> Why the US can't simply default -- a quick primer

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Phillip_McCavity
#1 2017-12-07 17:37:25

Why the US can't simply default -- a quick primer

The US constitution says that the US must pay debt interest before all other obligations, so it would not be constitutional.

However, even getting around that problem...

If the US were to not pay bonds it would essentially be locked out of borrowing at any reasonable rate. The loss of confidence in the ability of the government to repay would essentially mean only a few internal investors would be interested.

If the US were to "print money" to pay its bonds, the same loss of confidence would occur. This means the same effect as if a default happened. Bond holders buy because they have confidence both in future tax authority and in future growth.


So what would happen is that if the US government did either of these things it would have to spend only what it could tax -- an immediate budget balance.

The whole reason to push for control of taxation and spending is so keep the budget in the hands of a national debate and have investors force the government's hand.

Its also a problem that higher government debt takes capital out of private growth and causes the nation to grow at a slower pace. Hence the government should avoid borrowing. Excessive taxation also retards growth, so the balance here is to decide how much of the nation with be government. My own answer is somewhere between 20% and 25% is needed to maintain an orderly system at the federal level.

I've long been in favor of stronger legal measures to balance the budget. One powerful incentive that helped California is to stop the paychecks of politicians if a balanced budget is not signed. For the Federal government, it should be that all elected positions and political appointments get minimum wage until the budget is close to balanced (3% of GDP + or - is fine with me).

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#2 2017-12-07 17:59:36

Re: Why the US can't simply default -- a quick primer

Phillip_McCavity wrote:

tl;dr.

The US can default, and it won't change much. It could be argued that the debt is untenable. Default isn't a great option, but nobody can afford not to do business with the U.S.

We'll just cave and find a way to keep paying. The better option is to force a renegotiation of the debt.


In reality the amount of debt can't be fully paid, ever, and most likely that, in time, there would be elimination or consolidation that would negate the debt anyway.

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#3 2017-12-07 18:13:19

Re: Why the US can't simply default -- a quick primer

The US could default on its debt by saying "nope, not paying. If you don't like it you can come and take it."

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#4 2017-12-07 19:17:38

Re: Why the US can't simply default -- a quick primer

Why can't we liquidate the Fed's enormous balance sheet and use that to pay off the debt?

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#5 2017-12-07 19:18:12

Re: Why the US can't simply default -- a quick primer

wrote:

The US could default on its debt by saying "nope, not paying. If you don't like it you can come and take it."

That's the thing though. The fuqing Chinks would probably try to come and take it. EMP, much?

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#6 2017-12-07 19:55:59

Re: Why the US can't simply default -- a quick primer

wrote:

That's the thing though. The fuqing Chinks would probably try to come and take it. EMP, much?

Yeah, just 1 emp. Why are you so stupid?

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#7 2017-12-07 20:17:40

Re: Why the US can't simply default -- a quick primer

Phillip_McCavity wrote:

<sophistry>

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#8 2017-12-08 17:41:42

Re: Why the US can't simply default -- a quick primer

wrote:

The US could default on its debt by saying "nope, not paying. If you don't like it you can come and take it."

We've come for your debt round eye. Get on your knees!
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