Why Doesn't the US Just Default?

[Greed and Death]

I am not sure India would be happy about turning their country into a opium producing factory, nor the Chinese being forced to import all the opium we can get India to produce.

Czarist Russia also managed to get about half a century out of debt expansion before collapsing due to other political failures. Debt to GDP historically has never been the sole factor of a nation's decline. And where that decline occurs, there are always other, graver factors at play.

Debt to GDP has been less of a factor when the population was growing rather than graying as they are in the West, production was expanding due industrial revolution, and two thirds of the world had recently been opened up to trade thanks to imperialism.

Point 2 may be possible with the current rise of tech but with the unicorns dying off it looks more and more like a bubble. Points 1 and 3 however are unlikely to ever occur again.

While Americas debt is far from being a problem the 200% or 300% of times past simply will not be sustainable in the the foreseeable future.

[Urran]

other than the horrible economic implications, it would make us a laughing stock internationally.

[Neu Leonstein]

When a government defaults(says, 'we won't pay back our loans'), it's forcing other countries to give up the money they've given us.

If I recall correctly, the majority of US government debt is owned by US-based people and organisations. I'm not sure why people always jump to the "pay back other countries" thing when they think of government debt.

[Greed and Death]

When a government defaults(says, 'we won't pay back our loans'), it's forcing other countries to give up the money they've given us.

If I recall correctly, the majority of US government debt is owned by US-based people and organisations. I'm not sure why people always jump to the "pay back other countries" thing when they think of government debt.

Mostly retirement funds and social security.

[American Imperial State]

When a government defaults(says, 'we won't pay back our loans'), it's forcing other countries to give up the money they've given us.

If I recall correctly, the majority of US government debt is owned by US-based people and organisations. I'm not sure why people always jump to the "pay back other countries" thing when they think of government debt.

Well, intergovernment loans would become much more important if we defaulted on our loans because our interest rates would go through the roof.

[San Lumen]

Erm. Okay. Government debt does not work like personal debt. At all. Governments borrow by selling bonds. Bonds are simply a promise to pay a certain amount of money to the holder with interest at a given time. The US government can borrow at some of the lowest interest rates out there. And the government can, if it wants to, continually borrow money to pay existing bonds, so long as they don't default. As long as bond holders get their check on time, they're happy. The only thing that will discourage creditors is a default, or a threat of one. When that happens, our bond rating is lowered and our rates will go up.

What happened with Greece is they defaulted several times in history, therefore they pay an extremely huge interest rate compared to most Western countries, thus hampering their ability to borrow. That is why they must be bailed out.

We are "paying back our debt." The constantly rising national debt is not debt added to an existing pile of unpaid debt. We pay bonds when they are due, but we sell new ones. Since we sell more than we buy the debt increases. But the actual bonds comprising the national debt change all the time.

Furthermore, the US Government is constitutionally prohibited from defaulting per the 14th amendment which states "The validity of the public debt of the United States [...] shall not be questioned."

If I was Greek Prime Minister I wouldn't have accepted the bailout money and would defaulted and exited the Euro and gone back to the Drachma. If we are paying back out debt then why is the debt ceiling always being raised and our debt climbing every year? Plus that amendment was passed after the civil war and its my understanding that part of the amendment refers too the notion that the United States nor any state would pay for the loss of slaves or debts that had been incurred by the Confederacy.

[House of Judah]

Erm. Okay. Government debt does not work like personal debt. At all. Governments borrow by selling bonds. Bonds are simply a promise to pay a certain amount of money to the holder with interest at a given time. The US government can borrow at some of the lowest interest rates out there. And the government can, if it wants to, continually borrow money to pay existing bonds, so long as they don't default. As long as bond holders get their check on time, they're happy. The only thing that will discourage creditors is a default, or a threat of one. When that happens, our bond rating is lowered and our rates will go up.

What happened with Greece is they defaulted several times in history, therefore they pay an extremely huge interest rate compared to most Western countries, thus hampering their ability to borrow. That is why they must be bailed out.

We are "paying back our debt." The constantly rising national debt is not debt added to an existing pile of unpaid debt. We pay bonds when they are due, but we sell new ones. Since we sell more than we buy the debt increases. But the actual bonds comprising the national debt change all the time.

Furthermore, the US Government is constitutionally prohibited from defaulting per the 14th amendment which states "The validity of the public debt of the United States [...] shall not be questioned."

Thank you for finally pointing that out. Why not default? Because we are constitutionally forbidden from doing so. Now next question, why did it take three pages for someone to bring up that we are required to pay our national debt?

[Neu Leonstein]

Well, intergovernment loans would become much more important if we defaulted on our loans because our interest rates would go through the roof.

But they'd go through the roof for loans from anyone, domestic or foreign. Probably higher for foreign, because borrowing in US dollars from them would be that much harder after a default.

Anyway, I am curious as to why no one seems keen to respond on what I think is the more important consideration when it comes to defaulting on government debt: viewtopic.php?p=28871616#p28871616

[Greed and Death]

So what we do is threaten to default on the foreign held loans only.

