So what if the country goes bankrupt?

[A Dodgy Dude]

People on both sides of the political spectrum have been talking about it since the crap hit the fan 2 1/2 years ago.

But I've never heard anyone spell out in concrete terms what it means.

If the country does go bankrupt, in what specific ways will the average man and woman be affected in their daily routines?

[Cisco]

Someone asked an expert this exact question on NPR yesterday. IIRC the answer was basically world financial chaos; since we're considered the most stable/reliable borrower, if we defaulted, no one would know who to trust.

Extrapolating from this, I speculate that it might not hurt the US all that much in the short term, but it could be pretty damaging to our long-term financial power.

[msmith537]

Well, worse case scenario, no one can afford to buy any more Treasury bonds so we just keep printing up money to pay our debts (which we can do as the reserve currency for the world). However, the value of the dollar will soon drop and no one will want to buy any more dollars. And it will continue to drop as people who have been buying up us dollars try to get rid of them.

For the average man on the street, this may initially lead to short term job growth as a week dollar is good for domestic manufacturing. However, that will be short-lived. Soon rising inflation will erode your savings and purchasing power making you and everyone else effectively poorer. Unemployment will soon rise as companies have no one to sell to and soon everyone is fucked again.

[RTFirefly]

Best case scenario: the world accepts this as a one-off for the most part, but US treasury bonds are no longer regarded as the sure thing they were, and the interest rate takes a hit of a couple of points. This increases the interest we have to pay on the national debt by a few hundred billion per year.

[Bryan Ekers]

England repossesses the place.

[astroidea]

England repossesses the place.

More like China with the way things are going now. :eek:

[Jonathan Chance]

Honestly, and I'm not happy saying this, but it may TAKE that sort of default to straighten out our fiscal issues.

The internal conflict among the American electorate is:

1. We want high services
2. We don't want to pay for them

Combine that with our system of elections and you get pols for whom 'debt' and 'deficits' are just a cost of doing business.

What happens if such a default occurs? Who knows? Maybe having to pay higher interest rates on debt will be a good thing as it will limit our ability to borrow? Then again, maybe not.

Will we selectively default on some particular debt series while servicing others properly?

Will a weaker dollar bring manufacturing back to the US while reducing earning power.

It's a tough issue. And I see no indication that either side in Congress wishes to deal with it appropriately.

[RTFirefly]

I dunno, JC. I'm a confirmed skeptic of the 'if things get bad enough, then maybe they'll get better' theory, pretty much across the board. Generally when things get worse, it just leaves people (or nations) in a worse position for solving the problems they already had.

[Smitty]

It would be worse than anything you have ever seen.

The "full faith and credit" of the US is the only thing supporting the worth of the dollar. Without that, the value of the dollar collapses. Since oil is priced in dollars, gas immediately goes up to $10 a gallon or more. The Fed, in an attempt to keep the economy from utter collapse, "monetizes" the debt by buying up Treasury notes. This leads to hyper-inflation which basically destroys the world economy as the biggest banks in the world fail due to their exposure to US debt.

Think not? Markets anticipate events, rather than react to them. Look what happened when it was thought Greece might default on its debt. The markets went ballistic. Greece has a GDP of 305 billion (US dollars). The US has a GDP of 14.7 TRILLION. What do you think would happen?

Basically, it's total worldwide economic collapse.

[msmith537]

I dunno, JC. I'm a confirmed skeptic of the 'if things get bad enough, then maybe they'll get better' theory, pretty much across the board. Generally when things get worse, it just leaves people (or nations) in a worse position for solving the problems they already had.

I would agree. It's like saying that that the cure for heavy debt is to become homeless.



It would be worse than anything you have ever seen.

The "full faith and credit" of the US is the only thing supporting the worth of the dollar. Without that, the value of the dollar collapses. Since oil is priced in dollars, gas immediately goes up to $10 a gallon or more. The Fed, in an attempt to keep the economy from utter collapse, "monetizes" the debt by buying up Treasury notes. This leads to hyper-inflation which basically destroys the world economy as the biggest banks in the world fail due to their exposure to US debt.

