FuNsTeR

What would happen if the US went broke? - Yahoo! UK & Ireland Finance

What would happen if the US went broke?

Greece may have staved off default for another few months, but as protestors leave the streets of Athens, global attention has moved to the US and its enormous debt problem.
The US is the richest country in the world, so it follows that its credit limit is the largest. But Uncle Sam has run up incredibly large bills in recent years and it is now close to the top of its credit limit.
But the US has its own central bank and Treasury so it could just mint new coins and notes if it ever ran out of money, right?
Well, that is technically correct but US politicians in Congress are supposed to act as the US's bank manager and set its credit limit (they also spend the US's money, so one could argue that it's a fairly lax system).
In recent years Congress has raised the debt ceiling because of some exceptional circumstances like the subprime crisis and the financial sector bailout in 2008/2009. But now that the recovery has taken hold the Republicans in Congress want to start paying the debt away.
That's all fine except that the US is hitting its latest debt ceiling and needs to borrow more money. But Congress is in deadlock.
The scale of the problem
The US needs an extension on its $14.3 trillion credit limit urgently. As anyone who has racked up debt on multiple credit cards will know, the more you owe the more you need to borrow just to pay back your original debts. This is where the US now finds itself.
The biggest economy in the world needs Congress to give it the green light to tap the markets for more cash to pay debt redemptions and coupon payments that are due to be repaid in the coming months.
Since these tally up to more than $500 billion, the extension will have to be fairly hefty to ensure the US's finances are sustainable in the future.
If Congress says no then expect carnage in the financial markets. Already one of the major credit rating agencies has said it will immediately cut the US's credit rating to default; it is currently rated triple A and considered the safest security in the world to hold in your portfolio.
With no money the US government would not be able to pay public sector workers, pensions, disability allowance; schools and hospitals may have to close their doors.
Congress has shut down before because the debt ceiling hasn't been extended, but this time is slightly different.
Debts have never been this big and credit rating agencies have never threatened to cut the US sovereign debt rating to a D - worse than Greece.
The fallout
A US debt crisis would also reverberate across the globe. Most of the US's debts are held overseas. Almost a quarter are held by China and 20% is held by Japan. The UK is the next biggest holder with 7% and oil exporters are the fourth largest with nearly 5%.
If the US stopped making payments on its obligations then its creditors would suffer. Not only would these countries not receive the money they were due, but this could disrupt their cash flows and impact their economies.
If the US's credit rating was slashed then it would most likely send yields sky high and since bond prices move inversely to yields the value of the debt they hold would also tumble.
So investors would be hit twice: firstly the value of their investment would fall through the floor and then they wouldn't get the money they expected to receive.
It's unlikely there would be many people willing to purchase US debt after this, so Congress needs to put ideological differences aside and look at the practicalities of what defaulting means.
If you have $14 trillion in debt, you shouldn't anger your creditors.
Even if Congress does raise the debt ceiling in the coming weeks, the wrangle up on Capitol Hill has already eroded the US's debt's status as a risk-free asset.
No country is entirely free from the risk of default, even one as rich as the US. From now on investors may start to price in a political premium to US debt, which could make it more expensive for the US to borrow in the future.
We are now in a period whereby excessive debt loads will not be tolerated by investors, so the US needs to toe the line and gets its fiscal house in order or else pay the consequences.

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"They say when you play a Microsoft CD backwards you can hear satanic messages ..... but that's nothing, if you play it forward it will install Windows"

Judas

August 2nd 2011....


can't wait...


What's misleading in all the discussions that are most commonly referred to such as this... is the mistake in stating that the united states is the richest country in the world...... fact of the matter... that's both technically and litterally totally untrue..

One does not liquidate almost all assets/capital and overall valueables, while racking up the worlds largest bank loan that has no forseeable nor feasable way of being paid off EVER EVEN just to cover the interest on those loans.

Why people can't wrap their head around this is beyond me..... it's really quite simple.. just because it has an enourmous amount of zeroes and there is claims being made that "it's not that simple.. it's to complex.. blah blah blah"... the simplist explanation works very well.

