If the US defaults on its debts on August 2

[fd24]

2nd August is no big deal. The Americans democrats and republicans would have to be stupid not to agree. And one thing they are not is stupid. Both would be major losers if they don't agree because the first casualty would be the US dollar would no longer be the reserve currency. Just for starters they would not be able to pay social sec payments like medicare or pay their soldiers around the world. They would not be able to pay for the fuel for their ships and aircraft.

The more serious matter is that this debt is unsustainable. At this moment the bankrupt that is America can decide to print more dollars. There will be a time in the next 5 to 10 years when they wont have a choice and it will happen anyway.

When and not if it happens it happens most countries will suffer. But the poor and starving in the world will not be affected. They cant starve anymore. The people who are on the receiving side of Americans injustices for example the Palestinians will not suffer more because America will no longer be able to support Israel with weapons etc.

Also the tolerance/pain threshold level of Americans and softies like me in the west is a lot lower than the public of countries like the Chinese, Indians or Pakistanis. I mean take the example of Iraqis who are used to having power cuts being hungry and suffering generally Americans are not used to these blessings that America has given the likes of Iraq.

 

[karan.1970]

It is not simply a political problem, it is not that easy to raise the debt ceiling. There are serious consequences to that as well. Secondly, Obama is basically proposing tax hikes (with limited budget cuts), whereas the Republicans are asking for major budget expenditure cuts & no tax hikes. In my opinion, Obama's solution will not work, as I have mentioned many times that the state of the US economy cannot be improved by tax hikes only.

Dont disagree to any of this.. All of them are long term problems in American economy. However the problems have been there for some years now. The current crisis, which is poising to throw the world economic order in a turmoil, though is purely a Democrat-Republican tango.. May just turn out to be a storm in a tea cup once Obama caves in to Republican demands..

 

[Kazhugu]

Manufacturing takes place in China now, the US has even outsourced its services to India. But manufacturing is what makes a nation truly great, which China is right now.

just manufacturing with made-in-XXXXX tag alone does not make a nation great....innovation does..look at all present and past superpowers...usa,uk,germany,ussr...they not only manufactured,,, they also innovated...in this regard i find the manufacturing base of korea and japan as more sustainable than china......usa innovates...china just manufactures...

 

[Juice]

A private company can default &/or become bankrupt, but if a nation defaults &/or declares bankruptcy, that is a huge problem. It results "in the 'isolation' of that particular country" from the world arena. The US government defaults, the dollar collapses, which increases the likelihood of a global depression. Eventually, the US dollar will have to be replaced by some other international trade currency.

The US will be hit hardest of course. The US has to give reassurances to whoever it's taken its debts from, that it can pay it back. In case the debt ceiling is not raised, the US will most probably dissolve certain bodies, whether that is the FDA, EPA, US Department of Education, the Fed & Wall Street; or finish programs like Social security, medicare, medicaid, unemployment, food stamps etc; as well as reducing costs in its foreign expenditures. All of these things will need to take place so that the US can give assurances that it can return its debts back. No amount of tax hikes proposed by Obama on the American people can stop the inevitable. August 2 can be the death of corporate America, & America as we know as it is. All in all, the US will change significantly from what it has been since its inception. As the US is involved internationally on a large scale as well, just the changes of US foreign policy can have a big impact on other nations.

I'll make you a bet, Bailhaider, Aug 2nd will come and go and things will continue exactly as before.

 

[Juice]

Who do you think is the biggest foreign holder of American debt?

I think we have more reason to be worried than you do.

Lol, NOT China, the American people hold the lion's share of this debt.

 

[Chinese-Dragon]

Lol, NOT China, the American people hold the lion's share of this debt.

Did you read my post?

"Who do you think is the biggest foreign holder of American debt?"

I hardly think the American people, would be regarded as "foreign" in their own country.

 

[gambit]

China will initially suffer of course, but with the strong base they have in manufacturing & infrastructure development, they will rise up whatever the situation. China is not look Greece or any of the other European countries, & will recover from this situation quickly enough. When the US lead the world in manufacturing, it lead to the Industrial Revolution in this country, a time when this country was truly the greatest in the world. China is at that stage right now, & whether a default happens or not, China will eventually come out just fine. I don't know about the US though. They need perpetual warfare to survive economically, as it has became a war economy now. The defense and intelligence industries are the only things thriving in the US right now, but that is not what makes a real economy, the one China is right now. Manufacturing takes place in China now, the US has even outsourced its services to India. But manufacturing is what makes a nation truly great, which China is right now.

