Should the U.S. Declare Bankruptcy and Default on the National Debt?

[theeedude]

If you had 100K in debt and a machine that could print real money, would you go bankrupt?
When you borrow in the same currency whose printing you control, you don't need to default, ever. Now, why someone would lend you money under this scenario is a different question, but that's one for Chines and Japanese to ponder, we got our own problems to deal with

 

[Zebo]

Nations can't declare bankruptcy without a revolution or being conquered. The power structure relies on servicing of the debt. The government employees and about 200 million Americans rely on debt being serviced. What will really happen is printing and hyperinflation. Grandma will still get a check but it won't be worth shit. This is how you solve the debt problem everyone gets hurt except asset holders, producers and fixed debt holders.

 

[Acanthus]

A nations ability to flourish depends entirely on its ability to service and enforce financial contracts.

This is the absolute basis of macroeconomic theory.

A default of even a state would be monstrously bad for the US.

 

[First]

There's not a world of a difference between the two.

In reality there is.

 

[dmcowen674]

Should the U.S. Declare Bankruptcy and Default on the National Debt?

Why

Republicans will get back in control, cut taxes for the wealthy and everything will be perfect again, right?

 

[nick1985]

Why? We borrowed in our own currency, we can always just print more to repay it. Inflation is better than a US default.

Wait, you are joking right?

 

[theeedude]

Wait, you are joking right?

And default is better how exactly? Do you realize how much of the modern economic system is based on the axiom that US debt is risk free? Remove that, and the world economy will collapse.

 

[woolfe9999]

Besides, even if we did wipe out the entire debt, the government would just see it as clearing off a 13 trillion dollar credit card, and go on the largest spending spree the world has ever seen.

Er, except for the fact that the government would have no credit worthiness to borrow a dime from a child's piggy bank anymore. They'd have to operate within the tax revenues. Come to think of it, the U.S. government losing its creditworthiness would be a good thing, except for all the other horribly negative consequences of a BK.

- wolf

 

[piasabird]

Your thoughts about the USA defaulting on Debt would have some serous repurcussions. After we did that all of our assets overseas would probably be frozen. We also could not borrown any more money from other countries like China and Japan. In other words we would be an island unto ourselves. We would be forced to live within our means. The government would not be able to sell US Bonds or treasury notes overseas because our credit rating would be nill.

 

[sandorski]

The consequences of such an action would make the Great Depression look like an Economic Boom. The only possible way for this to be done is if all Nations agreed to forgive all International Debt. Even then there could be dire consequences.

 

[Argo]

So what would happen if tomorrow the government said, F you, were not paying our debts, come and get it.

Worldwide panic?
Dollar collapse?
Lending grinds to a halt?

I'd imagine that:

* Dollar collapses, nobody would want to exchange with dollar
* US sees the worst inflation ever, like a simple shirt made in china would costs 100s of thousands of dollars
* We can no longer purchase oil - the life blood of our economy and are forced to invade middle east
* World war III breaks out

 

[MJinZ]

Now that we have passed the $13 trillion mark, I am wondering whether our nation will eventually declare bankruptcy and default on the national debt.

A huge amount of today's twenty- and thirty-somethings are unemployed or underemployed and will probably never be able to contribute much tax revenue to help pay it off, especially if the nation's economy worsens or remains the way it is now.

Will today's 5 year olds want to pay for it thirty years from now? Is it conceivable that once they acquire political power they will throw their hands up and shout, "We didn't incur this debt! It's not ours! Why should we have to pay for all of this?" and then declare that the national debt is null and void as far as they're concerned?

Declaring bankruptcy would be akin to attempting to shed itself of all unsecured debts (all the bonds the US sells to other countries).

That's basically saying - OK, at this point, we decided not to pay you back. Sorry.

Also known as war.

 

[soccerballtux]

Nations can't declare bankruptcy without a revolution or being conquered. The power structure relies on servicing of the debt. The government employees and about 200 million Americans rely on debt being serviced. What will really happen is printing and hyperinflation. Grandma will still get a check but it won't be worth shit. This is how you solve the debt problem everyone gets hurt except asset holders, producers and fixed debt holders.

so supposedly the rent cost was something absurdly low....during Germany's weimar inflation problems.
If that were to happen again then perhaps the same would happen again and the renters wouldn't really be shut out.

 

[halik]

New low for P&N

Ask argentina how well that worked out for them.

 

[soccerballtux]

Declaring bankruptcy would be akin to attempting to shed itself of all unsecured debts (all the bonds the US sells to other countries).

That's basically saying - OK, at this point, we decided not to pay you back. Sorry.

Also known as war.

and this is why the liberals' policies just don't work out. They want to run insane deficits to pay for their unsustainable (read: California) entitlement programs, and then cut national defense while they're at it. Absolutely blind, foolish policy.

