, then the creditors (china and india) will definitely not lend to you (the USA) anymore. And that by itself would make the USA default as well. Cause they are dependent on creating new...
i was gonna answer the same thing but decided not to.. what he said is similar to what happened to germany after ww1
  • #13
  • Apr 19, 2011 5:02am Apr 19, 2011 5:02am
Quoting Custos
printing the way out of debt will cause a serious hyperinflation. No economy can sustain that and nobody would want to lend to the US anymore. Would you want to lend your money to zimbabwe?
How can the US tax people not living in the USA? Most of the debt is held by chinese. How would you wanna tax them?

And again, if you try to not pay back part of the debt, then the creditors (china and india) will definitely not lend to you (the USA) anymore. And that by itself would make the USA default as well. Cause they are dependent on creating new debt...
Well, like I said, printing money causes inflation but if your choice is dealing with the debt or inflation, at least you have an out. How do you tax the Chinese or Japanese holders of debt? You do not care. You tax whomever presents the debt for payment, simple as that. The point is, once you put a tax on it, it is worth nothing to the holder. As a practical matter, the US could simply tax the interest on debt and pretty much achieve the same thing. As for reserve currency status, who cares? And as for no one lending the US money again, if debt got us into so much trouble, then who cares if we can't add more debt later. One important factor in all of this is that as the biggest military power in the world, its unlikely that someone will invade us to get their money back, like was done 100 years ago by nations trying to collect debts. The chance of default is zero, and as we discuss this topic, the House and Senate are working on getting the situation under control. The point is, this is an issue that will work itself out.
  • #14
  • Apr 19, 2011 5:18am Apr 19, 2011 5:18am
Don't forget that quite a significant proportion of US debt are Treasury inflation-protected securities (TIPS), meaning that deflating debt is not going to be that easy.
The nail that sticks out gets hammered back in
  • #15
  • Apr 19, 2011 5:36am Apr 19, 2011 5:36am
Quoting GEfx
Well, like I said, printing money causes inflation but if your choice is dealing with the debt or inflation, at least you have an out. How do you tax the Chinese or Japanese holders of debt? You do not care. You tax whomever presents the debt for payment, simple as that. The point is, once you put a tax on it, it is worth nothing to the holder. As a practical matter, the US could simply tax the interest on debt and pretty much achieve the same thing. As for reserve currency status, who cares? And as for no one lending the US money again, if debt...
I also think that they will work out something. But if they don't do anything, then default might be on the horizon. Our beliefs are anyways irrelevant, better to just sit and watch what happens.
  • #16
  • Apr 19, 2011 5:53am Apr 19, 2011 5:53am
If the impossible happens and the US defaults, then something very bad will have happened, and we will all be more concerned and focused on that thing than on the US default. Besides, Japan is much closer to default than the US, so let's wait and see what happens to them.
  • #17
  • Apr 19, 2011 6:05am Apr 19, 2011 6:05am
Quoting GEfx
There is a zero percent chance that the US will default on its debt. Option #1: Print enough $1,000 bills to pay off all or part of the debt. Causes a lot of inflation but who really cares? Option #2: The US Government officially states that the value of gold is $10,000 an ounce. Then, the US transfers a portion of its 8,800 tons of gold reserves to pay off all or part of the debt. Again, there are negatives to doing this, but who really cares? Option #3: Impose a tax on anyone holding US debt, up to a number equal the amount of debt you hold. Just...
GE,

I'm not positive on this, need to verify, but I read somewhere that all US gold reserves were now held by the Federal reserve bank. The Federal Reserve Bank is not the US Government.

regards,

a
  • #18
  • Apr 19, 2011 7:13am Apr 19, 2011 7:13am
Quoting auxesis
GE,

I'm not positive on this, need to verify, but I read somewhere that all US gold reserves were now held by the Federal reserve bank. The Federal Reserve Bank is not the US Government.

regards,

a
Hi auxesis,
How you been? Hope you are taking advantage of the markets the last few days. Yea, I am not sure if the gold is in Fort Know or at the Federal Reserve Bank of NY, but if needed, I think the US government can get their hands on it no matter where it is. In fact, they have the ability to deny access to US citizens and to make it illegal for us to hold gold. If it ever got bad enough for that to happen, we would have more pressing things to be worried about, imho. Hope you are well and good trading!
GE
  • #19
  • Apr 19, 2011 7:21am Apr 19, 2011 7:21am
The world is already preparing for the US to default or simply not have the USD as the worlds reserve currency. It's a done deal as far as I can tell.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #20
  • Apr 19, 2011 8:10am Apr 19, 2011 8:10am
shit happens


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