Is it really possible for the US to default?

[2centsworth]

How do we default on debts payable in the currency we created?

[ducks]

would be best

or you could tell china to pay a big tax if they do not forgive the usa debt

(lets not blame parities in this thread both helped create the mess)

[2centsworth]

would be best

or you could tell china to pay a big tax if they do not forgive the usa debt

(lets not blame parities in this thread both helped create the mess)


you're not getting what I'm saying. How can you not afford to pay China in a currency you create?

For example, lets say I issued paper currency with my picture on it. You then loaned me 14 trillion dollars of that currency with my picture on it. how could I not pay you back if I can make more of that paper with my picture on it?

[Winehole23]

You certainly could, but the risk is that at some point the attempt to inflate away the value of the debt becomes a functional default from the standpoint of the creditor.

[2centsworth]

You certainly could, but the risk is that at some point the attempt to inflate away the value of the debt becomes a functional default from the standpoint of the creditor.

so Inflation is what we should be most concerned with?

[Winehole23]

I dunno what we should be most concerned with. Do you?

[scott]

See post WWI Germany for the exact scenario you describe

[2centsworth]

See post WWI Germany for the exact scenario you describe

War reparations were payable in a foreign currency and annual payments made up half of GDP.

[PublicOption]

who's going to come and collect????
http://hubrisiscool.files.wordpress.com/2010/10/2007-08-17icbm.jpg

[2centsworth]

who's going to come and collect????


collect what?

[2centsworth]

Point is

Government Spending is NOT constrained by taxes and/or borrowing

Its constrained by INFLATION.

Talks of DEBT AND INSOLVENCY should turn to talks about INFLATION which would lead to the need for FULL EMPLOYMENT.

[Winehole23]

To put it roughly, our system of payment failed in 2008 -- and we've pawned our future GDP to pay for it. We socialized private risk and we're still propping it up. It's very popular to say that through the bailout we definitively turned the corner on debt-deflation and even worse.

The truth is, we don't know that for sure, and we may even have prepared the ground for worse instability in the future, indeed, for instability in general as trust in the USA continues to erode.

[Winehole23]

Talks of DEBT AND INSOLVENCY should turn to talks about INFLATION which would lead to the need for FULL EMPLOYMENT.The domestic market is barely growing. Private money is wating prudently on the sidelines for more favorable market conditions. That pretty much leaves an activist government to fill the gap, correct?

[2centsworth]

To put it roughly, our system of payment failed in 2008 -- and we've pawned our future GDP to pay for it not sure what you mean here




. We socialized private risk and we're still propping it up. It's very popular to say that through the bailout we definitively turned the corner on debt-deflation and even worse.

The truth is, we don't know that for sure, and we may even have prepared the ground for worse instability in the future, indeed, for instability in general as trust in the USA continues to erode.

The instability and eroding of the US seems to be about a risk of Default, which I hope I've made clear is not possible. The True Risk is INFLATION which can be tamed by full employment.


Were I'm leading is this is the time to talk about getting people good paying jobs today! We need to boost our PRODUCTION otherwise there will be too much money chasing fewer goods.

[2centsworth]

The domestic market is barely growing. Private money is wating prudently on the sidelines for more favorable market conditions. That pretty much leaves an activist government to fill the gap, correct?

I agree with the position of eliminating the payroll tax to put money in the hands of people and let them decide what to do with the money.

[Winehole23]

The instability and eroding of the US seems to be about a risk of Default, which I hope I've made clear is not possible. The True Risk is INFLATION which can be tamed by full employment.I'm hardly convinced default is a non-issue for the reason I gave.




Were I'm leading is this is the time to talk about getting people good paying jobs today! We need to boost our PRODUCTION otherwise there will be too much money chasing fewer goods.The case being that the US market is barely growing right now, it makes very little sense for private money to expand capacity or hire new workers to staff it. Correct?

That leaves an activist government to fill the gap in employment, the lack of which is the proximate danger to our present economic recovery and future ability to pay, according to you.

"We must have full employment"

My question to you is, in a stagnant domestic market who will provide the jobs?

[Winehole23]

I agree with the position of eliminating the payroll tax to put money in the hands of people and let them decide what to do with the money.That might be a pretty good idea.

[Winehole23]

Course you can't call it a stimulus, though that's undeniably what it is, and the revenue costs ought to be offset elsewhere, but that's not gonna happen either.

[2centsworth]

I'm hardly convinced default is a non-issue for the reason I gave.[quote]

define default, because if you're saying we can't pay our bills you're simply wrong.


[quote]
The case being that the US market is barely growing right now, it makes very little sense for private money to expand capacity or hire new workers to staff it. Correct?

it's barely growing because Americans have no money to spend. add an extra $500 per month by eliminating the payroll tax and watch the economy start to heat up again.




That leaves an activist government to fill the gap in employment, the lack of which is the proximate danger to our present economic recovery and future ability to pay, according to you.

"We must have full employment"

My question to you is, in a stagnant domestic market who will provide the jobs?


get money in the hands of people like I described above and watch business hire all sorts of people to help consumers depart of with their money.

