Stable economies are based (At least on western theory) on the idea that generally speaking, people react rationally to financial decisions. It's exactly how Wall St. functions, and without that presumption, Wall St. could not exist. So, to the question of what will happen if we default, well, no one really knows exactly if we would default. We have enough to pay our debts, but that means cutting back tremendously on a lot of bloated entitlement spending, military spending, and heck every kind of spending. We can tax a little in the upper income brackets, and if kept rational, and fair, then we can avoid default. Simple as that, really. You don't need some ivy league economist to tell you this. The problem here is in predicting how the economy will react to either scenario, and here's why. In order for rational economic theory to work, all the players must act rationally, and ALL the players combined, must be greater than the sum total of all economic interests involved.
Here's our problem.
1. Entitlement recipients = irrational
2. Government = irrational
3. Wall St. = irrational
4. Tax payers = mostly rational
5. Banks/financial institutions = now acting rationally, but were not always, and in fact caused a lot of this mess in conjunction with a tacit federal government.
There are more players I'm sure, but you get the picture. Entitlement recipients alone equal roughly 50% of the nation, and they're all going to act irrationally when it comes to the golden goose. Wall St. Acting irrational and they just happen to control a good amount of the flow of money.. And then we have government acting for always, irrational.
The prognosis is not good, any way you slice it, so I warn people to be prepared as the catalyst for a real melt down could be something relatively small, and when it hits, no one will have predicted it happening in advance. That means no warning.. The only way to prevent this is to have most of the players realizing what i just wrote, and acting like grownups.. Fat chance.. Sooooo Take from it what you will.
Tim-