Then we negotiate a better interest rate. Since we are at or near 0 on many of our bonds I think negative interest rates are in order. Hear that Norwegian sovereign wealth fund you owe us money for those loans you made to us.

[Neu Leonstein]

Thank you for finally pointing that out. Why not default? Because we are constitutionally forbidden from doing so. Now next question, why did it take three pages for someone to bring up that we are required to pay our national debt?

Because legal niceties are not that much of a barrier when the economics really kicks into gear, probably. If push really came to shove, and a US government had the choice between collapse and paying on its debt, it'll default. It'd just call it something else (debt restructuring, maturity extension, temporary suspension) and get a judge to sign off on it. It'd make for some terrifying court session as it makes its way up to the Supreme Court, but if money isn't there, a clause in the constitution won't make it appear.

That said, this is all very hypothetical. It'd probably have been absorbed by the Fed before we got to that point.

[Grand Eurassia]

Well first of all our debt is so fucking high is because of Reagan and the later Bush who basically made our debts on steroids. Then its the Republicans who keep dropping billions upon billions into the billionare class, corrupt politicians and the military.

[Neu Leonstein]

So what we do is threaten to default on the foreign held loans only.

Don't think that would work... foreigners and US residents hold the same lines of bonds and US courts don't see too kindly on differential treatment on these things. Recall the drama about the NY courts and Argentina vs the Hold-Outs.

[San Lumen]

other than the horrible economic implications, it would make us a laughing stock internationally.

How would it make us a laughing stock?

[Plembobria]

If I was Greek Prime Minister I wouldn't have accepted the bailout money and would defaulted and exited the Euro and gone back to the Drachma.

And the entire economy would have collapsed.

[American Imperial State]

Well first of all our debt is so fucking high is because of Reagan and the later Bush who basically made our debts on steroids. Then its the Republicans who keep dropping billions upon billions into the billionare class, corrupt politicians and the military.

Actually;

President Barack Obama

Jan. 20, 2009: $10,626,877,048,913.08
Jan. 4, 2011: $14,025,215,218,708.52
Days in Office: 715
Compounded Annual Growth Rate: 15.21%

Data Source: TreasuryDirect.gov

President George W. Bush

Jan. 20, 2001: $5,727,776,738,304.64
Jan. 20, 2009: $10,626,877,048,913.08
Days in Office: 2,922
Compounded Annual Growth Rate: 8.03%

Data Source: TreasuryDirect.gov

President Bill Clinton

Jan. 20, 1993*: $4,188,092,107,183.60
Jan. 20, 2001: $5,727,776,738,304.64
Days in Office: 2,922
Compounded Annual Growth Rate: 3.99%


President George H.W. Bush

Jan. 20, 1989*: $2,697,957, 000,000
Jan. 20, 1993*: $4,188,092,107,183.60
Days in Office: 1,460
Compounded Annual Growth Rate: 11.62%


Data Source: TreasuryDirect.gov

President Ronald Reagan

Jan. 20, 1981*: $934,073,000,000
Jan. 20, 1989*: $2,697,957, 000,000
Days in Office: 2,922
Compounded Annual Growth Rate: 14.18%


Data Source: TreasuryDirect.gov

President Jimmy Carter

Jan. 20, 1977*: $653, 907,000,000
Jan. 20, 1981*: $934,073,000,000
Days in Office: 1,460
Compounded Annual Growth Rate: 9.32%

Data Source: TreasuryDirect.gov

President Gerald Ford

Aug. 9, 1974*: $481,792,000,000
Jan. 20, 1977*: $653, 907,000,000
Days in Office: 895
Compounded Annual Growth Rate: 13.28%

Data Source: TreasuryDirect.gov

President Richard Nixon

Jan. 20, 1969*: $362,629,668,607
Aug. 9, 1974*: $481,792,000,000
Days in Office: 2,026
Compounded Annual Growth Rate: 5.25%


Data Source: TreasuryDirect.gov

President Lyndon B. Johnson

Nov. 22, 1963*: $308,567,018,756
Jan. 20, 1969*: $362,629,668,607
Days in Office: 1,885
Compounded Annual Growth Rate: 3.18%



https://www.thestreet.com/story/1095988 ... -tabs.html

[San Lumen]

If I was Greek Prime Minister I wouldn't have accepted the bailout money and would defaulted and exited the Euro and gone back to the Drachma.

And the entire economy would have collapsed.

Why would the entire economy have collapsed?

[Neu Leonstein]

Why would the entire economy have collapsed?

Because the drachma would have fallen massively, making all imports incredibly expensive incredibly suddenly. Combine that with the banks, which would also have to default and therefore collapse, and remembering that Greece imports its oil and energy, as well as a significant amount of its food, and you can see where this is going.

[Greed and Death]

So what we do is threaten to default on the foreign held loans only.

Don't think that would work... foreigners and US residents hold the same lines of bonds and US courts don't see too kindly on differential treatment on these things. Recall the drama about the NY courts and Argentina vs the Hold-Outs.

But Argentina had a choice of law provision(New York including relevant Federal Law) and a lock step(Pari Passu) provision in their bonds.

