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US Debt Default
Posted on 5/17/23 at 11:26 am
Posted on 5/17/23 at 11:26 am
The one thing all the talking heads seem to agree upon is that the US not increasing the debt ceiling would be 'catastrophic'. I hear this repeated by everyone from Wall Street types to politicians from both sides of the aisle. So, everyone that is at odds with the average American tax payer says it's bad. This leads me to believe that they are probably lying.
Can anyone explain why defaulting would be bad? Personally, I think this spending train has to end and if it takes running that train into a damn wall, then so be it.
Can anyone explain why defaulting would be bad? Personally, I think this spending train has to end and if it takes running that train into a damn wall, then so be it.
13
Posted on 5/17/23 at 11:33 am to Aubie Spr96
I wish republicans had the backbone to let it happen, but they won’t
Posted on 5/17/23 at 11:44 am to Aubie Spr96
so your choices are to default or to increase the debt. how is increasing the debt good?
Posted on 5/17/23 at 11:56 am to jamiegla1
They just keep saying it's catastrophic, but never offer any explanation of what that means or why it would be bad. Everyone I normally distrust is telling me the same thing.
Posted on 5/17/23 at 12:23 pm to Aubie Spr96
Well imagine, your mortgage with a 10%+ interest rate.
If we default on debt, all lending rates all along the curve will move up significantly.
Buyers of US debt will ask for a higher yield to park money in treasuries if that toothpaste comes out of the tube, and all lending rates are based on treasuries. All currently held treasuries will reduce in value as yield goes up (think SVB crisis). Since we have a constantly running deficit, our entire government spending structure is based on selling debt.
Think about it this way, we take in 4-5 trillion in tax revenue annually in the US, we spent almost 7 trillion last year, we have 30 trillion plus debt now, imagine the service rate on that debt going to 5% as debt needs to be rolled over into newer interest rates. We will be spending over 30% of income on debt service. Defaulting will cause those rates to increase faster and stay higher longer as the world which buys our treasuries now factors in risk premium on a previously considered risk free asset. (oh by the way, billionaires hold like a total of 5 trillion in ALL ASSETS, you could tax billionaires at 100% and you wouldnt move the needle on US debt)
I believe spending needs to be reigned in, and that is the single only issue I care about at all in elections moving forward, nothing else matters to me because it's all irrelevant if this issue isn't solved long term; but letting the US default to try to solve that problem is like, burning your house down because you have leaky plumbing. Yea, you kinda solved the problem, but now where are you going to live?
If we default on debt, all lending rates all along the curve will move up significantly.
Buyers of US debt will ask for a higher yield to park money in treasuries if that toothpaste comes out of the tube, and all lending rates are based on treasuries. All currently held treasuries will reduce in value as yield goes up (think SVB crisis). Since we have a constantly running deficit, our entire government spending structure is based on selling debt.
Think about it this way, we take in 4-5 trillion in tax revenue annually in the US, we spent almost 7 trillion last year, we have 30 trillion plus debt now, imagine the service rate on that debt going to 5% as debt needs to be rolled over into newer interest rates. We will be spending over 30% of income on debt service. Defaulting will cause those rates to increase faster and stay higher longer as the world which buys our treasuries now factors in risk premium on a previously considered risk free asset. (oh by the way, billionaires hold like a total of 5 trillion in ALL ASSETS, you could tax billionaires at 100% and you wouldnt move the needle on US debt)
I believe spending needs to be reigned in, and that is the single only issue I care about at all in elections moving forward, nothing else matters to me because it's all irrelevant if this issue isn't solved long term; but letting the US default to try to solve that problem is like, burning your house down because you have leaky plumbing. Yea, you kinda solved the problem, but now where are you going to live?
This post was edited on 5/17/23 at 12:34 pm
Posted on 5/17/23 at 12:30 pm to Aubie Spr96
Well all of the treasuries held in money market funds would be devalued for one. That’s trillions of dollars, so just follow the dominos from there. Now there’s no back stop to FDIC for when the bigger banks start collapsing. Full scale panic and riots would happen shortly thereafter.
Posted on 5/17/23 at 12:33 pm to Aubie Spr96
Doesn't matter. They will reach a deal at the last minute and completed their objective of keeping you from understanding the CIA connection with Epstein.
Posted on 5/17/23 at 12:43 pm to Aubie Spr96
quote:
I hear this repeated by everyone from Wall Street types to politicians from both sides of the aisle. So, everyone that is at odds with the average American tax payer says it's bad. This leads me to believe that they are probably lying.
They are not lying. Remember that you are at the bottom of the food chain. What is bad for them is bad for you. What is bad for you may not always be bad for them.
Posted on 5/17/23 at 12:44 pm to jamiegla1
quote:You should at the very minimum view it as the (vastly) lesser evil.
so your choices are to default or to increase the debt. how is increasing the debt good?
Posted on 5/17/23 at 12:44 pm to I Love Bama
Who do we actually owe debt to that is going to force us to pay? If we simply say we are paying and wipe that debt off the books similar to say student debt we don't need to raise the limit. Or just raise it and kick the can down the road per usual.
Posted on 5/17/23 at 12:47 pm to Civildawg
quote:
I wish republicans had the backbone to let it happen, but they won’t
Their opportunity to decrease spending is when they vote on the next budget.