If you have 1 dollar..... and only that dollar.... and you have 2 or more things you'd like to purchase...... all of which are 1 dollar value... Make a choice.... you can't have more then one.... so prioritise and pick...

But no.... some banking asshole waltzes in and claims they can make your dollar worth 2 or 3 or many times more..... "allowing" you to get them all... however at interest..... interest that can never be paid off as because now they demand 1 dollar and 50 center every day and all you can ever make is 1 dollar a day, but allowing you to borrow that extra 50 cents at interest each day....

it's now gotten to a point in which it's become utterly stupid..

Popetuating such debt and whatnot continues to HARM the people..... while filling and lining the pockets of the bankers and their friends that benefit from it.. and they can cut clean at no loss to them as they've already made back several times what they had loaned out in their books because they just created the money from thin air and can bankrupt anyone they like through loopholes they created out of their own interest.

It's unbeleiveably fucking sad that still the majority of people don't understand the epic flaws in the system they insist on using and worse yet, they refuse to acknowledge it's massive failures and how they are being brutally raped. Worst yet is the fact that many people recognize a problem... but don't understand it.. and are lashing out at all the wrong people, throwing blame at almost anything and everything because they don't understand.

The very concept of Currency is flawed... always has.. always will.. and the oventual, and it will come... destruction of an empire will come.

They blamed the politicitians of the old world.. the romans.. and past civilizations.... yet what they refuse to write in the books is how popetual debt created by the bankers in those days knew what they were doing and how to do it and led them to the end result. The ensueing choas was to their advantage.. each time a civilization or country or continent or even known world grew, imploded, and died out was always to their liking, advantage, and continue to benefit from it.

This isn't some kind of conspiracy theory.... this is indeed stated by some of the families that continue to run many of the things in our lives.


If the US congress agrees to increase the cap... it's just further digging the hole deeper... making it harder to get out of it oventually.. or simply making it impossible to ever get out of it.

Just like the previous bailouts...... Anyone the claims they are for the better... may as well be lengthening the rope of the noose they have their head in, the farther the drop... the more likely they will be killed, and faster. It's having an opinion without any intelligent understanding of what is the root cause of the situation.... it's for lack of a better word... utterly stupid. An arguement that is only considering a small portion of the bigger picture..... Many people can recognize when someone is talking out of their ass and will know it if they understand it better.... yet they will make the same damn mistake.

And just because some people make the claim they are economists, or study in the very fields or work in the very system, making the claim that it's better.. are just another peice of the failed system... and tend to defend it claiming they understand it better... it's total bullshit.

So we have people claiming to be proffesionals.... working within the system........ and we have people that either aren't proffesionals or "were" proffesionals that have looked at the entire picture and made either claim..

Total confusion has followed, no one can really judge whom is right, usually siding with the people that sound "better" or paint a "better" pictures reguardless of how totally inaccurate it is... and sadly, many people still insist on siding with the group that has done nothing but lied and cheated, right in their faces....

It's stupid.....

It's actually totally INSANE, insannity being that doing the same thing repeatedly and expecting a different result each time.

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synthesis204

As an American who actually follows politics, unfortunately the only thing we can do is raise the debt cap. If we don't, we default, it's as simple as that. The US really needs to cut its spending, but Congress is deadlocked on where to cut (Conservatives say they will not raise taxes on the highest income bracket (200K+/year) unless Social Security is also cut). Meh. Time to move to China.

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Neshi

raising the cap is postponing the inevitable in my opinion. ESPECIALLY when those damn politicians are so squeemish about cutting into their own paycheck (raise tax on highest income bracket)
Either they work towards a solution and make some harsh decision that nobody will like but are neccesary, or you are on the road to perdition, so to speak.

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If one does not attach himself to people and desire, never shall his heart be broken. But then, does he ever truly live?

Life is just too damn short for if's and maybe's

Judas

What part of raising a cap makes any logical reasonable sense at all in the real world?

And why in the hell would ANY country in the world agree to loaning the united states any more money at this point? Where is the money really coming from..