Think not? Markets anticipate events, rather than react to them. Look what happened when it was thought Greece might default on its debt. The markets went ballistic. Greece has a GDP of 305 billion (US dollars). The US has a GDP of 14.7 TRILLION. What do you think would happen?

Basically, it's total worldwide economic collapse.


Fortunately, the "full faith and credit" is also supported by the fact that we are the largest economy in the world (with perhaps the exception of the entire EU).

I never did understand the whole hubub over Greece, considering that their GDP is roughly equivalent to the state of Maryland.

[Heyoka13]

Considering the rampant innumeracy epidemic in the US, I think hordes of people will experience their heads exploding when they start seeing currency with 10 or 20 zeroes on it.

[Cisco]

Basically, it's total worldwide economic collapse.

What does that mean, though? Is our financial system truly so illusory that the masses would starve if faith in it was lost? Or would just a slightly smaller number of people upgrade to Blu-Ray this year?

[Lemur866]

Defaulting on our debt would be like declaring bankruptcy on a debt that's roughly equal to our annual income.

Our GDP this year and the total debt are both about 14 trillion. Now, if you have an income of $40,000, and you owe $40,000 on your credit card, you're in trouble because the interest on the debt will be tremendous. But if you make $40,000, and owe $30,000 more on your mortgage, and have only $10,000 in credit card debt, then you're fine, because the amount you owe on your mortgage is at low interest, and can be paid off on schedule.

And we're more like the second situation. We have a large debt, but the interest we pay on our debt is very low. So we aren't going to face bankruptcy, as long as we don't keep adding to the debt. We also are likely to have our income increase in future years, so that will make paying off the debt easier.

Also, the country has a trick that individual debtors don't have. We can always increase inflation, and then pay back our debt in inflated dollars. Of course, this means that future borrowing are going to have to be at a higher interest.

But goverments invariably prefer inflation to default. The problem small Eurozone countries are facing is that they aren't able to inflate their currency and pay back their creditors with inflated dollars, their debts are in Euros which are controlled by the Germans and the French.

[DCnDC]

Basically, it's total worldwide economic collapse.

What does that mean, though? Is our financial system truly so illusory that the masses would starve if faith in it was lost? Or would just a slightly smaller number of people upgrade to Blu-Ray this year?

I'm also curious as to what exactly that means.

I have no idea about these financial things, as my impending personal bankruptcy attests, but to my lay-person mind it would seem that if there's actually a total worldwide economic collapse, aren't we all in the same boat? I mean wouldn't that simply mean that everyone just starts over from zero, in which case those possessing the raw materials and intellectual property are the ones who will ultimately prevail, in which case most countries would pretty much end up right where they already are.

Or am I completely misunderstanding the issue?

[Czarcasm]

People on both sides of the political spectrum have been talking about it since the crap hit the fan 2 1/2 years ago.

But I've never heard anyone spell out in concrete terms what it means.

If the country does go bankrupt, in what specific ways will the average man and woman be affected in their daily routines?What election does this pertain to?

[Voyager]

What does that mean, though? Is our financial system truly so illusory that the masses would starve if faith in it was lost? Or would just a slightly smaller number of people upgrade to Blu-Ray this year?

Look what happened when the banking system nearly collapsed. Banks stopped lending, it became difficult to value assets, states and cities depending on regular turnover of securities got screwed when the market froze up, and uncertainty and the lack of credit resulted in crashing demand and lots of layoffs. Now imagine what would have happened if the government (ours and others) had not stepped in. Who would be stupid enough to risk expansion if the US government became unstable?

[msmith537]

I'm also curious as to what exactly that means.

I have no idea about these financial things, as my impending personal bankruptcy attests, but to my lay-person mind it would seem that if there's actually a total worldwide economic collapse, aren't we all in the same boat? I mean wouldn't that simply mean that everyone just starts over from zero, in which case those possessing the raw materials and intellectual property are the ones who will ultimately prevail, in which case most countries would pretty much end up right where they already are.

Or am I completely misunderstanding the issue?

Yes, you are completely misunderstanding the issue.

Without the ability to take out financing, those posessing raw materials and intellectual property would be unable to acquire capital for creating the value adding "means of production" to turn those raw materials and IP into usable goods and services. Collectively, they would be unable to hire workers and with no workers earning money, there would be no one to buy those products. It creates a vicious circle.

