No, it’s not a default, not even in a technical sense. A default is not paying a debt - the situation described in the OP is borrowing too much. They’re two different things.
Dear Mr. USA,
It has come to our attention that your account is overlimit.
Until your account balance can be brought below your credit line, you will be charged a $39 per month overlimit fee.
Additionally, your 0% intro APR has just changed to your default rate of 23.99%. Once your balance has been current and without late pays for six months, we may choose, at our sole option, to place you at your standard rate of 11.99%.
Wasn’t this the premise of the movie Rollover? The Arabs bought up all the government debt, and then refused to roll it over? I believe the result was anarchy, rioting and seeing Jane Fonda and Kris Kristofferson naked.
Well the UN has been calling, http://www.iatp.org/global/tdb_aboutun.cfm, something about unpaid dues ($1 Billion in arrears). 
What’s more, let’s be clear here. Section 4 of the Fourteenth Amendment only prohibits repudiation of public debt–it doesn’t prohibit us from defaulting on it.
and
(Emphasis added).
If we exceeded a statutory limit on debt, how is the additional debt “authorized by law”?
Not touching the obvious problems with the original understanding or intent of the amendment here, but would welcome the debate in the appropriate forum.
saoirse, no need to spin nightmare scenarios. We will not be forced to see Jane Fonda and Kris Kristofferson naked under any conceivable extension of this scenario. I hope.
No, that’s a scenario where the Treasury wants to borrow money but can’t find enough lenders. The real-life consequence would be that interest rates would rise until they did find lenders–which would be ugly, but not nearly as ugly as Fonda and Kristofersson naked.
It wouldn’t be, which is why we won’t exceed the limit. (You didn’t think Treasury would violate the law, did you?) That’s why the scenario I described in Post#11 would play out instead.
Dear Visa,
I regret to inform you that my self-imposed debt ceiling of $500 has been met and exceeded with the last purchase applied to your credit card. Please disregard this purchase.
–I.Montoya,
Vengence dept.
As a note, inflation happens whether you print the money or not, according to generally accepted macroeconomic theory. That is, if the US runs a deficit, it gets inflation. It is an economic variation of the idea of “equivalence” in physics!
Hm. I think that claim needs substantiation.
What I’ve heard is that expansionary fiscal policy (i.e. growing budget deficits) stimulate the economy, but such stimulus can be offset by contractionary monetary policy (federal reserve policy).
Be that as it may, GW Bush and Ronald Reagan both had large budget deficits: Reagan experienced declining inflation (again, due to contractionary monetary policy) while GW Bush has experienced relatively stable inflation (partly since his policy was synced with the 2001 downturn).
Nah, it’s just wrong. An economy running at full capacity that receives a stimulus will generate inflation. But running the same deficit as last year is not a stimulus.
What running a deficit means is that surpluses have to be run at some time in the future. This usually means taxes have to be higher. Inflation is (amongst other things) a form of taxation, and it has been one way that governments have in the past dealt with debt. But it’s not the only way.
As noted, this is not what happened. Even Hollywood screenwriters would find it hard to stretch reality that far.
People underestimate how huge the U.S. economy is and how small everybody else’s is. To put it in perspective, an article in today’s newspaper noted that ExxonMobile’s annual revenue of $371 billion for 2005 is far more than the GDP of Saudi Arabia, at $340 billion.
That’s nothing compared to our debt ceiling of $8.184 trillion.
We are the world, so to speak.
Er, I disagree.
Governments can run deficits indefinitely[sup]1[/sup], provided that nominal economic growth exceeds growth in (nominal) government debt. Empirically, budget surpluses are rare in the postwar US.
Admittedly, the bit about inflation confuses matters somewhat. I would think that anticipated inflation would be built into the initial interest rate, so that only unanticipated inflation would “deal with debt” effectively. If that’s the case, then I still can’t see how a budget deficit would mandate future tax increases or future bursts of inflation.
[sup]1[/sup]As it happens, firms can also run deficits indefinitely, if they have a continual capital expansion program financed at least in part with debt.
