What happens in a US debt default?

[barryqwalsh]

What are the consequences of a US default?

No one really knows exactly what would happen, but the likelihood is that markets around the world would plunge and global interest rates would rise.

This is because if the US government could not repay the money it owed bondholders, the value of the bonds would decrease. And the yield - the return the government pays to an investor - would rise. This is because it would be perceived as a less safe investment.

This would prompt interest rates around the world, which are often tied to those of US Treasuries, to spike.

Furthermore, the impact on the US's creditors could be dire. Japan, for instance, owns about $1.14 trillion of US debt - which is equivalent to 20% of its annual economic output.

In the US, Goldman Sachs estimates that $175bn would immediately be withdrawn from the US economy and it could lead to a very deep recession.


BBC News - What happens in a US debt default

 

[Freewill]

Whatever happens here is my prediction. It will happen after Republicans either take over Congress or the Presidency. The democrats will then be able to blame the Republicans for the mess they created just as they did in 2008 and since.

 

[sameech]

The US has defaulted on its debt twice before. The 1790 default was just refinanced and the other one was because FDR refused to allow bonds to be paid in US gold when that is what the bonds required and some people wanted their gold. They ended up paying it off in other people's gold several months later. I think they got some from Panama IIRC. Really all the US has to do is absorb the bonds into its intergovernmental debt through the fed reserve system and release new "cash"--real or electronic--into the system to pay the bonds.

 

[Freemason9]

No, the U.S. will not "default" on its "debts." Even suggesting that indicates the OP has nearly no understanding of monetary policy.

 

[Dad2three]

What are the consequences of a US default?

No one really knows exactly what would happen, but the likelihood is that markets around the world would plunge and global interest rates would rise.

This is because if the US government could not repay the money it owed bondholders, the value of the bonds would decrease. And the yield - the return the government pays to an investor - would rise. This is because it would be perceived as a less safe investment.

This would prompt interest rates around the world, which are often tied to those of US Treasuries, to spike.

Furthermore, the impact on the US's creditors could be dire. Japan, for instance, owns about $1.14 trillion of US debt - which is equivalent to 20% of its annual economic output.

In the US, Goldman Sachs estimates that $175bn would immediately be withdrawn from the US economy and it could lead to a very deep recession.


BBC News - What happens in a US debt default

How does a nation that prints it's own money, default? lol

No, The United States Will Not Go Into A Debt Crisis, Not Now, Not Ever

The reason why it’s not true is because we live in a fiat currency system, where the United States government can create an infinite number of dollars at no cost to meet its obligations. A Treasury bill is a promise that the government will give you US dollars–something that the United States government can produce infinitely and at no cost.

That’s the reason why interest rates on United States debt have only gone down even as the debt has ballooned. That’s the reason why Great Britain has very low rates on its debt despite having very high debt-to-GDP. That’s the reason why Japan has an astounding debt-to-GDP ratio and still enjoys some of the lowest rates ever. Investors have bet for so long that there would be a run on Japanese debt and have ended up so ruined that in financial circles that trade is called “the Widowmaker”


No The United States Will Not Go Into A Debt Crisis Not Now Not Ever - Forbes

 

[HenryBHough]

What's coming is a repudiation of the currency.

Debts payable in U.S. Dollars become meaningless when there is no longer such a thing.

Hey, it worked for Argentina.

 

[Dad2three]

What's coming is a repudiation of the currency.

Debts payable in U.S. Dollars become meaningless when there is no longer such a thing.

Hey, it worked for Argentina.

lol Yeah, because the US is soooo much like Argentina *shaking head*


And interest rates are going to explode any day now, according to cons the last decade, lol

 

[Politico]

No, the U.S. will not "default" on its "debts." Even suggesting that indicates the OP has nearly no understanding of monetary policy.

That.

 

[waltky]

Granny says, "Dat's right - it's one big Ponzi scheme - we's goin' more in debt to keep up the debt...

Ponzi: Treasury Issues $1T in New Debt in 8 Weeks—To Pay Old Debt
November 28, 2014 - The Daily Treasury Statement that was released Wednesday afternoon as Americans were preparing to celebrate Thanksgiving revealed that the U.S. Treasury has been forced to issue $1,040,965,000,000 in new debt since fiscal 2015 started just eight weeks ago in order to raise the money to pay off Treasury securities that were maturing and to cover new deficit spending by the government.