People also have a fundamental lack of understanding of what a dollar represents and what debt is. A dollar is simply a unit of measure of work. One dollar of your labor affords you the ability to acquire a dollars worth of goods or services provided through someone elses labor. Of course that value is all relative and constantly changing.

By extension, debt is a promise to provide a bit more of your labor and services over time in exchange for having the ability to use the fruits of someone elses labor now. eg You can live in a house right now, but you have to work for the next 30 years to pay for it. So what is really happening when everyone defaults on their debt is that people are taking more out of the system than they put in and the system stops working.



What does that mean, though? Is our financial system truly so illusory that the masses would starve if faith in it was lost? Or would just a slightly smaller number of people upgrade to Blu-Ray this year?


Blu-ray. Food. Clothing. Homes. so on and so forth

[furt]

And we're more like the second situation. We have a large debt, but the interest we pay on our debt is very low. Home mortgages are typically 15-30 years long. Most T-bills are 3 and 6 months. So comparing the US debt to a mortgage only works if you specify that it's a mortgage that we have to reapply for every six months.

If investors begin to think a default is a real possibility, interest rates will rise very, very quickly.

So we aren't going to face bankruptcy, as long as we don't keep adding to the debt.Except that we are, and have been, and plan to.

We also are likely to have our income increase in future years, so that will make paying off the debt easier.And our planned expenditures are rising even faster.

[msmith537]

If investors begin to think a default is a real possibility, interest rates will rise very, very quickly.


It's not. Unlike your mortgage with the bank, the US government can print more money. Especially since the dollar is the reserve currency for the world. Not that that is without it's own problems.

[furt]

It's not. Unlike your mortgage with the bank, the US government can print more money. Especially since the dollar is the reserve currency for the world. Not that that is without it's own problems.True, we can try inflating our way out of it; as you note, though, it has it's own problems, not least of which is that it would itself jack interest rates up -- if US inflation is running at 8%, nobody's gonna buy T-bills for less than 10 or 12%.

More fundamentally, once you start an inflationary cycle, it's hard to keep it under control, and can have its own very bad consequences, as Nixon, Ford, Carter and Reagan would attest. And certainly if it gets really loose, hyperinflation is a nightmare on a par with a default.

[gonzomax]

No problem. Just raise taxes and close loopholes. then we will be back on a sane fiscal policy.

[msmith537]

No problem. Just raise taxes and close loopholes. then we will be back on a sane fiscal policy.

Which slows economic growth, increasing unemployment.

[A Dodgy Dude]

What election does this pertain to?

It doesn't pertain to any election, I'm just trying to learn the implications for the average person of a country going bankrupt.

[Voyager]

Which slows economic growth, increasing unemployment.

Just like it did in the '90s. Or the '50s. Raising taxes on a broadly defined class of the rich is going to affect the economy a lot less than a default, or even a hint of a default.

[Lemur866]

Just like it did in the '90s. Or the '50s. Raising taxes on a broadly defined class of the rich is going to affect the economy a lot less than a default, or even a hint of a default.

It isn't the poor that own all those T-bills. Defaulting on the debt means refusing to pay the people who bought government debt, who are mostly Americans, and mostly aren't poor.

[Voyager]

It isn't the poor that own all those T-bills. Defaulting on the debt means refusing to pay the people who bought government debt, who are mostly Americans, and mostly aren't poor.

True, but a default would also mean a big crash in spending, which would affect the poor most. Plus, I doubt the rich have significant parts of their portfolio in T-bills - not a good investment. On the other hand, the market would crash big time also. And they would be the biggest target for the angry mobs.

[msmith537]

Just like it did in the '90s. Or the '50s. Raising taxes on a broadly defined class of the rich is going to affect the economy a lot less than a default, or even a hint of a default.

Fine. Then just start another technology bubble or post World War industrial boom.

Everyone talks about the 90s as if it was the decade of awesomeness. The tech bubble didn't really start until around 1995. Prior to that, a lot of people in my generation thought we had a better than average chance of ending up like Michael Douglas in Falling Down.