US bonds have US choice of law yes, but unlike Argentina the US can rewrite US law at anytime and us bonds lack a Pari Passu provision( the markets have never demanded it from the US).

[Neu Leonstein]

But Argentina had a choice of law provision(New York including relevant Federal Law) and a lock step(Pari Passu) provision in their bonds.

US bonds have US choice of law yes, but unlike Argentina the US can rewrite US law at anytime and us bonds lack a Pari Passu provision( the markets have never demanded it from the US).

Hmm.. you learn something new every day! I still suspect it'd be far easier to just confiscate foreigners' Treasuries in the US, bit there we go.

[Greed and Death]

But Argentina had a choice of law provision(New York including relevant Federal Law) and a lock step(Pari Passu) provision in their bonds.

US bonds have US choice of law yes, but unlike Argentina the US can rewrite US law at anytime and us bonds lack a Pari Passu provision( the markets have never demanded it from the US).

Hmm.. you learn something new every day! I still suspect it'd be far easier to just confiscate foreigners' Treasuries in the US, bit there we go.

We are pretty much the only country that can get away without having a Pari Passu since our handful of defaults have been technical rather than systematic.

[Ashkera]

If I was Greek Prime Minister I wouldn't have accepted the bailout money and would defaulted and exited the Euro and gone back to the Drachma.

And the entire economy would have collapsed.

Perhaps, but if Greece weren't on the Euro, Greek exports would be a lot cheaper as the currencies readjusted. Right now, Greece is dealing with German rates, and that's suited to Germany's economic needs and not Greece's.

Really, Greece going on the Euro wasn't a good idea. The reason the US gets away with having one currency over such a big area is spending by the US federal government.

[Liriena]

First of all, the next person who suggests that countries should be run like private businesses should get a cost-benefit analysis carried out on their person, to see if maintaining their citizenship is profitable.

Second of all... I do agree with reducing the United States' military spending, but the OP lost me on "useless scientific research", and their proposal to essentially crash the world economy in the name of a reactionary fantasy earned my wholehearted scorn.

National debt is not in itself the worst thing ever, and neither is a deficit. Specially if it all goes to good policies.

[The Greater Ohio Valley]

And the entire economy would have collapsed.

Why would the entire economy have collapsed?

I believe it's been explained to you several times, you just seem to be willfully ignoring those particular in-detail posts though.

[The Pink Diamond]

Well first of all our debt is so fucking high is because of Reagan and the later Bush who basically made our debts on steroids. Then its the Republicans who keep dropping billions upon billions into the billionare class, corrupt politicians and the military.

Actually;

President Barack Obama

Jan. 20, 2009: $10,626,877,048,913.08
Jan. 4, 2011: $14,025,215,218,708.52
Days in Office: 715
Compounded Annual Growth Rate: 15.21%

Data Source: TreasuryDirect.gov

President George W. Bush

Jan. 20, 2001: $5,727,776,738,304.64
Jan. 20, 2009: $10,626,877,048,913.08
Days in Office: 2,922
Compounded Annual Growth Rate: 8.03%

Data Source: TreasuryDirect.gov

President Bill Clinton

Jan. 20, 1993*: $4,188,092,107,183.60
Jan. 20, 2001: $5,727,776,738,304.64
Days in Office: 2,922
Compounded Annual Growth Rate: 3.99%


President George H.W. Bush

Jan. 20, 1989*: $2,697,957, 000,000
Jan. 20, 1993*: $4,188,092,107,183.60
Days in Office: 1,460
Compounded Annual Growth Rate: 11.62%


Data Source: TreasuryDirect.gov

President Ronald Reagan

Jan. 20, 1981*: $934,073,000,000
Jan. 20, 1989*: $2,697,957, 000,000
Days in Office: 2,922
Compounded Annual Growth Rate: 14.18%


Data Source: TreasuryDirect.gov

President Jimmy Carter

Jan. 20, 1977*: $653, 907,000,000
Jan. 20, 1981*: $934,073,000,000
Days in Office: 1,460
Compounded Annual Growth Rate: 9.32%

Data Source: TreasuryDirect.gov

President Gerald Ford

Aug. 9, 1974*: $481,792,000,000
Jan. 20, 1977*: $653, 907,000,000
Days in Office: 895
Compounded Annual Growth Rate: 13.28%

Data Source: TreasuryDirect.gov

President Richard Nixon

Jan. 20, 1969*: $362,629,668,607
Aug. 9, 1974*: $481,792,000,000
Days in Office: 2,026
Compounded Annual Growth Rate: 5.25%


Data Source: TreasuryDirect.gov

President Lyndon B. Johnson

Nov. 22, 1963*: $308,567,018,756
Jan. 20, 1969*: $362,629,668,607
Days in Office: 1,885
Compounded Annual Growth Rate: 3.18%



https://www.thestreet.com/story/1095988 ... -tabs.html

Doesn't cover all of Obama's time in office. Only the first two years when of course the US ran a big deficit.

I won't accuse you of dishonesty, only laziness.

[Koninkrijk Zeeland]

It would crash the world economy causing world war 3 and the end of the world.