During those eight weeks, Treasury took in $341,591,000,000 in revenues. That was a record for the period between Oct. 1 and Nov. 25. But that record $341,591,000,000 in revenues was not enough to finance ongoing government spending let alone pay off old debt that matured. The Treasury also drew down its cash balance by $45.057 billion during the period, starting with $126,568,000,000 in cash and ending with $81,511,000,000. The only way the Treasury could handle the $942,103,000,000 in old debt that matured during the period plus finance the new deficit spending the government engaged in was to roll over the old debt into new debt and issue enough additional new debt to cover the new deficit spending.

This mode of financing the federal government resembles what the Securities and Exchange Commission calls a Ponzi scheme. “A Ponzi scheme," says the Securities and Exchange Commission, “is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors,” says the Securities and Exchange Commission. “With little or no legitimate earnings, the schemes require a consistent flow of money from new investors to continue,” explains the SEC. “Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out.”

In testimony before the Senate Finance Committee in October 2013, Lew explained why he wanted the Congress to agree to increase the federal debt limit—and why the Treasury has no choice but to constantly issue new debt. “Every week we roll over approximately $100 billion in U.S. bills,” Lew told the committee. “If U.S. bondholders decided that they wanted to be repaid rather than continuing to roll over their investments, we could unexpectedly dissipate our entire cash balance.” “There is no plan other than raising the debt limit that permits us to meet all of our obligations,” Lew said. “Let me remind everyone,” Lew said, “principal on the debt is not something we pay out of our cash flow of revenues. Principal on the debt is something that is a function of the markets rolling over.”

The vast amount of debt that the Treasury must roll over in such a short time frame is driven by the fact the Treasury has put most of the debt into short-term “bills” and mid-term “notes”—on which it can pay lower interest rates—rather than into long-term bonds, which demand significantly higher interest rates. At the end of October, according to the Treasury’s Monthly Statement of the Public Debt, the total debt of the federal government was $17,937,160,000,000. Of this, $5,080,104,000,000 was what the Treasury calls “intragovernmental” debt, which is money the Treasury has borrowed and spent out of trust funds theoretically set aside for other purposes—such as the Social Security Trust Fund. The remaining $12,857,056,000,000 was “debt held by the public.” This part of the debt included $517,029,000,000 “nonmarketable” Treasury securities (such as savings bonds) and $12,340,028,000,000 in “marketable” Treasury securities, including bills, notes, bonds and Treasuring Inflation-Protected Securities.

MORE

See also:

Nearly 1 in 5 Households Will Celebrate Thanksgiving on Food Stamps
November 26, 2014 -- Nearly one in five U.S. households will celebrate Thanksgiving on food stamps this year, according to the latest data from the U.S. Department of Agriculture on participation in the Supplemental Nutrition and Assistance Program.

Back in fiscal 2000, there were 106,061,000 households in the United States and, according to a USDA report published in November 2012, there was a monthly average of 7,335,000 households—or 6.9 percent—getting food stamps that year. As of this August, according to the most recent data released by USDA, there were 22,729,389 households on food stamps. That equaled 19.75 percent of 115,048,000 households in the country at that time.

In each of the two previous fiscal years, the percentage of American households on food stamps in the average was near 20 percent, hitting 19.4 percent in 2012, 20.4 percent in 2013. As of August, according to the Department of Agriculture, there were 46,484,828 individuals in the food stamp program.

Nearly 1 in 5 Households Will Celebrate Thanksgiving on Food Stamps CNS News

 

[HenryBHough]

Debase the currency sufficiently by printing enough of it and you can pay off trillions in debt in a couple of minutes. But then try to borrow even a little more.

 

[Dad2three]

Granny says, "Dat's right - it's one big Ponzi scheme - we's goin' more in debt to keep up the debt...

