Hummel: The US Will Default On Its Debt

[Cold Highway]

Faced with this mountain of debt, policy makers will have just two choices: repudiate the debt or engage in hyper inflation to monetize it, Hummel writes. And faced with that choice the Treasury will likely protect the currency and default on Treasuries.

I shudder to think how our lenders will react if we do this.

Hummel: The US Will Default On Its Debt

 

[kaya'08]

What do you reckon would happen if the US said to China; "you know what? We're not paying you back". And bam, the debt is gone. Seriously, what do you reckon would happen?

 

[Metternich]

No one would ever buy our debt again.

 

[kaya'08]

No one would ever buy our debt again.

Of course. But i meant, what do you reckon the peoples republic of china would do?

 

[Metternich]

It depends on what we default on, if we defaulted on only a certain quantity of it they would likely just release all that they had and by doing so sink the dollar a la HMS Hood.

If we defaulted on 'all' of it, in China, the rest of the world would release all that they had and by doing so sink the dollar a la HMS Hood.

If we defaulted on 'all' of it 'everywhere,' then I can only shudder. Would China attempt to invade Taiwan or something drastic? Likely not. Yet any way you cut the apple, we would be screwed some way or another.

 

[Kandahar]

We aren't going to default the debt. All of our creditors seem to strongly disagree, as the United States is still able to borrow money for a very reasonable interest rate.

 

[ALiberalModerate]

We are at no risk at all of defaulting on our debt. Yes, we are running up large deficits as a result of the financial crisis and recession, but our debt as a percentage of GDP is still much lower than many other developed nations.

Worst case scenario, in a decade if its a choice between risking default on our debt or cutting Medicare, they will just cut Medicare.

 

[formerroadie]

We are at no risk at all of defaulting on our debt. Yes, we are running up large deficits as a result of the financial crisis and recession, but our debt as a percentage of GDP is still much lower than many other developed nations.

Worst case scenario, in a decade if its a choice between risking default on our debt or cutting Medicare, they will just cut Medicare.

Honestly, I don't think it will take a decade to reduce. Once the economy picks back up and the unemployment goes down, the revenue will come in and we will see a large reduction in the deficit.

I will say this, if a public option isn't put into play, that might not actually be true. Based on the fact that thousands are losing their health care and we are having to pay for said services through emergency rooms which are astronomically expensive, we will be running up health care costs that would probably be able to pay all the industrialized world's health care costs in a decade's time. A public option actually saves us money in the long run and I'm not sure why the conservatives think otherwise.

 

[Mercer]

We are at no risk at all of defaulting on our debt. Yes, we are running up large deficits as a result of the financial crisis and recession, but our debt as a percentage of GDP is still much lower than many other developed nations.

Worst case scenario, in a decade if its a choice between risking default on our debt or cutting Medicare, they will just cut Medicare.

Are you sure about your statistics?

 

[Kandahar]

Are you sure about your statistics?

He is correct. Our debt-to-GDP ratio is historically on the high side for the United States...but other countries have had much higher debt-to-GDP ratios without any financial problems.

I'm not concerned about the debt we are incurring in the short term due to the financial meltdown. I'm more concerned about our habitually running deficits during good economic times.

 

[Baralis]

No one would ever buy our debt again.

Which could be a very good thing. Sure it would cause a lot of pains but we should never be allowed to do what we have done.

 

[Redress]

Which could be a very good thing. Sure it would cause a lot of pains but we should never be allowed to do what we have done.

I consider getting out of debt to be a top political issue. However, never going into debt is an unreasonable proposition. National emergencies such as war could very well lead to a need for deficit spending in the short term, and unexpected downturns could very easily create a situation with unplanned debt.

 

[Baralis]

I consider getting out of debt to be a top political issue. However, never going into debt is an unreasonable proposition. National emergencies such as war could very well lead to a need for deficit spending in the short term, and unexpected downturns could very easily create a situation with unplanned debt.

I dont disagree with you here. I can see some scenarios where we might run into debt but we have no reasonable excuse for the debt we have amassed.

 

[Objective Voice]

We'll be just fine.

The NASDAQ is up. The Dow, while not anywhere near where it was this time last year, is back to where it was in September 2008. The nation's unemployment rate is holding at or just below 10%. The banks are lending money albeit with more stringet lending conditions. The housing market was up 10% for July. I'm not saying everything is rosy; we still have a long way to go toward real economic recovery, but things are looking better than they did 9-months ago. It'll be slow-going, but I'm confident this country will be able to significantly pay-down its debts over the next 10-15 yrs. (Of course, they could reduce the deficit sooner with a spending freeze.)

