What would happen if the US defaulted?

The results could be bad enough to trigger WWIII. But default is at least a few years away. The world is far more concerned with Greece and the rest of the PIGS countries right now. Investors certainly don't fear a US default anytime soon. Treasury Bond prices all across the board, from the 4 week to the 30 year, are at record high levels. The bull market in bonds, that started in 1980, isn't over yet.

Sat. 12/06/16 17:42 EDT
.post #168

EmbraceLiberty:

What would happen if the US defaulted? What exactly would the consequences look like?

One answer is: The US has defaulted, by continually running deficits that are financed by continual creation of new credit. The consequences look like what you see now: A large and growing poverty class, the shrinking of the middle class, an elite class grown fat on government largesse, speculative bubbles and busts, the shrinking of manufacturing, growing demands of "entitlement," a police state, growing prison/industrial complex, an out-of-control military-industrial-warfare complex, and government of the corporation, by the corporation, for the corporation, to name a few.

Of course, there are other ways to default, but the state's modus operandi seems to always frequently be to socialize the costs/losses and privatize the benefits/profits.

 

 

Before the default you'd see capital flight into other currencies, much as Greece is now withdrawing all their money from accounts and sending it elsewhere. You'd see people investing in currencies considered safer.

However, it's the very weakness of these other currencies that are propping up the dollar right now by default, simply because the dollar is safer than anything else. No one really trusts the communist chinese, so the renmibi isn't doing much. And the euro situation is so awful it's practically comical :)

Perhaps bitcoin arrived just in time :P If the world's currencies tank, it will be the only currency immune to rampant inflation. In fact there would  be massive deflation of bitcoin as people escaped into it, making it even more attractive.

SHTF YAY!

Sun. 12/06/17 09:39 EDT
.post #169

EmbraceLiberty:

How?

If you define "default" as "failure to meet financial obligations", then I think repaying loans by simply printing more money (and all the concomitant chaos this engenders) qualifies. The borrower/counterfeiter has only met his "financial obligations" nominally, but in terms of worth or purchasing power, he hasn't. In terms of worth or purchasing power, he has repaid less than he borrowed. I suppose you could reasonably argue that, since the debasement doesn't affect earlier recipients of new money (e.g. bondholders) as adversely as later recipients, it's not correct to call it "default." But, the word becomes more appropriate in direct relation to the rate at which the value or purchasing power declines. When that rate of decline reaches Zimbabwean levels, the word "default" is entirely appropriate.

Wouldn't default force the government to reduce spending causing a reduction in the military/prison industrial complex?

If you think of "default" as "We're out of money, we can't raise taxes, nobody will lend us any more, we can't pay our bills!", then yes, possibly...but not necessarily, if the state can continue to print dollars that the people continue to accept. In that case, the state will just keep printing. The trick, the "balancing act," is to postpone the hyperinflation for as long as possible, to keep the game going.