[XT]

Just like it did in the '90s. Or the '50s. Raising taxes on a broadly defined class of the rich is going to affect the economy a lot less than a default, or even a hint of a default.

Sure, if you can recreate the conditions in the '90s or the '50's. Unless you think that raising taxes magically creates those conditions (and you might want to check the different definitions of what raising taxes were between the '50's and the 90's), then simply raising taxes is going to have the effect msmith537 stated...it's going to slow growth and increase unemployment. If you were to attempt to do this right now, as gonzo seems to be suggesting is the magic bullet cure, then it would probably be a complete disaster that would result in the government actually bringing in less money in the long run, depending on how you went about it. I think a modest tax raise (say to pre-Bush levels, across the board), or a modest change in tax code would have a moderate effect, and while it might cause some short term issues, we'd probably be fine. What gonzo is probably thinking about (or what Le Jacquelope is continually advocating), however, would probably be pretty ugly.


I don't believe that the US government is in any danger of going bankrupt at this time. If it did happen in a short time frame I expect that world wide economic collapse is a pretty good summary of what would transpire. Think Great Depression...and then maybe ramp it up a few more levels.

-XT

[penultima thule]

Plus, I doubt the rich have significant parts of their portfolio in T-bills - not a good investment.

Contraire.
T-Bills are a very good investment ... if you are looking at high security, near capital guaranteed investments e.g. trust funds etc. For that low risk you get low yields.

If you define "a good investment" as delivering high, or even just average returns, then you move up the security/risk profile ladder.

If US defaults the prevailing worlds #1 ranked security flirts with junk bond status. A bit like all those Latin American banana republics.

Even when it settles down there will be two seismic effects.
1) US interest rates go up significantly across the board.
2) US loses reserve currency status, and a significant proportion of US debt will no longer be USD denominated, and hence be payable by printing USD, without attendant weakening of USD FX rates and fuelling inflation.

[Hbns]

2) US loses reserve currency status...

How long can we count on remaining the reserve currency?

Government projections and budgeting seem to assume business as usual into the future.

It seems to me that China is being overlooked. What happens when they surpass America as the leading consumer nation?

Will they push to be recognized as the reserve currency?

And should they attain this status, how does this affect the US and the US dollars they hold?

These are questions that I think I will live to see the answers to. However I am nervous that the Fed isn't looking that far down the road.

[penultima thule]

Stirling was reserve currency for a long while after the UK was the world's leading consumer nation.

China might promote the yuan as reserve currency, though that's bloody unlikely. The Chinese financial system is probably a generation away from by sophisticated, robust and independent enough for that status.

IMHO if/when the US loses reserve status it will to be a basket of currencies (USD/Euro/Yuan maybe Yen)

I'd be confident the US Fed has been modelling the question for years.

[Hbns]

Agree to the collective currency basket.

Disagree with the last bit. Or rather, if it is being done, I have little faith in the decision makers listening to those running the scenarios.

The state of the economy and banking make me question the Fed's ability to model anything.

[msmith537]

How long can we count on remaining the reserve currency?


FOREVER!!!



It seems to me that China is being overlooked. What happens when they surpass America as the leading consumer nation?

Will they push to be recognized as the reserve currency?

And should they attain this status, how does this affect the US and the US dollars they hold?



Stirling was reserve currency for a long while after the UK was the world's leading consumer nation.

China might promote the yuan as reserve currency, though that's bloody unlikely. The Chinese financial system is probably a generation away from by sophisticated, robust and independent enough for that status.


Chinese yuan? I don't think so.

In terms of percentage of the world's currency held in reserve:
US Dolar 62.2%
Euro 27.3%
Pound Sterling 4.3%
Japanese Yen 3.0%
Swiss Franc 0.1%
then everyone else

[Hbns]

Just out of curiosity. If 84.5% of world reserves were US dollars in 1973, and now just over 62% are, what is the prevailing wisdom?

Will the percentage continue to decline?

If so what happens when/if the US dollar is not THE reserve currency?

[Ravenman]

Which slows economic growth, increasing unemployment.Perhaps you could describe the impact of cutting spending by slashing budgets for road construction, education, health care, and energy?