[Winehole23]

get money in the hands of people like I described above and watch business hire all sorts of people to help consumers depart of with their money.Direct government stimulation of the economy in the form of tax breaks. Where have I heard this before?

[2centsworth]

Course you can't call it a stimulus, though that's undeniably what it is, and the revenue costs ought to be offset elsewhere, but that's not gonna happen either.

no need to offset anything since government spending isn't constrained by tax revenues.

only thing we should worry about is inflation since default is a non issue.

[2centsworth]

Direct government stimulation of the economy in the form of tax breaks. Where have I heard this before?

don't worry so much about what others say or think. it's about what you say and think.

[Winehole23]

Ok. So you admit in your own words you're a one note johnny. Only one thing is important, full employment, and the only plausible means to acheive it is massive tax breaks.

How do plan to pay for the breaks, 2cents? Or do we just borrow more money again?

[Winehole23]

don't worry so much about what others say or think. it's about what you say and think.Was that a mischaracterization? By all means, correct it.

[Winehole23]

Did you envision a role for government too, say infrastructure investment, or something of that sort? I'm not tryin to trip you up. I'm actually interested in what you think, fwiw.

[Winehole23]

no need to offset anything since government spending isn't constrained by tax revenues.And you insinuate I'm the leftist. Hah!

[2centsworth]

Ok. So you admit in your own words you're a one note johnny. Only one thing is important, full employment, and the only plausible means to acheive it is massive tax breaks.

How do plan to pay for the breaks, 2cents? Or do we just borrow more money again?

One not johnny huh?

ask yourself
What's the purpose of taxes?

a payroll tax holiday for a year or two is the only capitalist and fair way to do it. otherwise, the government has to chose winners and losers.

[2centsworth]

Did you envision a role for government too, say infrastructure investment, or something of that sort? I'm not tryin to trip you up. I'm actually interested in what you think, fwiw.

long-term, yes, but we have immediate problems.

[Winehole23]

How to pay for massive tax cuts apparently isn't one of them. Fair enough.

[Winehole23]

ask yourself
What's the purpose of taxes?Too abstract for me. What's your pat answer for this?

[2centsworth]

How to pay for massive tax cuts apparently isn't one of them. Fair enough.

as long as you admit tax revenue has little to do with paying anything at the federal level.

[2centsworth]

Too abstract for me. What's your pat answer for this?

"fat answer?" For that I should leave you in the dark. :lol

http://hiwaay.net/~becraft/RUMLTAXES.html

[Winehole23]

as long as you admit tax revenue has little to do with paying anything at the federal level.That's your view. I respect that but I probably won't follow you there. Nothing personal. :toast

[Winehole23]

I also respect that you more or less admitted adding trillions more to the debt/deficit is of no concern to you right now. That's contrary to the prevailing political winds.

[2centsworth]

That's your view. I respect that but I probably won't follow you there. Nothing personal. :toast

it's an operational reality whether you know it or not.

[Winehole23]

the state grows no matter what. that's been the pattern for sure.

[2centsworth]

I also respect that you more or less admitted adding trillions more to the debt/deficit is of no concern to you right now. That's contrary to the prevailing political winds.


only if it's in the form of a payroll tax holiday.

[2centsworth]

the state grows no matter what. that's been the pattern for sure.

hence, I applaud the efforts to shrink it.

[Winehole23]

on the contrary, it seems to me that by authorizing all additions to the national debt/deficit in advance, you have also apologized for the growth of the state -- only temporarily of course, as may be expedient to full employment and economic recovery.

[boutons_deux]

when a country can print its own money, it can't default. Like the US did after WWII, it can inflate itself out of debt.

Repug deficit-hawks are only deficit hawks when the Dems are in power. St Ronnie and dubay tripled the debt, but where were the deficit hawks then? Just part of the VRWC incredibly bad-faith, political, dishonest bullshit.

[2centsworth]

when a country can print its own money, it can't default. Like the US did after WWII, it can inflate itself out of debt.

Repug deficit-hawks are only deficit hawks when the Dems are in power. St Ronnie and dubay tripled the debt, but where were the deficit hawks then? Just part of the VRWC incredibly bad-faith, political, dishonest bullshit.

Im not talking about inflation and after WWII the gov didn't inflate its way out of anything.

[boutons_deux]

"after WWII the gov didn't inflate its way out of anything"

it did, you could look it up.

[2centsworth]

"after WWII the gov didn't inflate its way out of anything"

it did, you could look it up.

inflation didn't get us out of the war or recession. The War caused short-term inflation here and hyper-inflation in Germany.

Big Difference.

[boutons_deux]

Many observers worry that the debt-to-GDP ratios projected over the next ten years are unsustainable. Assuming deficits can be reined in, how might the debt/GDP ratio be reduced? There are four basic mechanisms:

GDP can grow rapidly enough to reduce the ratio. This scenario requires a robust economic recovery from the financial crisis.

Inflation can rise, eroding the real value of the debt held by creditors and the effective debt ratio. With foreign creditors holding a significant share of the dollar-denominated US federal debt, they will share the burden of any higher US inflation along with domestic creditors.