 

[soccerballtux]

I'd imagine that:

* Dollar collapses, nobody would want to exchange with dollar
* US sees the worst inflation ever, like a simple shirt made in china would costs 100s of thousands of dollars
* We can no longer purchase oil - the life blood of our economy and are forced to invade middle east
* World war III breaks out

or we could oh, you know, use any of the hundreds of billions of barrels we have sitting in Alaska and (Colorado, supposedly).

Oil is the lifeblood of everybody.

The middle east would take whatever it is we can produce in return for it-- because their economies and states are just as dependent on methods of paying their citizens as we are on the oil.

 

[Argo]

The middle east would take whatever it is we can produce in return for it--

Which is what?

 

[GuitarDaddy]

Yes Obama should call that bancruptcy lawyer on late night TV then take some of those trinkets laying around the whitehouse to the pawnshop. Run by fort knox and scoop up all the gold, fly it to switzerland on AF1 and open a "wink,wink" special bank account the the American taxpayers don't know about. :awe:

We must remember that the US's biggest creditor that would get shafted in a "national bancruptcy" is the US taxpaying citizens. Kind of like the stock and bond holders for GM

 

[soccerballtux]

Which is what?

food.
Vehicles. We could start manufacturing a lot lot more on the drop of a dime if needed--
This is why it's so important that our tax code and legal structure be continually conducive and encouraging to small businesses-- because a giant corporation isn't going to be able to reorient itself on a whim to take advantage of the latest foreign trade arbitrage. But somebody on the fringe who is in connection with overseas partners anyways could see an opportunity and pounce...if he can get an LLC running easily enough, that is...

China would trade with us for anything as well just to keep their citizens employed. Unemployed chinese = massive riots and they WANT to stay in power and _will_ do whatever it takes to keep their overlord positions.

China, Japan, and Germany are all pushing the world's largest economies towards even stronger export-based business.
Someone has to buy those exports.
That someone will be us, and they will just reinvest it back into treasuries.

We're very, very lucky that this storm is occurring the way it is as all these baby boomers start retiring in the middle of what will be our endless recession. This way it'll just be one long slow ride down-- for all of us. I don't see anything drastic occurring. Nobody wants drastic. Drastic makes trade (making a quick buck) difficult and everybody knows we would still win if there were a war-- and nobody wants a war (because you can't trade during a war).

 

[Darwin333]

Which is what?

food

 

[heyheybooboo]

Thread: Should the U.S. Declare Bankruptcy and Default on the National Debt?

LOL

Debt held by the 'Public' is around $8.753t, or around 59% of GDP (and includes around $1.5t+ for the Fed Reserve, TARP, student & GSE securities, etc.).

Net interest paid on the debt for FY2010 will be around $188b.
(Granted, this number will almost triple in the coming years, but the national GDP will also increase to the $18-$19t range by 2015.)

It's not much solace but the net interest paid as a percentage of GDP will still be less than that achieved during the 'Raygun Revolution'.





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[MotF Bane]

Er, except for the fact that the government would have no credit worthiness to borrow a dime from a child's piggy bank anymore. They'd have to operate within the tax revenues. Come to think of it, the U.S. government losing its creditworthiness would be a good thing, except for all the other horribly negative consequences of a BK.

- wolf

Good point.

 

[lothar]

Why? We borrowed in our own currency, we can always just print more to repay it. Inflation is better than a US default.

How's that working for you well in Zimbabwe?
Just print a $1 million US currency bill and call it a day.

 

[lothar]

If you had 100K in debt and a machine that could print real money, would you go bankrupt?
When you borrow in the same currency whose printing you control, you don't need to default, ever. Now, why someone would lend you money under this scenario is a different question, but that's one for Chines and Japanese to ponder, we got our own problems to deal with

Countries that print money to hell: Zimbabwe.
Countries that defaulted on debt: Brazil, Russia, and Argentina.

Where would you rather live?

Where the pic of that Zimbabwe citizen with millions of Zimbabwe dollars in a wheelbarrow when I need it?
Where's the pic of that kid holding thousands of Zimbabwe dollars in his arms to buy a loaf of bread?

 

[zephyrprime]

Your situation isn't nearly that dire. That said, if you did...

Economics focus: Default settings

During 2001, Argentinian government debt to gdp was 62%. Us debt to gdp is already nearly 100%. The only reasons why we haven't faced a crisis like Argentina did already is because Argentina is a weak second world country while the US is the most powerful country in the world. With its pre-eminent status, the US enjoys lower interest rates and the ability to print a limited amount of money without inflation because the dollar is the reserve currency of the world. Nonetheless, the laws of economic cannot be suspended indefinitely even by the most powerful country on earth.