What happens to economic growth when we have an increasing population of poorly educated, sick workers who can't afford to heat their house because their cars are ruined by driving on dilapidated roads? Is that the kind of policy that turns our economy into some kind of industrial dynamo?

[msmith537]

Perhaps you could describe the impact of cutting spending by slashing budgets for road construction, education, health care, and energy?

What happens to economic growth when we have an increasing population of poorly educated, sick workers who can't afford to heat their house because their cars are ruined by driving on dilapidated roads? Is that the kind of policy that turns our economy into some kind of industrial dynamo?

And now you get it.

Government spending and bugeting is what is known as a "wicked problem" (http://en.wikipedia.org/wiki/Wicked_problem). That is to say, it is unsolvable because the variables are often contradictory and complex. Raise taxes, you dampen economic growth and increase unemployment. Lower taxes and you decrease government's ability to function and provide services (ultimately hurting economic growth).

[XT]

Essentially, you have to hope that you boom your way out of the trouble (without creating a bubble that will pop during your term). That's what Obama's economics experts seem to be hoping for, based on Sam's analysis of their numbers.

-XT

[Little Nemo]

Which slows economic growth, increasing unemployment.It's like the old Jack Benny joke where he's gets mugged and the robber says "Your money or your life!"

And Benny says "Let me think about it."

Seriously, if the United States was on the edge of a default and complete economic collapse, do you really think we should be worrying that a tax increase might hypothetically slow economic growth?Essentially, you have to hope that you boom your way out of the trouble (without creating a bubble that will pop during your term). That's what Obama's economics experts seem to be hoping for, based on Sam's analysis of their numbers.It's hardly a new concept. It was the basis for Reaganomics. Lower taxes, the economy will soar upwards, and the government will collect more money than it was when the tax rate was higher.

The problem was that the effect of tax rates on the overall economy was nowhere near what was predicted. Lowering them didn't make the economy shoot up - and raising them wouldn't make the economy collapse.

The bottom line is that the American economy is still huge and has a lot of untapped resilience in it. If we were really on the verge of bankruptcy, we would just tap into that reserve. We could pay off the entire national debt in five years if we wanted to.

The situation we have is that our problems are not serious enough for people to be willing to do what it would take to solve them. So we bicker over half-assed "solutions" that won't rock the boat too much.

[Voyager]

Contraire.
T-Bills are a very good investment ... if you are looking at high security, near capital guaranteed investments e.g. trust funds etc. For that low risk you get low yields.

If you define "a good investment" as delivering high, or even just average returns, then you move up the security/risk profile ladder.


Of course. A rich person (or even a moderately well to do person) diversifies. Mrs. Heinz-Kerry has all her money in Pennsylvania munis not for the interest rate but to support governments. My father has all his money in California munis because he hates taxes. Not a good return, but on the other hand he didn't lose anything in the crash.
In the context of Social Security T-bills are an excellent investment. As the sole component of a rich person's portfolio, not so good unless there are out of the ordinary investment goals, such as radical risk-averseness.

[Voyager]

Fine. Then just start another technology bubble or post World War industrial boom.

Everyone talks about the 90s as if it was the decade of awesomeness. The tech bubble didn't really start until around 1995. Prior to that, a lot of people in my generation thought we had a better than average chance of ending up like Michael Douglas in Falling Down.

The '90s tax increase preceded the tech bubble. I was in the middle of it.
The '50s tax rates (way too high, to be sure) were part of a social compact to repay the debut incurred by WW II, which was higher than anything we have today. But they are an existence proof that high taxes do not necessarily make for a broken economy.

[Voyager]

And now you get it.

Government spending and bugeting is what is known as a "wicked problem" (http://en.wikipedia.org/wiki/Wicked_problem). That is to say, it is unsolvable because the variables are often contradictory and complex. Raise taxes, you dampen economic growth and increase unemployment. Lower taxes and you decrease government's ability to function and provide services (ultimately hurting economic growth).