One of the main reasons the united states was founded and it's principles and values was to fight such a thing as what's going on....

I'm quite sick of people thinking in the short term..... and being stuborn spoiled assholes that have a complete disreguard for thier children, and their children's children's children's........etc.....

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Tyrsonswood

They need to stop government spending..... AT THE TOP. Cut these politicians wages/perks/pension down to nothing..... exactly what the bass-turds are worth. NOTHING!


And the tax thing, Republicans call it "raising taxes"! Since when is removing tax loopholes and tax CUTS for the wealthy a raise in taxes.... it's removing an un-normal and supposedly temporary lowering and putting it back to where it should have been all along. "Trickle down economics" only works for a short period and then it needs to go back to where it is supposed to be after the influx of jobs created by it.... Bush implemented this "temporary cut" and the market took a dump...... Now it's been extended.... Where's the jobs? In China.

Yeah, that's working really well.

And don't get me started on the "subsidies" for big oil, coal, nuclear, and factory farms


Washington has turned into a home for the feeble minded. [/rant]

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Judas

this image illustrates the stupidity quite well



The removal of most industry and actual made in USA products was the near starting point of the downfall of the system..

before that it was the removal of having the gold standard...... and before that.. it was the forced introduction of the privatised central banking cartel that has utterly no connection to government.... cannot be held liable.. can do whatever they want whenever they want, known as the Federal Reserve.

All these patch work "solutions" are nothing more then trying to jam a gapping hole that is widening in a hoover sized damn with papper bills (from the wrong side no less)...... throwing good money repeatedly after bad has never worked.. and each time they insist it.. and braindead zombies that were yelling before just go "ok ..sure.... lets try that...."

kill the source of the problem..... allow the entire system to calapse.. and hope to gaud that everyone doesn't go badshit crazy and instead of follow in the same footsteps as the japanesse in which they actuall all work together to rebuild and reconstruct the society, bringing it back to it's roots. Avoiding mass idiotic suicidal consumerism. Actually being inventive in the form of providing a life enhancing experience.. not producing junk for junk..... avoid the throw away society we've become and now many generation only understand and know.. making it all that much harder to reform or at least try to do something better.

The world is fair.... it's not unfair... it's specific people that try to make it unfair and claim that's just the way it all works..... ney ney, not true..... it's the acceptance of others that have been told that that make the world unfair and horrible..... not in truth of it... but simply in the mental sense of it. Why people insist on trying to make other peoples lives a living hell because they simply don't care or don't know them or are in a bad mood is pretty damn pathetic.... so it's become common practice to do anything at all to find a way to screw anyone you can at any point and even your friends and family.....

sad world....mad world....

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Neshi

it's all moneygrubbing, from the top down. They don't care about the future. As long as their paycheck next month is just as high or higher than the one last month, all is well.
And those top criminals will look after eachother. Remember the Bail-out for those crooked bankers?

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If one does not attach himself to people and desire, never shall his heart be broken. But then, does he ever truly live?

Life is just too damn short for if's and maybe's

FuNsTeR

a place to start would be the defence budget for example the skyrocketing cost of the JSF which was meant to be the cut price version of the F-22 Raptor ... which on current budget devolopment the JSF is going to cost MORE per unit than the F-22 Raptor ... then their is the 11 super aircraft carriers with a further 2 being planned to be built with a further 11 Amphibious assault ships each akin to a full size aircraft carrier with 3 more being planned .... the american defence budget is increasing when everyone elses is decreasing (china excluded .... but they are no real threat) ... they have bases around the world ... which must be costing US goverment billions of dollars per year to run

... then their is the tax question .... tax the rich ... you say .... everyone has to pay their fair share in tax ... that is how it is done everywhere else in the world ... call it a social (not socialist) obligation

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"They say when you play a Microsoft CD backwards you can hear satanic messages ..... but that's nothing, if you play it forward it will install Windows"

Neshi

there is also this thing called: "broadest shoulders carry the heaviest load."

__________________
If one does not attach himself to people and desire, never shall his heart be broken. But then, does he ever truly live?

