Sovereign Default

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Ff4412's picture
Status: Member (Offline)
Joined: Apr 13 2011
Posts: 1
Sovereign Default

What would happen if the US decided to default on it's debt, stop paying whomever it owes money to? What are the implications? And why do most people say this is a last recourse? Why are we not looking at this more seriously as a viable option?

anton95's picture
Status: Member (Offline)
Joined: Sep 29 2008
Posts: 22
re Sovereign Default

I guess it's called the last resort because all the others (devaluation, inflation etc ) will be tried first.

As to why it is not a viable option........

Imagine a default tomorrow.   Needless to say, no more new loans for some years.

So how does the government keep spending at the rate of $3.8 trillion per annum, when 40% is being borrowed?

It doesn't, so 10.8% of GDP is suddenly ....gone.  US corporations will also sudenly be suspect as borrowers so that will have a knock-on effect on the economy.  The biggest effect would probably be on that fragile concept of Confidence.

What's the upside?  The US taxpayer is not on the hook for the haircut they can negotiate / impose.  However they behave as if they have no intention of ever repaying this debt, which is some other generation's problem anyhow, so I ask again, what's the upside?

Trigger a great depression for no benefit.

Just my 2 cents worth.Smile



RJE's picture
Status: Diamond Member (Offline)
Joined: Aug 31 2008
Posts: 1369
Like the Russian commercial: No Pain...No Pain (no default pleas

...because it's our Debt. That we can manage, take an ego hit, live within our means, and still have it better than everyone else in the World. We can live without so many things. A case in point: I just did our bills today, and after carefully paying down debt, doing without our glutenous behavior we now have one payment other than quarterly insurance payments, food (have 4 months worth) and utilities. On one salary (my wife's) we invest one check a month and have free cash flow still on the other. That's the first time in our lives that has occurred, and do you know what? We have never been happier. As a Nation we need to do this too. I thank Chris in large part, and we must have been ready because this has been a hoot.

Incidentally I called my wife before reading this blog and told her what she means and how we are living. Thrilled was her response. When your Lady of 38 years (married very young) is joyfully thrilled with you it means a great deal. She said, " great deal Honey, lets go shopping!". We'll go to a Tigers game and Greektown instead. Peace

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