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Thread: What Happens if America Can't Pay Debt?

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    Shams al-Ma'rifa's Avatar Princeps Posterior
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    Default What Happens if America Can't Pay Debt?

    So suppose a scenario where America can't pay off its foreign debt, what will actually happen? Would China do the foreign policy version of this?:
    Spoiler Alert, click show to read: 
    I mean the US owes 95% of its GDP to foreign creditors, how is that even possible? Why hasn't people started asking for their money yet?
    Last edited by Shams al-Ma'rifa; January 28, 2010 at 11:39 AM.


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    Default Re: What Happens if America Can't Pay Debt?

    If the US defaulted on its debt, both our economy and China's would collapse, and probably the entire world economy along with it. It's all inter-connected and the USA defaulting on its debt would entail the complete devaluing of the US dollar, which many countries have their reserves in.

    The US is too big to fail, essentially.

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    Shams al-Ma'rifa's Avatar Princeps Posterior
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    Default Re: What Happens if America Can't Pay Debt?

    So then why the hell would countries lend their money when the people can't pay them back?


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    Default Re: What Happens if America Can't Pay Debt?

    Quote Originally Posted by mkesadaran View Post
    So then why the hell would countries lend their money when the people can't pay them back?
    For two reasons -- one, we DO make payments on our debt every year, and two, that debt is an asset to China just like your mortgage is an asset to a bank.

    At least that's my understanding of it, I'm no economist.

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    Default Re: What Happens if America Can't Pay Debt?

    Quote Originally Posted by Justinian View Post
    If the US defaulted on its debt, both our economy and China's would collapse, and probably the entire world economy along with it. It's all inter-connected and the USA defaulting on its debt would entail the complete devaluing of the US dollar, which many countries have their reserves in.

    The US is too big to fail, essentially.

    This is why China was making noise about a global supercurrency. It's badly overexposed on the dollar, and is afraid (rightly) of US inflation.
    "Every idea is an incitement. It offers itself for belief and if believed it is acted on unless some other belief outweighs it or some failure of energy stifles the movement at its birth. The only difference between the expression of an opinion and an incitement in the narrower sense is the speaker's enthusiasm for the result. Eloquence may set fire to reason." -Oliver Wendell Holmes Jr.

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    Default Re: What Happens if America Can't Pay Debt?

    i dont understand how the U.S. would be so affected, we wipe the debt clean and now we couldnt buy overseas products but would that be so bad? we would have to make things here, i know i probably sound niave on this issue and thats becuase i am, so enlighten a man
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    Default Re: What Happens if America Can't Pay Debt?

    Quote Originally Posted by Pickle_mole View Post
    i dont understand how the U.S. would be so affected, we wipe the debt clean and now we couldnt buy overseas products but would that be so bad? we would have to make things here, i know i probably sound niave on this issue and thats becuase i am, so enlighten a man
    Well US isn't exactly self-reliant on many key resources and goods that its people's standard of living depends on (oil especially). Basically US economy will go back to barter and standard of living to pre-19th century lol. Not that bad i guess. Though most people's savings will be gone though, except property owners.
    Have a question about China? Get your answer here.

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    Default Re: What Happens if America Can't Pay Debt?

    Quote Originally Posted by mkesadaran View Post
    So then why the hell would countries lend their money when the people can't pay them back?
    To build off what Justinian said, the government also sells bonds and is in effect a debtor to its own citizens. Because bonds are repaid with interest, the government sells more bonds each year to pay back the interest incurred on the previous year's bond repayments. Short term fixes, sure, but the debt just continues to get bigger.

    But I'm no economist.



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    Default Re: What Happens if America Can't Pay Debt?

    could we not recover our currency, who else would the sauds sell to? lets assume we wipe our debt, our dollar plummets. The sauds need us to buy their oil, if not they will plummet too, so we could put in place measures to rehab our dollar while purging our debt, not too bda imo
    I come in peace, I didn't bring artillery. But I am pleading with you with tears in my eyes: If you F___ with me, I'll kill you all.
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    Default Re: What Happens if America Can't Pay Debt?