Ponzi: Treasury Issues $1T in New Debt in 8 Weeks—To Pay Old Debt
November 28, 2014 - The Daily Treasury Statement that was released Wednesday afternoon as Americans were preparing to celebrate Thanksgiving revealed that the U.S. Treasury has been forced to issue $1,040,965,000,000 in new debt since fiscal 2015 started just eight weeks ago in order to raise the money to pay off Treasury securities that were maturing and to cover new deficit spending by the government.

During those eight weeks, Treasury took in $341,591,000,000 in revenues. That was a record for the period between Oct. 1 and Nov. 25. But that record $341,591,000,000 in revenues was not enough to finance ongoing government spending let alone pay off old debt that matured. The Treasury also drew down its cash balance by $45.057 billion during the period, starting with $126,568,000,000 in cash and ending with $81,511,000,000. The only way the Treasury could handle the $942,103,000,000 in old debt that matured during the period plus finance the new deficit spending the government engaged in was to roll over the old debt into new debt and issue enough additional new debt to cover the new deficit spending.

This mode of financing the federal government resembles what the Securities and Exchange Commission calls a Ponzi scheme. “A Ponzi scheme," says the Securities and Exchange Commission, “is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors,” says the Securities and Exchange Commission. “With little or no legitimate earnings, the schemes require a consistent flow of money from new investors to continue,” explains the SEC. “Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out.”

In testimony before the Senate Finance Committee in October 2013, Lew explained why he wanted the Congress to agree to increase the federal debt limit—and why the Treasury has no choice but to constantly issue new debt. “Every week we roll over approximately $100 billion in U.S. bills,” Lew told the committee. “If U.S. bondholders decided that they wanted to be repaid rather than continuing to roll over their investments, we could unexpectedly dissipate our entire cash balance.” “There is no plan other than raising the debt limit that permits us to meet all of our obligations,” Lew said. “Let me remind everyone,” Lew said, “principal on the debt is not something we pay out of our cash flow of revenues. Principal on the debt is something that is a function of the markets rolling over.”

The vast amount of debt that the Treasury must roll over in such a short time frame is driven by the fact the Treasury has put most of the debt into short-term “bills” and mid-term “notes”—on which it can pay lower interest rates—rather than into long-term bonds, which demand significantly higher interest rates. At the end of October, according to the Treasury’s Monthly Statement of the Public Debt, the total debt of the federal government was $17,937,160,000,000. Of this, $5,080,104,000,000 was what the Treasury calls “intragovernmental” debt, which is money the Treasury has borrowed and spent out of trust funds theoretically set aside for other purposes—such as the Social Security Trust Fund. The remaining $12,857,056,000,000 was “debt held by the public.” This part of the debt included $517,029,000,000 “nonmarketable” Treasury securities (such as savings bonds) and $12,340,028,000,000 in “marketable” Treasury securities, including bills, notes, bonds and Treasuring Inflation-Protected Securities.

MORE

See also:

Nearly 1 in 5 Households Will Celebrate Thanksgiving on Food Stamps
November 26, 2014 -- Nearly one in five U.S. households will celebrate Thanksgiving on food stamps this year, according to the latest data from the U.S. Department of Agriculture on participation in the Supplemental Nutrition and Assistance Program.

Back in fiscal 2000, there were 106,061,000 households in the United States and, according to a USDA report published in November 2012, there was a monthly average of 7,335,000 households—or 6.9 percent—getting food stamps that year. As of this August, according to the most recent data released by USDA, there were 22,729,389 households on food stamps. That equaled 19.75 percent of 115,048,000 households in the country at that time.

In each of the two previous fiscal years, the percentage of American households on food stamps in the average was near 20 percent, hitting 19.4 percent in 2012, 20.4 percent in 2013. As of August, according to the Department of Agriculture, there were 46,484,828 individuals in the food stamp program.

Nearly 1 in 5 Households Will Celebrate Thanksgiving on Food Stamps CNS News

Imagine if Dubya/GOP hadn't gutted revenues after Clinton created 4 surpluses? Remember when Greenspan testified debt was in danger of being paid down to fast? You know to get Dubya's tax cuts through?



Yes, GOP policy left MILLIONS more families dependent on SNAP

 

[Dont Taz Me Bro]

Imagine if Dubya/GOP hadn't gutted revenues after Clinton created 4 surpluses?

