What Happens if America Can't Pay Debt?

[Maulet]

raising taxes? wtf? Why would we want to do that...so the government can give more of our hard earned money to failing companies and huge bonuses to their executives?

Hard won? You think asking for credit is a hard job?? However i do think that bonuses to thieves (executives in general) should not only be banned, but given back.

[molonthegreat]

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.

Yeah it's like that saying if you owe the bank 1 million dollars you have a problem if you owe the bank 1 billion dollars the bank has a problem.

[RomanSoldier9001]

You dont need to supose this scenario is already real.

[JP226]

and so goes your accounts receivables, all denoted in American Dollars.

[Nietzsche]

And have you calculated, assuming absolutely nothing changes, how long it will first take for US exports to reach equality with imports and then succeed them until you have paid off the debts?

We are talking about decades here. And during decades, lots of things can happen.

But raising taxes DOES increase A substantially. Lowering A and imagining that magically that makes even more money is unrealistic.

Taxes also increase revenue. There is hard limit on how much US government can cut spending. Real organization cannot arbitarily cut it's expenses to make ends meet. There are always very large mandatory payments you have to make.

Taxes do increase A, but it is not some slider in a video game. Applying a tax creates an artificial imbalance in the market that can have untold ripple affects elsewhere. Additionally, taxes choke off productivity in many proven ways. It's basic economics otherwise why not tax everyone 100% of everything they make? There is a point of diminishing returns with taxes and revenue.

However, the real complexity comes in when any new tax is introduced in how it will relate to older and more institutional market trends. Simply applying a tax A to a market can have many side-affects that will actually, eventually, leave with a net loss of revenue. People make rational decisions. If they see that a certain product is taxed to the point where it is no longer affordable they will make a change to reduce the revenue from said tax.

For example, Maryland taxes on cigarettes are ridiculously high. So, Maryland residents who are near the borders make the rational decision to go elsewhere to buy them. This results in a budget shortfall unexpected by the central planners. But that is only a simple example. The market, and tax laws, are far more complex and can do subtle and damaging things to markets and inevitably, economies.

[Maulet]

Taxes do increase A, but it is not some slider in a video game. Applying a tax creates an artificial imbalance in the market that can have untold ripple affects elsewhere. Additionally, taxes choke off productivity in many proven ways. It's basic economics otherwise why not tax everyone 100% of everything they make? There is a point of diminishing returns with taxes and revenue.

However, the real complexity comes in when any new tax is introduced in how it will relate to older and more institutional market trends. Simply applying a tax A to a market can have many side-affects that will actually, eventually, leave with a net loss of revenue. People make rational decisions. If they see that a certain product is taxed to the point where it is no longer affordable they will make a change to reduce the revenue from said tax.

For example, Maryland taxes on cigarettes are ridiculously high. So, Maryland residents who are near the borders make the rational decision to go elsewhere to buy them. This results in a budget shortfall unexpected by the central planners. But that is only a simple example. The market, and tax laws, are far more complex and can do subtle and damaging things to markets and inevitably, economies.

I think there is at least one flaw in your reasoning: People do NOT think rationally, otherways this economical crisis would have never happened. Businessmen are nothing but stupid greedy pigs that not only will destroy anything else in order to make money, but will also loose their own business.

[xcorps]

I think there is at least one flaw in your reasoning: People do NOT think rationally, otherways this economical crisis would have never happened. Businessmen are nothing but stupid greedy pigs that not only will destroy anything else in order to make money, but will also loose their own business.

[Nietzsche]

I think there is at least one flaw in your reasoning: People do NOT think rationally, otherways this economical crisis would have never happened. Businessmen are nothing but stupid greedy pigs that not only will destroy anything else in order to make money, but will also loose their own business.

I've already made several posts on the crash and how the government facilitated it. If you cared to read them you'd not make a post like this.

[Maulet]

I've already made several posts on the crash and how the government facilitated it. If you cared to read them you'd not make a post like this.

So you really think that is not true?

[Exarch]

hey say that did happen
say the USg defaulted on its debt
could another creditor country legally 'repo' the worth of what they're owed?

[Spartan198]

hey say that did happen
say the USg defaulted on its debt
could another creditor country legally 'repo' the worth of what they're owed?

The US Army, Marines, Air Force, and Navy says no.

[Exarch]

The US Army, Marines, Air Force, and Navy says no.

i was thinking more nationalization of companies and assets

[Lord Consul]

The US Dollar won't remain indefinitely as the reserve currency of choice for most countries. I am of the opinion that, as long as Europe continues its descent into political irrelevancy, the Great Powers of the future will probably keep their reserves in Euros - a strong currency of an inoffensive - militarily speaking - group of countries.

However, I don't the US will default on its debt any time soon. China has all the interest in the world to keep propping up America's ever increasing debt.

[Maulet]

The US Army, Marines, Air Force, and Navy says no.

Did you know that soldiers get very angry if they are not payed? And even more if they don't get food or ammo. Because, you know, if they were about to fight to prevent others from getting their money back, it would be obvious they are in ruin, and would therefore not have anything.

If the circumstances were those, i don't think anyone would let the usa anything, so aside from sending missiles (which don't ask payment nor food) they could do nothing about it. Besides, i wouldn't rely on very much on an army that's fighting, and loosing, two wars.

[Hunter Makoy]

i was thinking more nationalization of companies and assets

No nothing like that would happen. The worst thing that i could see really happening would be NAFTA moving to more of an EU type setting (basically a group contraining several contries who's likelyhood of paying off their debt is FAR lower then the US's).

This way rather then having to pay it off (BTW why are we acting as if the U.S. is actually going to be called on this? The whole idea is laughable considering Italy, France, Spain, et al still exist.) it would essentially be spread out.

[Emperor Charlemagne XII]

america is too powerful to be controlled by china

[Gelgoog]

Besides, i wouldn't rely on very much on an army that's fighting, and loosing, two wars.

That statement there is just so full of fail

[43rdFoot]

The U.S. does not pay it's debt. The only time it has made a concerted effort too was in the earl 19th century. The U.S. pays interest on it's debt, and nothing more.

[Mataputas]

Just one thing... there couldn't be a default on the sovereign debt, without giving ENORMOUS signs of real economy distress.

I'm from Argentina and in 2001 the government made defaulte on its debt. But the economy conditions were: 50% of poor people, 40% of unemployment, a fall on the GDP of 9% in one year, gigantic debt interest rate, etc... And we don't print dollars, as the US Treasury does.

The same happened to Russia in 1998. The default was a consequence of the chaos that was leading the country...

What I'm saying is that, although the USA has quite a big debt, it's paying a low interest rate (I would say one of the lowest in the world, if not the lowest). Why is that? That's because other countries trust on the USA. If there was any suspicion of a probable default, that interest rate would rise for sure (to keep stable the expected return of the investment). But there isn't any.

To sum up, it's impossible to imagine such a scenario without taking into account the facts that would lead to that situation (and that there are not present in the USA economy).

[Poach]

If the US defaulted on her loans, the Chinese economy would collapse, followed quickly by the entire Asian economy, which would cause the collapse of the European and US economies, which would cause the collapse of the Middle Eastern economy, which would cause the collapse of everything else.

Essentially, total global economic collapse on a scale we have never seen before!