    Quote Originally Posted by Pickle_mole View Post
    could we not recover our currency, who else would the sauds sell to? lets assume we wipe our debt, our dollar plummets. The sauds need us to buy their oil, if not they will plummet too, so we could put in place measures to rehab our dollar while purging our debt, not too bda imo
    Other countries would just step in to fill the void and start buying. The price would probably drop as well.



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    Default Re: What Happens if America Can't Pay Debt?

    i hazard a guess, china would tgake the USG to the world court over monies not paid;
    it'd be a class action with other countries

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    Default Re: What Happens if America Can't Pay Debt?

    Quote Originally Posted by Pickle_mole View Post
    could we not recover our currency, who else would the sauds sell to? lets assume we wipe our debt, our dollar plummets. The sauds need us to buy their oil, if not they will plummet too, so we could put in place measures to rehab our dollar while purging our debt, not too bda imo
    sell you in exchange for what? Weapons? certainly. But not gonna be dollar until you pay the money back lol. If you pay them money, what if you default again? They are not stupid. It's a horrible idea lol. Basically US economy will stay in barter until they repay their debt.

    and dont worry, tons of countries need oil, don't forget china that is buying up all the oil it needs. Saudis dont have to worry about it.
    Have a question about China? Get your answer here.

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    Default Re: What Happens if America Can't Pay Debt?

    Today's currency is fiat currency, that is, its value depends only in people's "faith" in it. This means that, given the USA produce mainly nothing and live mainly from credits (the interests of which will be paid with more credits), at some point or another people will stop selling or buying them things, and they might even ask their money back, probably not in currency, but in goods, such as land, resources.... To this the "1st world power", could do two things: Accept that they had been living a life they could not afford and that they would not be able to keep for any longer, Or get very angry first and accept it afterwards. (The "getting angry" phase may be accompanied by some nuclear missiles, which may destroy everything, but will not solve their problem...)
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    Default Re: What Happens if America Can't Pay Debt?

    Quote Originally Posted by Maulet View Post
    Today's currency is fiat currency, that is, its value depends only in people's "faith" in it. This means that, given the USA produce mainly nothing
    The US is one of the largest exporters in the world. Only surpassed by the likes of germany and china. We just import 25% of the world's exports. Which does give us a lot of economic influence.
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    Default Re: What Happens if America Can't Pay Debt?

    Quote Originally Posted by scottypd54 View Post
    The US is one of the largest exporters in the world. Only surpassed by the likes of germany and china. We just import 25% of the world's exports. Which does give us a lot of economic influence.
    I'd certainly like to know what they export. However, even if that were true, it's clearly not enough...
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    Default Re: What Happens if America Can't Pay Debt?

    I'd certainly like to know what they export.
    Hot off the PDF.

    http://www.trade.gov/press/press_rel...eet_021109.pdf
    "Every idea is an incitement. It offers itself for belief and if believed it is acted on unless some other belief outweighs it or some failure of energy stifles the movement at its birth. The only difference between the expression of an opinion and an incitement in the narrower sense is the speaker's enthusiasm for the result. Eloquence may set fire to reason." -Oliver Wendell Holmes Jr.

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    Default Re: What Happens if America Can't Pay Debt?

    I don't doubt it, however as that paper shows too, you import far more than you export, so sooner or later you'll have to collapse, just as a star has to...

    Another question: the mentioned billions and trillions are right? That is, 10^12 and 10^18 respectively, or are they Milliards (10^9) and billions (10^12)?
    Last edited by Maulet; January 28, 2010 at 06:17 PM.
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    Default Re: What Happens if America Can't Pay Debt?

    You missed the part about the exports increasing faster than imports....
    "Every idea is an incitement. It offers itself for belief and if believed it is acted on unless some other belief outweighs it or some failure of energy stifles the movement at its birth. The only difference between the expression of an opinion and an incitement in the narrower sense is the speaker's enthusiasm for the result. Eloquence may set fire to reason." -Oliver Wendell Holmes Jr.

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    Default Re: What Happens if America Can't Pay Debt?

    well after watching the State of The Union someone brought up that if the US doesn't start paying back their money and fixing the deficit we will be bankrupt in 7-10 years





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    Default Re: What Happens if America Can't Pay Debt?

    Great Depression Round II

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