 

[ALiberalModerate]

(Of course, they could reduce the deficit sooner with a spending freeze.)

Yes, but would probably be a good idea to hold off on that spending freeze until the economy is really rolling again.

 

[akyron]

Of course. But i meant, what do you reckon the peoples republic of china would do?

They dont need our money they now have KFC.


KFC China's recipe for success

 

[Truth Detector]

He is correct. Our debt-to-GDP ratio is historically on the high side for the United States...but other countries have had much higher debt-to-GDP ratios without any financial problems.

I'm not concerned about the debt we are incurring in the short term due to the financial meltdown. I'm more concerned about our habitually running deficits during good economic times.

What other countries would those be? Germany, Britain and France? I think if one were to make an honest introspection, these countries are indeed headed for severe problems balancing the huge tax burden already being levied and the ability to continue their generous public welfare programs.

They have violent riots about every month in France. Imagine if that started occurring in the US?

 

[Kernel Sanders]

Saying we'll default is skipping a few steps. What is plausible, although also very unlikely, is that our credit rating would get downgraded. We'd have warnings well in advance, though, and I can't see the government wallowing in inaction should that happen

 

[Don't Tase Me Bro]

Honestly, I don't think it will take a decade to reduce. Once the economy picks back up and the unemployment goes down, the revenue will come in and we will see a large reduction in the deficit.

In theory that would be true, but the Federal government has a history and tendency of increasing their spending and wiping away any excess money they come across.

I will say this, if a public option isn't put into play, that might not actually be true. Based on the fact that thousands are losing their health care and we are having to pay for said services through emergency rooms which are astronomically expensive, we will be running up health care costs that would probably be able to pay all the industrialized world's health care costs in a decade's time. A public option actually saves us money in the long run and I'm not sure why the conservatives think otherwise.

I'm not a conservative and I think otherwise. Basic math and the history of government being unable to live within its means tells you that you cannot add 40 million people onto the public dole and spend less money without massive cutbacks to those already receiving medical care through insurance or Medicare. It's an asinine assumption and I am not sure why the supporters of this somehow think it's possible.

 

[Kandahar]

I'm not a conservative and I think otherwise. Basic math and the history of government being unable to live within its means tells you that you cannot add 40 million people onto the public dole and spend less money without massive cutbacks to those already receiving medical care through insurance or Medicare. It's an asinine assumption and I am not sure why the supporters of this somehow think it's possible.

The idea is to spend less money overall. So yes, the government costs of health care would increase with an extra 40 million people on a public option...but in theory this should help reduce OVERALL medical costs. Evidence from other nations (and from US states with some form of public health care) strongly suggests that this does indeed happen.

Anyway, aside from health care I don't really think we need any other major expansions of the government for a while. I don't see any fundamental reason why we couldn't have a balanced budget by the end of this decade, depending on the economy.

 

[DrunkenAsparagus]

A look at the CBO's site doesn't make one quite as optimistic as many of you are

Congressional Budget Office - Home Page

 

[Kandahar]

A look at the CBO's site doesn't make one quite as optimistic as many of you are

Congressional Budget Office - Home Page

You aren't suggesting that the US is going to default on its debt because of one or two years of abnormally high deficits due to the worst recession since the 1930s...are you?

If our creditors didn't trust us to pay it back, our bond rates would be higher.

 

[DrunkenAsparagus]

No,entitlements will really bite us in the ass though. They need serious overhaul, to be dropped, or we have to default at some point

 

[Kandahar]

No,entitlements will really bite us in the ass though. They need serious overhaul, to be dropped, or we have to default at some point

Social security can be made solvent with a few relatively minor tweaks: Raising the retirement age, reducing benefits, making it means-tested, etc. I'm not necessarily opposed to partial privatization, but I don't think it's necessary to make the program solvent.

Medicare is a much bigger long-term problem. In this case, the only solution is major cost control. I think this will be much easier if we also have a public option health care plan that EVERYONE can participate in.

 

[DrunkenAsparagus]

A public option plan would only put more people into a non cost effective government program. I also point out the problems with the tweaks, because I doubt that enough politicians in Washington have the balls to do that.