There was no surplus under Clinton. It's amazing to me how many dishonest people such as yourself continue to make that claim, or maybe you're just plain ignorant. I don't know.

 

[Dad2three]

Imagine if Dubya/GOP hadn't gutted revenues after Clinton created 4 surpluses?

There was no surplus under Clinton. It's amazing to me how many dishonest people such as yourself continue to make that claim, or maybe you're just plain ignorant. I don't know.

Q: During the Clinton administration was the federal budget balanced? Was the federal deficit erased?

A: Yes to both questions, whether you count Social Security or not.

The Budget and Deficit Under Clinton

I. Deficits, Surpluses and Debt: Definitions and A Brief History

A budget deficit occurs when the government spending exceeds government revenue in a given time period, usually one year:
deficit = government spending - revenue, where spending > revenue.

A budget surplus occurs when government spending is less than government revenue in a given time period:
surplus = revenue - spending, where revenue > spending.

Chapter 12 Deficits Surpluses and Debt

 

[Dont Taz Me Bro]

Imagine if Dubya/GOP hadn't gutted revenues after Clinton created 4 surpluses?

There was no surplus under Clinton. It's amazing to me how many dishonest people such as yourself continue to make that claim, or maybe you're just plain ignorant. I don't know.

Q: During the Clinton administration was the federal budget balanced? Was the federal deficit erased?

A: Yes to both questions, whether you count Social Security or not.

The Budget and Deficit Under Clinton

I. Deficits, Surpluses and Debt: Definitions and A Brief History

A budget deficit occurs when the government spending exceeds government revenue in a given time period, usually one year:
deficit = government spending - revenue, where spending > revenue.

A budget surplus occurs when government spending is less than government revenue in a given time period:
surplus = revenue - spending, where revenue > spending.

Chapter 12 Deficits Surpluses and Debt

If the national debt is increasing, there is no surplus.

Government - Historical Debt Outstanding - Annual 1950 - 1999

It's really that simple.

They were very close to balancing it, the best it's been for years, but they still borrowed money.

 

[Judicial review]

The usa won't default on debt due to gop winning in landslide election and taking the senate.

 

[Freemason9]

The usa won't default on debt due to gop winning in landslide election and taking the senate.

Historically speaking, the federal debt increases under Republican control.

 

[Judicial review]

The usa won't default on debt due to gop winning in landslide election and taking the senate.

Historically speaking, the federal debt increases under Republican control.

Not any more.

 

[EdwardBaiamonte]

The usa won't default on debt due to gop winning in landslide election and taking the senate.

Historically speaking, the federal debt increases under Republican control.

dear, when did Republicans control 3 branches of govt plus press, electorate, Hollywood and higher ed.???

 

[Dad2three]

Imagine if Dubya/GOP hadn't gutted revenues after Clinton created 4 surpluses?

There was no surplus under Clinton. It's amazing to me how many dishonest people such as yourself continue to make that claim, or maybe you're just plain ignorant. I don't know.

Q: During the Clinton administration was the federal budget balanced? Was the federal deficit erased?

A: Yes to both questions, whether you count Social Security or not.

The Budget and Deficit Under Clinton

I. Deficits, Surpluses and Debt: Definitions and A Brief History

A budget deficit occurs when the government spending exceeds government revenue in a given time period, usually one year:
deficit = government spending - revenue, where spending > revenue.

A budget surplus occurs when government spending is less than government revenue in a given time period:
surplus = revenue - spending, where revenue > spending.

Chapter 12 Deficits Surpluses and Debt

If the national debt is increasing, there is no surplus.

Government - Historical Debt Outstanding - Annual 1950 - 1999

It's really that simple.

They were very close to balancing it, the best it's been for years, but they still borrowed money.

Got it, as a conservative, the difference of an ANNUAL BUDGET surplus (more money coming in than going out) is over your head. I'm shocked

 

[Dad2three]

The usa won't default on debt due to gop winning in landslide election and taking the senate.

Historically speaking, the federal debt increases under Republican control.

dear, when did Republicans control 3 branches of govt plus press, electorate, Hollywood and higher ed.???

lol, you ignorant tool