What a stupid statement. Sorry, nothing personal. But sometimes people do say stupid things.

 

[gambit]

That actually remains the biggest problem I see emerging immediately out of this default. Otherwise I don't see the US defaulting - it won't just pay its Soc sec cheques and any other internal expenses that come up... until revenue is internally generated.

The US takes in about 200 bil monthly with outlay of about 140 bils. That outlay include interest payments on debts and SocSec, defense, Medicare, and others. The President has the authority to either pay or do not pay interest payments.

 

[IND151]

LOL, you said "China" five times in that post.

Yes, it will be bad for us if they default, but nowhere near as bad as the 2008 credit crunch. Not even on the same scale.

i dont agree.

in 2008 rescission hit US and it hit all major economic powers hard.

only Chinese and Indian economies despite huge recession came out with flying colors.

i guess this is due to the fact that both didn't accept globalization completely and are implementing liberalization with immense care.

if just rescission hit china hard, is it needed to tell that if US economy goes down it will be huge blow for all economies?

 

[LeGenD]

I'll make you a bet, Bailhaider, Aug 2nd will come and go and things will continue exactly as before.

My friend, regardless of what happens, US needs to change now because the world is changing around it.

Steps must be taken to control and reduce this debt. And Americans need to cut down their expenses.

Adaptability is the key point here.

 

[IND151]

America could "re-industrialize". But that will be extremely difficult to implement, and will likely take more than a decade to complete.

That's the only long-term solution I think might work.

That way, the American consumer-driven economy, could live off American products, reducing the massive trade deficit. And reducing the need to borrow so much.

I.e. Be more like Germany.

or like soviet union in 30s.

soviet govt in 1930s restricted consumption and financed industries.

soviet citizen's consumption level was low but it helped soviet union to have industrialized economy.

US is in better position. they can have credit.

they just need to control enormous consumption and no easy debts policy.

they also need strict financial policies and they should make realize american citizens that they must spend carefully.

 

[akinkhoo]

The President has the authority to either pay or do not pay interest payments.

actually the president does not, the Treasury Sec has that final say. and it is more probable that the Treasury would protect USD by refusing to pay to defence and other international aids program to keep the payment going than to default on it. a default would destroy their entire purchasing power, so it a matter of giving up the fish or losing an arm. in fact the debt ceiling had already been reach and the Treasury has already stop issuing new loan. and how it is surviving now is already by removing fund from program to pay off the interest. August 2 just mark when they will have to tap fund they need to payout immediately, or when people will stop receiving checks.

This is of course not the end of the world, during Clinton administration, they actually shutdown the government and cancel the checks. the Country can survive this as long as it preserve it's good name in worthiness, it just politic that is preventing.

 

[gambit]

actually the president does not, the Treasury Sec has that final say. and it is more probable that the Treasury would protect USD by refusing to pay to defence and other international aids program to keep the payment going than to default on it. a default would destroy their entire purchasing power, so it a matter of giving up the fish or losing an arm. in fact the debt ceiling had already been reach and the Treasury has already stop issuing new loan. and how it is surviving now is already by removing fund from program to pay off the interest. August 2 just mark when they will have to tap fund they need to payout immediately, or when people will stop receiving checks.

This is of course not the end of the world, during Clinton administration, they actually shutdown the government and cancel the checks. the Country can survive this as long as it preserve it's good name in worthiness, it just politic that is preventing.

The Treasury Secretary works for the President.

 

[Riseup]

What the U.S. Debt Problem Means for the Global Economy

Posted by Michael Schuman Tuesday



Since the time of the Founding Fathers, U.S. leaders have believed in the concept of American exceptionalism, that the U.S. is a special country with a special mission. It is a notion that continues to this day. And when it comes to the threat its deteriorating national finances present to the world economy, the U.S. is truly exceptional. That danger was finally made clear by Standard & Poor's on Monday, which changed the outlook on its U.S. sovereign rating to negative – in other words, the S&P is threatening to downgrade the U.S. from its traditional triple-A status. The implications of this move are incredibly far-reaching. No, it doesn't mean the U.S. in on the verge of a debt crisis. But it does mean the world can't act like an elephant isn't in the room. We've seen a debt crisis grip Europe and worries mount over the financial state of Japan. Those problems are scary enough. But when it comes to terrifying debt-crisis scenarios, the U.S. stands in a universe all its own.