I’ll certainly concede the debt point, although I don’t think it’s of practical importance. I think everyone agrees that 1. US debt is sustainable and 2. it is on an unsustainable path for the moment - but I suppose that’s really a GD matter.
Expectations can get a bit funny. On one view, of course, debt=tax has already been recognised (see my mention of Ricardian equivalence here) It’s pretty clear that’s wrong. I also think the view that only surprise monetary policy matters at all isn’t right (although quite why isn’t clear).
Monetising the debt in the extreme just means paying bond holders by running the presses as required. I rather think that this could be done for a while without the complete abandonment of the $US by residents.
Notice I (slightly weaslingly) said “usually taxes have to be higher”, not tax rates have to be higher.
Three questions:
- We have a growing trade deficit and growing foreign debt. So if we are the world, does that mean others own it?
http://www.chicagofed.org/publications/fedletter/cflmay2004_202.pdf (pdf) (US foreign debt position not significant)
Factline: The Asianization of U.S. Foreign Debt
http://www.house.gov/tanner/foreignholdings.htm (70% of the 2003 federal deficit was borrowed from foreign investors)
IMF alarmed by U.S. Foreign debt
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2004/01/08/BUGK845LBV1.DTL&type=business
http://www.imf.org/external/Pubs/NFT/Op/227/index.htm
http://democraticwhip.house.gov/docuploads/budget05_tanner.pdf (pdf) (Foreign Countries buy U.S. debt, benefit from our fiscal irresponsibility)
Trade Deficit Spikes To Record
http://web.centre.edu/rizzo/Are%20Trade%20Deficits%20Really%20Bad%20News.htm (trade deficits not bad news)
http://www.mindfully.org/Reform/2005/Debt-Threatens-Economy27aug05.htm (trade deficit is bad news, especially when coupled with growing foreign debt)
http://www.cato.org/dailys/02-21-01.html (large trade deficit is a symbol of strength)
- When you take account of population and purchasing power, our enormous GDP advantage gets smaller. Which statistic is more relevant?
http://www.worldfactsandfigures.com/gdp_country_desc.php
- Is it meaningful to compare corporate revenue to national GDP?
Revenue is all income before deductions are made.
GDP is a measure of national output.
You’re simultaneously moving away from the question I was answering and toward serious GD territory.
- I don’t think anyone quibbles over the relative size, might, and importance of the U.S. economy compared to any other nation. I find our continuing trade deficit troubling, but at the same time I think that other nations have no real choices for the foreseeable future. And although putting international accounts into Euros rather than dollars remains viable, it is less attractive an option now that the dollar has strengthened and the EU has proven to be much shakier and less of a power than anyone forecast.
I’m positive, however, that I don’t understand your first cite, which seems to back up the statement that we are the world (in that the deficit is sustainable) with your questioning of my use of the term. Which was, of course, a joking reference to the 1985 song rather than a formal economic treatise.
-
Per capita GDP is relevant only to the people who get to live in those surroundings. Or are you seriously contending that Luxembourg is a world economic powerhouse?
-
It’s only meaningful to compare corporate revenues with a country’s GDP in context. My context was the impossibility of the “Arabs” buying up our debt by showing that even if the Saudis beggared their country it would be a drop in the bucket compared to the size of our debt.
The U.S. economy is huge. We sneeze and the world catches a cold. This may not be true forever, but barring epic disaster it will be true for a very long time to come. To stick on another cliché: If you owe the bank $100 the banks owns you. If you owe the bank $100 million you own the bank. The U.S. is in the latter position vis-a-vis the world.
You’re pounding awfully hard on a throwaway line. I have to admit I don’t really get what your objections are, or why you seem to be agreeing with me at the same time. What is your point?
Wasn’t so much making a point, as trying to understand some issues that I lack the basic knowledge to analyze on my own. My knowledge of economics is limited to what I touched on in law school courses. I tried to find cites for multiple positions, which is why it looks like I’m agreeing and disagreeing at the same time; really I’m just noticing that conflicting claims are being made. I really wasn’t trying to be argumentative, although, I admit I probably came off that way. Anyway, your responses were very helpful. Thanks.