If The US Government Defaults

[PhillyFlyers]

how much will it really affect us?

So far, things are running pretty normal despite the shutdown.

Stock markets haven't been greatly affected by it nor have the banks nor retailers it seems.

So the question is, just how badly can it hurt if the government defaults?

Wouldn't defaulting instead be an opportunity to get things right again?

SBR weigh in.

[robzilla]

I was just going to make this thread. According to CNN and Obama, all hell is going to break loose.

I think you will see the government scaling back everything. Spending would be dramatically reduced.

[PhillyFlyers]

I was just going to make this thread. According to CNN and Obama, all hell is going to break loose.

I think you will see the government scaling back everything. Spending would be dramatically reduced.

I would argue that this is precisely what we need.

We can't keep spending money we simply don't have.

[SamDiamond]

I would argue that this is precisely what we need.

We can't keep spending money we simply don't have.

Philly, I am going to give you a non-wiseass answer.

If the United States defaulted on their debt obligations it would rain down a world of shit on US citizens.

The treasury has some cash on hand--- so for a period of about 2 weeks--- October 17th-October 30th---- that money will run out.

And then they still could pass an interest-only payment on Halloween.

But if they failed to do that----- Holy shit. Duck.

Then---disaster hits.

There will most likely be a run on the bond market.

Senior citizens and the disabled will no longer get social security checks. If anyone here has a parent or relative that lives on social security-- they would be fuked. It would be game over.

Everyone who works for a defense contractor would no longer get paid.

Soldiers-- would not receive their pay.

Those that live in government housing (senior citizens in nursing homes not welfare queens)-- would be fuked.

Now- the indirect hit. Hitting social security recipients would take billions upon billions out of the economy--- so retailers, mom and pop stores, big chain employers all would get hammered.

There would be a run on savings accounts, the stock market, and every other investment arm available.

Because the United States has always paid their debts-- we are able to borrow as a country and get low interest rates---defaulting will change that-- so America will pay more to borrow and that cost would be passed on to each of us through increased tax rates.

There is no way in hell defaulting will help the average american citizen. If will make things fundamentally worse.

It will cost more to buy a home, to buy groceries, to buy an automobile, to pay for internet, cable, travel-- every aspect of their lives will increase.

[itchypickle]

Another made up crisis boys. Simple math....the interest on the debt is a % of what is taken in each month in the litany of taxes/revenue so all that needs to be done is a repurposing of funds and problem solved. Yes I know the federal budget is much more sophisticated than a family budget but the interest owed is the same theory....instead of buying the wife another pair of shoes and taking a trip you simply use that money to pay the interest payment on the CC bill you racked up on that trip to the BCS game last season.

[robzilla]

Taxes would have to go up, right? I mean, how could they not?

[robzilla]

Another made up crisis boys. Simple math....the interest on the debt is a % of what is taken in each month in the litany of taxes/revenue so all that needs to be done is a repurposing of funds and problem solved. Yes I know the federal budget is much more sophisticated than a family budget but the interest owed is the same theory....instead of buying the wife another pair of shoes and taking a trip you simply use that money to pay the interest payment on the CC bill you racked up on that trip to the BCS game last season.

You're probably right. Americans could easily cut foreign aid for a few years and get back on track.

[rcene]

I think they will keep printing the mone herey. Other countries will be pissed when the shit falls on them, but we will be fine here

[SamDiamond]

Another made up crisis boys. Simple math....the interest on the debt is a % of what is taken in each month in the litany of taxes/revenue so all that needs to be done is a repurposing of funds and problem solved. Yes I know the federal budget is much more sophisticated than a family budget but the interest owed is the same theory....instead of buying the wife another pair of shoes and taking a trip you simply use that money to pay the interest payment on the CC bill you racked up on that trip to the BCS game last season.

It isn't that simple---- the cost of borrowing and paying the interest will directly drive our interest rates up-- and that cost will be handed down to the united states taxpayer as a tax.

What you're ignoring is this----- taking money out of the system---reduces your tax base and our ability to meet our interest rate obligations.