Now this I agree with. In any sort of tradeoff situation like this, you look for the best answer. To reduce the deficit by a given amount, assuming you think this is necessary, what is the least bad answer? I think it is pretty clear that increasing taxes oh the top 1% is it. It is clear that tax cuts for the rich are less effective at economic stimulus than tax cuts for the broader population, (or other stimulus measures) so it makes sense that increasing taxes (not to confiscatory levels, of course) is less harmful. I'm also not convinced that this would increase unemployment in a situation with lack of demand. The great increase in wealth at the top level has not improved prosperity, so removing some of it is unlikely to hurt prosperity.

[XT]

How much would you increase it by and how much do you expect you'd get out of the 'rich' for your efforts? I mean, let's say you increased it back to pre-Bush levels...I'd certainly be good doing that (I'd be good doing that for everyone, which I think would be more fair). What's your expected increase in Federal revenue due to that increase? $10 billion? $100 billion? $200 billion? $500 billion? What's your estimate?

-XT

[foolsguinea]

No problem. Just raise taxes and close loopholes. then we will be back on a sane fiscal policy.Which slows economic growth, increasing unemployment.Well, any way out has that problem to some degree, but raising taxes on upper-range incomes & net worths is probably the least painful way to balance the budget.

It's easier on the economy to make some multi-millionaires pay another 10% of their income than to fire lots of civil servants, cut benefits on the rest (thus hurting the incomes of private-sector health-care workers), cut Medicare benefits (thus hurting the incomes of private-sector health-care workers even more), and cut DoD orders that prop up the Midwestern economy (the best blue-collar jobs in my hometown are in aerospace; I assume this is not unique to SW Missouri).

I'm for reforming Medicare (to a general single-payer system) & cutting DoD spending significantly, but I don't pretend that'd be less painful to the economy than a 10% tax hike on upper incomes.

Complaining that tax hikes would hurt hiring is kind of like complaining that outpatient laser surgery will leave a scar.

[foolsguinea]

Sure, if you can recreate the conditions in the '90s or the '50's. Unless you think that raising taxes magically creates those conditions (and you might want to check the different definitions of what raising taxes were between the '50's and the 90's), then simply raising taxes is going to have the effect msmith537 stated...it's going to slow growth and increase unemployment. If you were to attempt to do this right now, as gonzo seems to be suggesting is the magic bullet cure, then it would probably be a complete disaster that would result in the government actually bringing in less money in the long run, depending on how you went about it. I think a modest tax raise (say to pre-Bush levels, across the board), or a modest change in tax code would have a moderate effect, and while it might cause some short term issues, we'd probably be fine. What gonzo is probably thinking about (or what Le Jacquelope is continually advocating), however, would probably be pretty ugly.


I don't believe that the US government is in any danger of going bankrupt at this time. If it did happen in a short time frame I expect that world wide economic collapse is a pretty good summary of what would transpire. Think Great Depression...and then maybe ramp it up a few more levels.

-XTThe one flaw in this is your assumption that steep tax rates would hurt revenues. It's like what Peter Orszag told Charlie Rose about Reaganomics. (http://www.charlierose.com/view/interview/10495)When you raise taxes, you gain revenues. The Laffer Curve just isn't that steep.

[XT]

About where does he say that raising taxes sharply will gain revenues? I'm not going to listen to the whole thing, which seems to be mainly about health care reform.

-XT

[humanafterall]

The question I would like to add to the OP's question is: What can we estimate is the country's credit score? If our money is good because the government is good, then what will happen if it goes bad?

[foolsguinea]

I think the way Orszag put it was, "When you mean to raise taxes, that's what you do." The loss of revenue from lost productivity is smaller than the gain from higher tax rates. He was directly responding to Charlie asking about supply-side theory.

[A Dodgy Dude]

I think the way Orszag put it was, "When you mean to raise taxes, that's what you do." The loss of revenue from lost productivity is smaller than the gain from higher tax rates. He was directly responding to Charlie asking about supply-side theory.

If that were true, then why doesn't every country in the world raise their tax rates to 95% or so and then poverty, unemployment, low standards of living, etc would cease to exist on planet Earth?

I'm no student of history but I'm pretty sure there hasn't been a single society in the history of the world that has successfully taxed itself into prosperity.

