What would happen if the U.S. were to cancel its debt?

[Massacure]

What if a newly elected president were to say we aren't going to pay it, and then offer a constitutional amendment banning the government from borrowing money?

[madinmaryland]

1. Probably a collapse of the world economy.

A long and deep depression? The entire banking industry would probably be ruined.

[stopbush]

2. World war, perhaps.

Do you really think the Asian powers would accept our stiffing them on the billions we already owe them with interest? The dollar would be as worthless as Confederate $.

[SteppingRazor]

3. Disaster

The dollar would become worthless. We're talking hyperinflation on a grand scale -- hundreds if not thousands of dollars to buy bread.
Without the assurance of payback, many of our biggest lenders would also be crippled. Essentially, it would cause the complete destruction of the global economy.

[Caution]

4. Total, Worldwide financial disaster.

nothing less.

[Double T]

5. China (Along With Other Countries) Would Repossess The United States

......And Oust The Newly Elected President And The Government

[Warpy]

6. All of that plus no imports.

Think about that for a minute: no shoes, no cloth, no ready to wear clothing, no consumer electronics including computer components, a lot of missing parts in auto manufacture (we just assemble 'em here) and repair, and the list goes on and on. Our manufacturing has been offshored for decades, and there is not enough left of key industries to sustatin us at home or in the world war that would inevitably result.

Without imported oil, we likely wouldn't be able to produce enough food, either.

[dcfirefighter]

7. A better move would be

to have the US treasury print up $7.7T worth of of new bills to pay off the current holders of US Debt (about 40% is intragovernmental debt that we owe to ourselves).

To keep from being wildly hyperinflationary we should simultaneously increase the reserve requirements of US Banks from ~10% to ~100%, effectively 'destroying' ~$7.5T worth of bank-created money. Ergo, net creation of $0.2T, though most of that would be stored in the Treasury as an asset of those intragovernmental debt holders.

To keep foreign fractional reserve banking from multiplying our money, we should implement a Tobin-style tax of a fraction of a percent on all US dollars entering or leaving the country.

To continue creating new money, so as not to suffer deflation, we should print new money every year, roughly $250B, or 3% of the then-existing supply of currency. Alternatively, some sort of price index could be used, but thats sure to be manipulated by the politicos.

[stopbush]

8. Would never work:

1. Our debt holders would not sit by idly as the debt they're holding deflates in value. Before that happened, they would

2. Dump their USD reserves on the world market, thereby killing the value of the $.

But worse:

3. Under *, we will be running tremendous deficits as far as the eye can see. By "erasing" our current debts (actually, deflating the value of those notes to the noteholders) we will be telling the world not to finance the debt we are projected to incur - unless they want to see their investments halved almost immediately.

[dcfirefighter]

9. I'm not asking to deflate the currency

I'm asking for the government (aka US Treasury) as a representative of the poeple to create it, rather than letting private banks (aka the Federal Reserve System) create it.

Before the change, there'd be a $9.3T supply of money. After the change there'd be a $9.3T supply of money. No deflation.

It's a weird bit of accounting that lets banks profit from the creation of money - we take that ability away from them, we can pay off our debts and 'make' $250B a year without raising taxes. We also wouldn't have to pay ~$250B a year on debt service. That's a $500B swing, or roughly 20% of our federal revenue. An added benefit, is that the federal government would no longer compete with people and private enterprise for credit, which means interest rates would decrease (as opposed to being held artificially low).

[Rapier2]

10. notes

It is unconstitutional in itself to default on US debt. "The full faith and credit of the United States" clause in the constitution don't you know.

It simply cannot be done, and maintain the fiction that we live under the constitution. (The SS trust fund is slightly different because the special nature of the SS trust fund bonds allow for a semantic loophole which will allow the courts if they so choose, and they will, to default on them)

Total default would destroy the world financial system. US Treasury debt instruments are the benchmark, the ground, against which ALL financial insturments are measured. In addition the interest and principal of that paper and the ability to buy and sell it is absolutely necessary so that the books of every bank and company and huge numbers of people balance. Absent that it means bankruptsy for them, period.

All that said it might be possible to selectivly default on some foreign debt. For instance defaulting on China central banks holdings would be a slam dunk political winner today, and they are still are buddies, to a degree. Japan and our other Asian allies are a differnet matter politically in a foreign policy sense but here at home screwing the rest of the world will increasingly be a winner.

(There is a technical issue which would allow individual country defaults. Central Bank holdings are in fact held here on ledgers in their names. In other words they are not fungible in the sense of other Treasury debt.The Chineese for instance can't just put their bonds up for sal, at least in the normal way. THey would have to ask the Treasury, real nicely I suppose, to give them some of their own bonds.(You will recall Bush's act in front of the printout at the WV Bureau of Dect a couple of weeks ago. In fact all Treasury bonds are just blips on a screen or numbers on a printout. Only Savings Bonds are paper.) Until the Chineese bonds are held in some account as a blip, somewhere besides on the Treasuries computer they are not sellable)

Still, the further such defaults go, after abandoning the constitution of course, the more the world financial and econmmic system collapses. THe only way that would be tolerable politically would be during an already unfolding depression, where blaming or punnishing others would become attactive. In other word the default cannot be seen as a cause of collapse but rather a response to it. This should be an easy thing to convince the sheeple of.


This is a distinct possibility in my opinion.




There is no way we will pay off this debt which is as you can see going parabolic. Over the last 12 months the debt rose ovder $600 billion. In dollars, not inflation adjusted ones I admit, this was a good portion of the total from the New Deal, thru WWII to the Great Society. IN 12 MONTHS.

For 70 years we hear of the fiscal depradations of Roosevelt and his successors, and it turns out their contribuion is almost invisible.

Anyway we are not going to pay this off. Constitution be damed.

[oecher3]

11. well said, Rapier2, but...

then explain to me the whole issue with Korea recently announcing they would sell off their reserves in dollars! Was that cash/currency held in their country? I am still trying to find more info on it, but due to time constraints I haven't found much yet. All I remember was that it shocked the world market and send the dollar further in the basement at the time!

[umass1993]

12. Yeah, not going to happen

Some of the other posters were correct, we will inflate away our debt. Inflate in the sense that the purchasing power of the dollar will drop.

This simply means that we will pay for our pleasure today, by abstaining tomorrow.

I don't expect this to happen until one or both of the following happen:

1) GM and/or Ford go bankrupt or are bought out by the Japenese
2) Asia gets into a bidding war with the US over petroleum.

[Massacure]

13. What do GM and Ford have to do with the dollar?

[umass1993]

14. Japenese cars compete with Ford/GM

So if the dollar drops against the yen, then Japenese cars become more expensive and therefore domestic cars are more competitive. The key to killing GM and Ford is to corral enough of the market that they cannot sustain the overhead of production, which is substantial for GM.

Once GM and Ford die, then the dollar can fall arbitrarily, because Americans will have no choice but to buy foreign/ mostly Japanese cars, they(the Japanese) won't have to worry about losing market share to domestics.

[jmcon007]

15. China would seize any and all US assets

and order all Americans out of the country. Other countries would follow suit, probably with the promised protection of China.

As a matter of fact, China's coalition of the willing (China, North Korea, maybe Russia)would be formidable to say the least and my fear is that Bush would begin his saber rattling which would quickly lead to nuclear war.

Bush has stiffed everyone in his life, but he'd better draw the line here.

[Massacure]

16. lmao. Nice parody.

It would be interesting to see China pull a "George Bush."

[Mist]

17. You know, I actually worry about that--people look at me like

I'm nuts. COULD they do that?