Then there is a very predictable run on the us bond market.

What happens to hospitals when medicare payments aren't made?

What happens to local school districts that use federal monies to operate?

This isn't made up. A default and shit seriously hits the fan.

[TheGoldenGoose]

[itchypickle]

It isn't that simple---- the cost of borrowing and paying the interest will directly drive our interest rates up-- and that cost will be handed down to the united states taxpayer as a tax.

What you're ignoring is this----- taking money out of the system---reduces your tax base and our ability to meet our interest rate obligations.

Then there is a very predictable run on the us bond market.

What happens to hospitals when medicare payments aren't made?

What happens to local school districts that use federal monies to operate?

This isn't made up. A default and shit seriously hits the fan.

An actual default would be bad yes, but my point is there is plenty of money available to pay the interest so as NOT to default. Can't quote the exact amount off top of my head but I do know the interest due is less than 13% of the money we take in per month so the payments can be done.

And regarding the interest rates....you act as if the Fed hasn't been keeping them artificially low for years now...same way they bend the yield curve leading up to the 2008 debacle. They are going to have to come back to normal heights anyway at some point...its just a matter of what to blame it on when it does.

[SamDiamond]

An actual default would be bad yes, but my point is there is plenty of money available to pay the interest so as NOT to default. Can't quote the exact amount off top of my head but I do know the interest due is less than 13% of the money we take in per month so the payments can be done.

And regarding the interest rates....you act as if the Fed hasn't been keeping them artificially low for years now...same way they bend the yield curve leading up to the 2008 debacle. They are going to have to come back to normal heights anyway at some point...its just a matter of what to blame it on when it does.

You are right, but still disagree about one item.

The treasury does have the cash to make the Halloween interest payment. After that---they can't pay November's Social Security/Medicare responsibilities.

The item I disagree with. Our ability to borrow with other nations will cost more. The Fed will not be able to simply print money to get us out the jam. That is where we, as taxpayers, will get raped.

[PhillyFlyers]

Philly, I am going to give you a non-wiseass answer.

If the United States defaulted on their debt obligations it would rain down a world of shit on US citizens.

The treasury has some cash on hand--- so for a period of about 2 weeks--- October 17th-October 30th---- that money will run out.

And then they still could pass an interest-only payment on Halloween.

But if they failed to do that----- Holy shit. Duck.

Then---disaster hits.

There will most likely be a run on the bond market.

Senior citizens and the disabled will no longer get social security checks. If anyone here has a parent or relative that lives on social security-- they would be fuked. It would be game over.

Everyone who works for a defense contractor would no longer get paid.

Soldiers-- would not receive their pay.

Those that live in government housing (senior citizens in nursing homes not welfare queens)-- would be fuked.

Now- the indirect hit. Hitting social security recipients would take billions upon billions out of the economy--- so retailers, mom and pop stores, big chain employers all would get hammered.

There would be a run on savings accounts, the stock market, and every other investment arm available.

Because the United States has always paid their debts-- we are able to borrow as a country and get low interest rates---defaulting will change that-- so America will pay more to borrow and that cost would be passed on to each of us through increased tax rates.

There is no way in hell defaulting will help the average american citizen. If will make things fundamentally worse.

It will cost more to buy a home, to buy groceries, to buy an automobile, to pay for internet, cable, travel-- every aspect of their lives will increase.

I disagree with this.

First, interest rates are going to go up anyway, default or no default.

Secondly, I think our credit rating would be better with the default than without it. If we show our willingness to deal with our problems, I think our creditors would say they're getting their house in order. Our rating could potentially be better than it is today or will be if we continue down the same path with no change.

Look, at some point, we are going to need to hit the reset button. It's better to face it now.

Finally, I think it's important to realize that it is impossible for the US to default. That's not theory or conjecture.

It is cold, hard fact.

How? Because every single bit of the debt that we owe is owed in the currency we and only we can print: dollars.

It's not a situation like Greece for example, where they had to earn foreign exchange via exports or beg for better terms.

I say bring it on. Let's finally deal with it.