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Simple Question: What happens if we (the USA) default on our debt. I know other countries won't

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patricia92243 Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Jul-02-11 09:30 AM
Original message
Simple Question: What happens if we (the USA) default on our debt. I know other countries won't
loan us money, but what EXACTLY does that mean? How will it affect everybody's' day-to-day life?

I don't understand financial stuff that much and will appreciate any help in assisting me comprehend what will happen.

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MadHound Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Jul-02-11 09:33 AM
Response to Original message
1. Let's see,
Higher interest rates, government unable to pay for a lot of services(think of a government half shut down), unable to pay soldier's pay and other such programs. High inflation, weak dollar, good chance we'd be flirting with hyperinflation. Stock and bond markets crash.

That's just the tip of the iceberg, it would get uglier as time passes.
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hack89 Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Jul-02-11 09:35 AM
Response to Original message
2. No real effect
unlike Greece, our problems are more political then economic. The best indicator of what the world markets think is the yield on bonds. Greek government bonds are at 30% because of the high risk of losing your entire investment. US bond yields are very low - no one questions that the US as the economic ability to pay of their debts.
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fredamae Donating Member (622 posts) Send PM | Profile | Ignore Sat Jul-02-11 09:38 AM
Response to Original message
3. I found this, but I cannot verify the accuracy
of this over any other information that's floating around out there.

http://www.examiner.com/political-buzz-in-national/fail...
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no_hypocrisy Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Jul-02-11 09:39 AM
Response to Original message
4. There's the issue of countries that have bought our Treasury Notes and financed our debt.
Edited on Sat Jul-02-11 09:41 AM by no_hypocrisy
They have IOU's. Ideally they wait to call them in.

But if this country defaulted, they have no assurance at all that they will get paid back. In other words, billions of dollars that they lost.

So to cut losses (literally and figuratively), they sell their IOU's for less than they're worth. The Treasuries are worth much less than their stated value. And the mass selling lessens their value further. And then the Fed has to raise interest rates that the Treasuries pay in order to make up the difference. And when interest rates are raised on Treasuries, the rates are raised across the board.

You want to buy a house? Yesterday, your mortgage could have been at 5 percent. Today, it's 8. Same thing for commercial loans if you want to maintain a line of credit for your business, start a business, go to college, etc. You can't survive without credit and that credit just got more expensive.

And Wall Street will have some bad days as stocks will cost more due to the higher interest and the effect of more expensive credit for American business.

It's a downward spiral that's hard to reverse once it gets started.
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moondust Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Jul-02-11 09:40 AM
Response to Original message
5. Nobody really knows.
It hasn't happened before.
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baldguy Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Jul-02-11 09:43 AM
Response to Original message
6. The US is the 3000-lb gorilla in the room for the world financial market.
And what the world financial market mostly buys and sells is credit and debt. The US has been a stable debtor - and one of the largest - for more than 150 yrs. If we suddenly start defaulting on our loans, even for a sort time, the market will suffer catastrophically. It will cost us much more in the long run - in penalties, in higher interest rates and in lower credit ratings.

The refusal of the GOP to raise the debt limit is monstrously stupid.
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fredamae Donating Member (622 posts) Send PM | Profile | Ignore Sat Jul-02-11 10:08 AM
Response to Reply #6
8. I believe it is the Next Phase in getting control
I understand what you are saying, but..regardless, all of this economic crises started with reagan 30 years ago..Look Back...Media Control (messaging), timing, election fraud, various laws/policies/steps etc implemented as part of the "staging" to reach their goal(s)---this is what got us where we are---De-Regulation, tax cuts, protections for wall street, failures of the AG/DOJ to prosecute, the particular SCOTUS/Federal judges that were appointed by bushco & their locations VS the pub gov's---
Is it real or is it theory? All I know is how it feels to me.
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enlightenment Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Jul-02-11 09:57 AM
Response to Original message
7. I heard an interesting comment on NPR the other day;
during a roundtable discussion of the Greek debt crisis on the Diane Rehm show.

In response to a question from Diane as to how much the US had in common with Greece (as to debt), the Financial Times International Economy Editor Alan Beattie said this:

BEATTIE
10:54:45
The U.S. has a couple of enormous advantages. It borrows not just in its own currency, which Greece kind of does, but it has control over that currency in the sense that Greece does not control the Euro. The U.S., except if you take one or two technical grounds, has not defaulted on its federal debt. It is an extremely credit-worthy borrower. One of the interesting things I find at the moment is that the debate in Congress is kind of odd because there's perpetual threats being, you know, conjured up that the market is about to stop funding the U.S. government.

In fact, the U.S. government can borrow extraordinarily cheaply, you know, at historic lows. It did strike me that one way of solving the Greek and the U.S. problems would be get the congressional Republicans and the Greek public sector unions, right, to switch sides. So then you'd have people who are keen on austerity in a country that needed austerity, and then you'd have people keen on keeping spending, going into a country that needs to keep spending going.

http://thedianerehmshow.org/shows/2011-06-30/greece-and...



It is fascinating to think that we are even contemplating defaulting on our debt . . .

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FirstLight Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Jul-02-11 11:24 AM
Response to Original message
9. Did you ever think that the way to stop the behemoth of debt-driven society
...is to LET it fall apart for a time and rebuild it on something more REAL?

There's a Reason why tribal societies and early civilizations had rules against loans and charging interest...because they realized it was an Intangible.

if you do a 'trade' for an item, what is in your posession is REAL GOODS, not what is hidden in a computer or somewhere on obscure paper...

The whole concept that the banking industry and all the corruption it has bred (in ALL aspects of society) are Too Big to Fail, is bull puckey... it's GOT to crumble to some extent so we can rediscover what the REAL value of things ARE.
community will become our new currency, just watch.
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jwirr Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Jul-02-11 12:04 PM
Response to Reply #9
10. To begin with I need to say that I believe we are heading for some
sort of collapse one way or the other - i.e. oil depletion.

That being said any "let if fall" idea scares the devil out of me. In falling we also let programs like social security and medical assistance fall which could mean death to many not just an economic setback.

The biggest thing that scares me though is that the corporationists are very close to taking over without any collapse and they are not nice "people". I do not think there is much chance that they would wait for us to rebuild. They are like vultures just waiting for the crash so they can start eating our flesh.

I do not know how we are going to keep that from happening.
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patricia92243 Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Jul-02-11 12:15 PM
Response to Reply #10
11. This is what I am afraid of too. I was hoping that I was wrong.
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