The government can use tax revenue to redeem some of the debt.

The government can default on some of its debt obligations.

Over its history, the US has relied on each of these mechanisms to reduce its debt/GDP ratio. In a recent paper (Aizenman and Marion 2009), we examine the role of inflation in reducing the Federal government’s debt burden. We conclude that an inflation of 6% over four years could reduce the debt/GDP ratio by a significant 20%.

http://www.voxeu.org/index.php?q=node/4413

[2centsworth]

Many observers worry that the debt-to-GDP ratios projected over the next ten years are unsustainable. Assuming deficits can be reined in, how might the debt/GDP ratio be reduced? There are four basic mechanisms:

GDP can grow rapidly enough to reduce the ratio. This scenario requires a robust economic recovery from the financial crisis.

Inflation can rise, eroding the real value of the debt held by creditors and the effective debt ratio. With foreign creditors holding a significant share of the dollar-denominated US federal debt, they will share the burden of any higher US inflation along with domestic creditors.

The government can use tax revenue to redeem some of the debt.

The government can default on some of its debt obligations.

Over its history, the US has relied on each of these mechanisms to reduce its debt/GDP ratio. In a recent paper (Aizenman and Marion 2009), we examine the role of inflation in reducing the Federal government’s debt burden. We conclude that an inflation of 6% over four years could reduce the debt/GDP ratio by a significant 20%.

http://www.voxeu.org/index.php?q=node/4413

they do not understand the Monetary System.

Dangerous info in the hands of blind libs (http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf) (Read Innocent Fraud #1)

[TDMVPDPOY]

i have the solution

pay them the money, legislate no chinamen is allowed to buy american assets :D

scrap current currency and introduced new curency.....change ratio NIL.

[Winehole23]

Zero is the asymptote, inflation is the race to get there. It won't be pretty.

[RandomGuy]

How do we default on debts payable in the currency we created?

To answer the question posed by the thread title: Extremely unlikely.

As for the second question: Not sure exactly what you are asking.

We could simply inflate our way out of the mess, by flooding the market with dollars (making each dollar cheaper and easing the burden of payment). US government debt is denominated in dollars exclusively.

Example:

1 dollar equals, say, 1 euro. We pay out in dollars, then the risk of currency conversion is borne by the person with the euros.

Bond payment is 100 dollars and that is translated into 100 euros by the Europeans.

Inflation happens and it takes 2 dollars to make 1 euro. This inflation has consequently increased tax revenues in dollars, making that same 100 dollar payment easier.

The person with the euros who has to pay his utilities and buy groceries in euros is pissed, because what paid out 100 euros before the inflation, now pays out 50 euros.

This would be a VERY undesirable thing on several fronts, simply because it would really raise the cost of future borrowing a LOT. It would solve the short term problem of debt payments, but create a longer term problem of lack of confidence.

That is something of a simplification. Hope it helps.

[TDMVPDPOY]

you clowns should do what the viet cong did after vn war, it didnt matter how much money u had or what gold bullion bars u hold, lol each family was only allowed the same amount total per household exchanging the previous currency to new currency...did you know how many ppl jump to their deaths after bring in all there savings and can only change to the same amount as the next person...

[sickdsm]

Currently i feel we have China over a bigger barrel with ag exports then they do with debt. Short term anyway.


You may have lots of problems but when you're hungry, you only have ONE problem.

[Wild Cobra]

Currently i feel we have China over a bigger barrel with ag exports then they do with debt. Short term anyway.


You may have lots of problems but when you're hungry, you only have ONE problem.
Why?

If they demanded payment, we would be forced to print so much money, the global currency values would change. It would hurt their exporting. It would raise our import costs, and shift jobs back to us.

[LnGrrrR]

Currently i feel we have China over a bigger barrel with ag exports then they do with debt. Short term anyway.


You may have lots of problems but when you're hungry, you only have ONE problem.

Good point.

[LnGrrrR]

Why?

If they demanded payment, we would be forced to print so much money, the global currency values would change. It would hurt their exporting. It would raise our import costs, and shift jobs back to us.

Why would they demand payment, when they know it would absolutely wreck the dollar through inflation?

[Wild Cobra]

Why would they demand payment, when they know it would absolutely wreck the dollar through inflation?
My point was that they don't have us over a barrel.

[sickdsm]

Normally China has their reserves at least 30% full, last week they were below 5%.


You're basically just saying that if they demanded payment, good things would happen for us?

[sickdsm]

Soooo, you agree that we're in a better position then China then?

[Wild Cobra]

You're basically just saying that if they demanded payment, good things would happen for us?
I think it would hurt us, but only in the short term. I think the overall long term good would outweigh the short term inflationary effect.

Missed the "ag" part though.

Did you mean agriculture?

[Wild Cobra]

Soooo, you agree that we're in a better position then China then?
I think China will take over the world. As long as we let this nation be run by liberal "feel good" ideas, instead of global reality, we will be a nation on the downward slide.

[sickdsm]

Yeah, their in a mess regarding food.

[sickdsm]

If this forum had a "like" button, I would have clicked it on that post.