Posted on 5/17/23 at 12:47 pm to ks_nola
You don't understand. We create money without inflation exploding by selling bonds to the rest of the world. They buy them because it's pretty much the only risk free asset in the world, because "the US will never default". If someone in Europe is buying US bonds at 5% interest rates, and now you tell them there's risk on that debt when previously there wasnt, everything changes, now I need say 9% yield for it to make sense to buy, or I wont buy US debt, and the cards start falling, our currency crashes in value relative to worldwide FX. All the treasuries held by the US, US companies, and funds now are shrinking in value as buyers leave, thus driving prices down.
It's not about paying back the debt, we could just not do that; but it's about selling more debt. If we can't sell more debt, then we are dead.
It's not about paying back the debt, we could just not do that; but it's about selling more debt. If we can't sell more debt, then we are dead.
This post was edited on 5/17/23 at 1:03 pm
Posted on 5/17/23 at 1:01 pm to Pendulum
They’re just going to do continuing resolutions until the republicans roll over and give in to every demand from the democrats
Other thing to remember, when the republicans are discussing budget cuts they mean cuts to the yearly increase- instead of increasing defense by 10% this year they’ll increase by 8%, and have all kinds of headlines about shaving 2% off the top.
Other thing to remember, when the republicans are discussing budget cuts they mean cuts to the yearly increase- instead of increasing defense by 10% this year they’ll increase by 8%, and have all kinds of headlines about shaving 2% off the top.
Posted on 5/17/23 at 1:09 pm to wileyjones
Debt is not a bad thing. Our standard of living is the best in the history of humanity because of debt. You just have to keep debt increasing in line with economic growth. We are extremely out of line right now; but defaulting is not a valid solution, that's basically just pulling forward the game over without actually changing anything. It's moronic; sure try to leverage what you can out of the situation, that is what is happening, but actually considering letting the US default is moronic.
This post was edited on 5/17/23 at 1:10 pm
Posted on 5/17/23 at 1:22 pm to Pendulum
A lot of people can’t understand that the economics and accounting for a country are not the same as for the individual.
Posted on 5/17/23 at 1:35 pm to Pendulum
quote:
Debt is not a bad thing.
The only institution in the world that is permitted this debt theology is the US federal government.
State governments can't do it.
Municipal governments can't do it.
Businesses can't sustain at the rate of the federal government.
Just because debt is a useful tool does not mean perpetual debt is good.
I disagree.
Posted on 5/17/23 at 1:42 pm to Aubie Spr96
Here are facts.
*Defaulting would ruin the economy. We are addicted to debt, and making debt painful would hurt everywhere (government budget, value/strength in the dollar, our ability to buy foreign goods cheaply).
*The budgets are approved way in advance. We know 18 months ago that this approved budget will hit the ceiling by a certain date. And both parties are in cohoots on the budget. The arms aren't flailing then. This could all be stopped in congress way before the budgets are passed.
There is a ton of political drama.
*The Republicans will cave. Because there is no leverage on the debt ceiling. The line in the sand needs to be in congress. Not the debt ceiling. It is a losing effort every time.
Efforts should he made to eradicate the debt ceiling as it does nothing but give the democrats a tool to bludgeon the Republicans with. Eliminate the ceiling or stretch it so high that we can kick the can for 100 years.
Then make serious freezes to budgetary spending (I know. I know. Democrats call those "cuts" when they arent).
*Defaulting would ruin the economy. We are addicted to debt, and making debt painful would hurt everywhere (government budget, value/strength in the dollar, our ability to buy foreign goods cheaply).
*The budgets are approved way in advance. We know 18 months ago that this approved budget will hit the ceiling by a certain date. And both parties are in cohoots on the budget. The arms aren't flailing then. This could all be stopped in congress way before the budgets are passed.
There is a ton of political drama.
*The Republicans will cave. Because there is no leverage on the debt ceiling. The line in the sand needs to be in congress. Not the debt ceiling. It is a losing effort every time.
Efforts should he made to eradicate the debt ceiling as it does nothing but give the democrats a tool to bludgeon the Republicans with. Eliminate the ceiling or stretch it so high that we can kick the can for 100 years.
Then make serious freezes to budgetary spending (I know. I know. Democrats call those "cuts" when they arent).
Posted on 5/17/23 at 1:42 pm to Shepherd88
Debt ceiling was just under 6 trillion at the turn of the century.
Inflation from 2000 to now is about 76%. So if it was following close to inflation just under 6 trillion should be about 10.5 trillion or so now.
It's now at $31.4 trillion which they are about to increase probably beyond $32 trillion.
The govt just hits different
Inflation from 2000 to now is about 76%. So if it was following close to inflation just under 6 trillion should be about 10.5 trillion or so now.
It's now at $31.4 trillion which they are about to increase probably beyond $32 trillion.
The govt just hits different
Posted on 5/17/23 at 2:01 pm to Aubie Spr96
Default will happen sooner or later. There is NO practical way to fix this financial crisis. It’ll be painful but necessary. Time to pay the piper for years of zero interest rates and risk taking by the corrupt banking system. We are headed for hyperinflation.
Posted on 5/17/23 at 2:07 pm to TUman
quote:
Default will happen sooner or later.
That's funny.
That would be like not paying your Bank of America mortgage payment for 3 months because you are pissed that BOA took bailout money.
No one is that stupid to let the default happen.
The USA is too big to just let fail like that.
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