Life is just too damn short for if's and maybe's

FuNsTeR

their is only so much you can carry before your legs give way ..... and it ain't a pretty sight when it happens .... the British Empire is a recentish example of what can happen

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"They say when you play a Microsoft CD backwards you can hear satanic messages ..... but that's nothing, if you play it forward it will install Windows"

Neshi

no reason to crush the smallest shoulders with a load they can't sustain, just to make it easier for the rest.

__________________
If one does not attach himself to people and desire, never shall his heart be broken. But then, does he ever truly live?

Life is just too damn short for if's and maybe's

skylineaddict

Meh, America is destined for failure as long as Washington tries to appease the people (And by extension, themselves). Doing the right thing for the country means doing the wrong thing in the public's eyes (Or at least the public that's been exposed to, and accepts, the Republicans' easy plan that probably won't do much to help the nation).

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Couldn't come up with anything snappy to say, so I'll just be awkward.

Neshi

see it as raising kids.
Sometimes you have to do stuff they don't particularly like, and they bitch and moan. but in the end they'll be thankful because they realize it was indeed for the best.
The worst thing about this is, is that it usually takes longer than the 3 years of office for the benefits to come to the surface... and the bitching and moaning people will vote the president out. He doesn't want to get voted out so he tries anything that doesn't anger those damn kids too much.
Whole system is a vicious circle of self damnation.. reforms will never happen because people don't like it, and the president tries to stay in office.

__________________
If one does not attach himself to people and desire, never shall his heart be broken. But then, does he ever truly live?

Life is just too damn short for if's and maybe's

jandarsun8

For the US to really wipe out their debt, do the one thing that's no one said yet, tax fucking religion. The government is supposed to be separated by state and religion yet it's not. How many contributions come for donations given from the church? If they want to be involved in governments then tax them like everyone else.

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dj_stick

good point, no taxation without representation, no representation without taxation

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kris23

large companies need to be taxed more as well as things like the church as said above...

if i remember right, big businesses have a smaller percentage taken out of their collective wallets than the standard working class individual...

outsourcing also seems to be a rather large problem... we keep putting our money out and aren't doing enough to bring it in.. but what can be done to avoid relying on foreign labor while still keeping away from touching human rights?

the only thing i can think the US can do without changing the structure of the economy is swamp the world market with the few American goods that actually stack up well to other nations...

the only things i think the US is even good at making are weapons... time to sell US military secrets to the highest bidder? sounds really bad...

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Judas

people hate the outsourcing.. yet they insist on buying from wallmart or such..

hypocrits.....

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kris23

lool true that...

most of our PC parts are made in china... or some place with similar conditions...

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Tyrsonswood

All of them.... certainly none made here.

(I'm talking component level, you may find something "made in the USA" but the parts? China, India, and that's about it folks)


And DON'T GET ME STARTED ABOUT WALMART!!!!

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FuNsTeR

the eurozone combined has probably more debt than the USA, the only true solvent EU countries are Germany, Denmark, the Netherlands and Belguim ... the rest are on the verge of collapse Greece, Portugal, R. Ireland, Spain, Italy ... and if Italy goes they will drag France with them as France has supported Italian Debt ... the rest of the Eu countrys have large debt but are not in danger of defaulting ... Germany is basically holding the EU together ... Germany would benifit greatly if the euro was binned and they went back to the dependable Mark

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"They say when you play a Microsoft CD backwards you can hear satanic messages ..... but that's nothing, if you play it forward it will install Windows"

Neshi

the Netherlands solvent? I wonder where you got that information. Last time I lived there they still had a pretty big deficit of a few tens of billions.

__________________
If one does not attach himself to people and desire, never shall his heart be broken. But then, does he ever truly live?

Life is just too damn short for if's and maybe's

FuNsTeR

they are never mentioned when it comes to defaulting .... hence i regarded them as being fairly solvent

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"They say when you play a Microsoft CD backwards you can hear satanic messages ..... but that's nothing, if you play it forward it will install Windows"