That's not because the U.S. debt burden is the biggest – Japan's government debt is more than twice as large, relative to its GDP – but because of the exceptional role the U.S. plays in the global economy. A debt crisis in Portugal could send ripples of uncertainty through world financial markets, and if a larger country like Spain fell into crisis, those ripples could prove mighty destabilizing. But U.S. debt runs the risk of crashing the entire operating system of the global economy. Here's what I mean:

Not only is the U.S. the world's largest economy – by far – but it also dominates the global monetary system. In many respects, the entire architecture of global finance is built upon the U.S. economy. Its capital markets are the most liquid. The dollar is the world's No. 1 reserve currency and the primary one used in foreign exchange transactions and trade. Countries like China and Japan have their national wealth stored to a great degree in U.S. debt. When investors get nervous, they rush to U.S. dollar–based assets, and especially U.S. debt. The perception has always been that the U.S. is the ultimate safe haven. Even as its financial condition sickens, that perception remains. Despite a dramatic increase in U.S. deficits and debt in recent years, the country has still been able to borrow at exceptionally low rates. In other words, the U.S. has benefited tremendously from its economic exceptionalism.

Now let's speculate on what would happen if that perception fundamentally changed. U.S. Treasury securities would be seen as riskier and would therefore become less attractive. Interest rates would rise in the U.S. as a result, not only making it harder for the government to finance budget deficits and debt, but also raising borrowing costs across the economy, slowing investment and consumption. The U.S. dollar would weaken, undermining the value of currency reserves around the world and speeding us along to the day when the dollar is no longer the world's premier currency. All that would be destabilizing enough. It would likely mean slower growth in the world's largest economy, deteriorating living standards for Americans, and thus slower growth for the entire world economy.

But the bigger problem would be, What would take America's place? The U.S. is the standard by which risk is assessed in financial markets. If the U.S. isn't a safe haven, then what is? And what country's currency and capital markets are deep enough to accommodate the world's wealth if America's can't? Here's how Mohamed El-Erian, chief executive at PIMCO, put it on a blog post on the Financial Times website on Tuesday:

The world looks to America for a range of "global public goods" — including the reserve currency, the deepest and most liquid government debt markets, and the "risk free" standard. With no other country able and willing to step into this role, the result would be global efficiency losses and a higher risk of economic and financial fragmentation…The time has come for the US (and other advanced economies) to take better control of its fiscal destiny—for the sake of American society and for the well being of the global economy.

Even though America's exceptional role in the world economy makes its debt situation exceptionally dangerous, that role also apparently gives the U.S. exceptional protection as well. In theory, the S&P warning is a signal that the U.S. is not exceptional, that if it doesn't get its financial house in order, it will face downgrades just like those of Greece, Spain and Japan. But the markets told us something very different. Treasurys weakened immediately after the announcement, a sign that investors were selling them, but then quickly recovered their strength. What's that, you say? Yes, rather than scaring investors away from U.S. debt, investors actually bought U.S. debt after the S&P warning. And the reaction from some major U.S. bondholders showed little concern about America's financial standing. "We continue to believe that U.S. Treasurys are an attractive product for us," Japanese Finance Minister Yoshihiko Noda told reporters.

Sound crazy? Not really. The world has a lot at stake in the continued stability of the American economy, and thus every incentive to keep U.S. debt from roiling the world economy. This gets us back to the exceptional position of the U.S. in world finance. With nothing to replace the U.S., the country is getting exceptional treatment from the global economy.

It seems to me that U.S. policymakers have been banking (perhaps subconsciously) on this very outcome – that the U.S. is simply too exceptional to face dangers other nations could never avoid. They've been acting this way. The U.S. is the only heavily indebted developed economy that doesn't have a credible plan to control deficits and debt. (Japan doesn't either, but because of the need to soften the blow from last month's devastating earthquake, we'll give Tokyo a pass here.) In other words, the U.S. is counting on being like AIG or GM and acting as if it is too big to fail.

Is that true? American exceptionalism will give Washington an exceptional opportunity to fix its financial mess without suffering the consequences of other debt-heavy nations. But what if the U.S. fails to grasp the opportunity? Can the U.S. and the world economy escape the fallout? Now that would be truly exceptional..



Read more: S&P Warning: What U.S. Debt Danger Means for World Economy - The Curious Capitalist - TIME.com

 

[DarK-LorD]

Don't forget guys this is the US,not Greece or Portugal.Remember this is world's most powerful economy,so obviously this won't affect it much.