So what would happen if the Congress refuses to raise the debt limit? Would there be a number of possibilities or would one thing happen?
I suppose the value of the US dollar would collapse v other currencies and against commodities. Anything else?
ya. we Canadians are gonna empty the shelves South of the border AGAIN, thus relaunching the US economy like we did in '08-'09. 
I thought I saw the syrupy fingers of the Canadians in this evil plot.
right. so much for gratitude after getting you rid of all those repo’ed big RV’s and shiny boats and fancy SUVs littering the States, eh?
on a more serious note, I’m thinking that there’s going to be another war sparked somewhere in a country that doesn’t matter too much but where there’s a lot of “strategic interest.” just for bringing some more crappy military contracts in and producing another bunch of failed war planes / jeeps / tanks / APC’s. because some narrowheads think this is the only way to maintain a healthy economy and distract the general public from the ripoff that’s happening everywhere.
So that’s why all the congestion… I thought it was just the cottage traffic.
You are so cynical.
Do you realize this country has been at war since 1941? Even in the off years (the cold war) we were cranking out military equipment at an amazing clip.
We will continue to spend money on military interests, even if we aren’t crawling up the ass of some small country. Actually, I don’t see us leaving Afghanistan or Iraq any time soon, so there will be plenty of money pumped into military contracts.
Killing is good business. I don’t see that changing any time soon, do you?
If the U.S. defaults, shit will hit the fan. That’s about the best anyone can say. A few big effects:
(1) The U.S. likely won’t have access to credit markets. That means the Federal Government will immediately need to balance the budget. Expect massive service cuts and possibly some tax raises.
(2) A lot of wealth will be wiped out. That will have unpredictable effects as the chain reaction of the lost money plays out. Businesses that have put loose cash into t-bills will lose that, and that might mean closed businesses, lost jobs, and a downward spiral into another Great Depression.
(3) The value of the dollar will go in the shitter, and likely trigger a world wide depression.
(Emphasis added.)
And this is why American is in denial.
Possibly some tax raises? Really?! It is only a “possibility”? 10 trillion plus and you’re thinking, “oh, well, I guess, I suppose, to balance the thing we’ll have to have some tax raises…”.
yep. but it ain’t got nothing to do with Canada (I’m a transplant, myself.)
it’s because of this:
totally agree.
Of course the US will have access to credit markets. But the risk premiums i.e. interest rates required will be higher.
And more importantly the US would likely lose the ability to pay its debts in USD, which it can print at will. If the debts become non-USD denominated then the US is going to have to earn those non-USD by selling stuff that other countries want.
The problem is the debt ceiling. The U.S. probably can’t simply cancel outstanding debts or unilaterally reduce them because of the constitution. The 14th amendment says:
In other words, we can probably stop paying the debt, but it still will be on our balance sheet. Thus, if we are at the legally authorized debt ceiling, we can’t borrow any more money, even if there were lenders willing to lend money.
I don’t see the problem. We can just print more money and lend it to ourselves. We’re good for it. We can trust us. And we could charge ourselves a lower interest rate.
As far as I know the “debt ceiling” law prevents the US Government from borrowing money from anybody, even the Federal Reserve Bank (the entity that “prints more money”).
The first thing that would happen with a default is that the price of Treasury bonds would fall. Everyone unlucky enough to be holding them would take a loss. Unfortunately, that includes pretty much everybody.
If this is a one-day thing because of ridiculous posturing, then it probably will not be a catastrophic fall, but it might be a couple of percentage points, which hurts if you own a $T or so of them. Expect the next issue of T-bonds to require a higher rate of interest to be sold. That increases the deficit.
The next step will occur when someone wants to buy something from overseas–either oil from Canada or plastic junk from China. The Canadians/Chinese are going to be less willing to take dollars, because dollars will be harder to park in safe investments–they just got burned on T-bonds. The value of the dollar will fall, which will make imports more expensive. $4/gal gas will become a thing of nostalgia, as will $19 jeans.
So, not really the end of the world. Americans would just get a little poorer, for the most part. Senators and Representatives will not be affected, so we have that going for us.
Firing up the printing presses will lead to rampant inflation. Obviously, it is an option, but again we are still at the shit hitting the fan point. If we are going to fire up the printing presses, we might as well send out the fairly worthless dollars to pay down the debt.
There is little or no information on the Internet on Iceland’s financial reform - the kind where the public took matters into their own hands and basically rejected financial slavery from the European Union.
It is my understanding (I might be wrong) that they are currently re-writing their set of laws and are about to implement a set of measures meant to bounce their economy, at the same time ignoring whatever “debt” they owe to any international financial institution.
If someone could come up with more information PLEASE post it here - and perhaps this could shed some light on what should be done in US and a few other countries.
Because to me this whole ‘national debt’ thing is just a screwed-up form of milking some more taxes. It’s absurd on so many logic levels, but I’m at work and don’t really have the time to enter the details right now.
LE:
I found some info on Iceland between work tasks, albeit scarce. Five-minute google searches:
A general overview here (PDF)
The thing is, if there is no agreement in Congress to raise the debt ceiling, there will be no agreement on any other change in fiscal policy that also requires a change in law.
The White House cannot simply direct that tax rates be raised. Congress must pass a law to do so.
The Congress is made of POLITICIANS, not economists. The kind of fat people who serve various cliques’ interests and are elected on how much they promise to contribute (financially) to said interests or favor them in the coming mandate. And whose IQ in general is a bit higher than the IQ of an ostrich. One of them politicians was also in power for two consecutive mandates as a president and look where the US are now.
Fact: whatever the Congress does is just a huge hot air balloon that looks well on TV. (This does not mean that our guys in Ottawa are any better, either.)
However one feels about Congress, the fact is that Congress must pass laws to make fiscal decisions, whether it is changing spending, revenue, or the debt limit. Whatever problems one may have with representative democracy or the Constitution, the plain fact is that the US government would have virtually no acceptable options to avert disaster once the debt limit is reached, unless the Legislative and Executive Branches work together.