[Cisco]

If that were true, then why doesn't every country in the world raise their tax rates to 95% or so and then poverty, unemployment, low standards of living, etc would cease to exist on planet Earth?Never heard of the law of diminishing returns? Most things don't work if you stretch them out ad absurdum; why would this be different?

I'm no student of history but I'm pretty sure there hasn't been a single society in the history of the world that has successfully taxed itself into prosperity.
Northern Europe?

[Cyberhwk]

If that were true, then why doesn't every country in the world raise their tax rates to 95% or so and then poverty, unemployment, low standards of living, etc would cease to exist on planet Earth?
For the same reason that, if cutting taxes increases government revenue, every country doesn't just lower their tax rates to 0% so the tax revenue will rain mana-like from the heavens.

[Farmer Jane]

We'll start immigrating illegally to Mexico for jobs.


We could only go bankrupt if other nations stopped giving us money and taking our money. It would be very hard to do, since as others have pointed out, the dollar sets the tone. We'd get stuck in some kind of economic dependence with other world leaders (provided they haven't collapsed as a result of our woes).

In theory, if the whole entire world economy collapsed, we'd just go back to bartering and start over again.

The U.S. could be self-sufficient if it wanted to be (but no one is giving up their big screen T.V.s) since we have enough land, food, and water for everyone. And if the auto/oil/energy/etc. industries were forced, they'd be more efficient. ;)

[devonshire]

It would be worse than anything you have ever seen.

Basically, it's total worldwide economic collapse.

Smitty is spot on. Interest rates will go through the ceiling. Hyperinflation will hit. A loaf of bread will be priced unbelievably. The availability of commodities will tighten
due to the inability of companies either being unable to purchase them or being withheld by foreign entities. All in all it is a disaster in the making and you can thank your gutless wonder politicians for it when it goes down. So get ready the revolution, it is coming and it will not be televised.

[Ca3799]

A Dodgy Dude: "If that were true, then why doesn't every country in the world raise their tax rates to 95% or so and then poverty, unemployment, low standards of living, etc would cease to exist on planet Earth?

I'm no student of history but I'm pretty sure there hasn't been a single society in the history of the world that has successfully taxed itself into prosperity. "




Are there any countries that have started a couple of big, expensive wars, then cut taxes, then sat around wondering how they got into debt and tried to blame it on the new guy?

[galveston]

How many of you think that if our economy collapses the banks will close for a "holiday" as they did in the Great Depression? You have $X,000 in the bank that holds your mortgage. You can't get your money, so you can't pay the mortgage, so the bank forecloses.

That happened in the 30's. Think it can't happen again? Let me sell you some sea-front property in Arizona!

[Exapno Mapcase]

How many of you think that if our economy collapses the banks will close for a "holiday" as they did in the Great Depression? You have $X,000 in the bank that holds your mortgage. You can't get your money, so you can't pay the mortgage, so the bank forecloses.

That happened in the 30's. Think it can't happen again? Let me sell you some sea-front property in Arizona!

Let me introduce you to the Federal Deposit Insurance Corporation (http://www.fdic.gov/consumers/banking/facts/index.html).

Accounts are insured up to $250,000 per depositor per bank.

Does it work?
No depositor has ever lost a penny of insured deposits since the FDIC was created in 1933.
I'm betting 1933 was before you were born, so it's been that way your entire life. How could you not have noticed?

[septimus]

The Treasury Secretary wrote a letter addressing OP (http://www.treasury.gov/connect/blog/Documents/20110513%20Bennet%20Letter.pdf).
( treasury.gov/connect/blog/Documents/20110513%20Bennet%20Letter.pdf )

... to my lay-person mind it would seem that if there's actually a total worldwide economic collapse, aren't we all in the same boat?

:confused: Is this why the Great Depression of the 1930's is barely mentioned by our grandparents, or in history books? :D

... Most T-bills are 3 and 6 months...

BTW the $9.3 trillion of U.S. Treasury debt held by the public and marketable breaks down as
$1.5 trillion - bills (orig. maturity less than 1 year)
$6.1 trillion - notes (orig. maturity 2-10 years)
$1.0 trillion - bonds (orig. maturity 30 years)
$0.7 trillion - TIPS (orig. maturity 5-30 years)