# So what would happen is the US decided to just zero out its debts overnight? **URL:** \ **Category:** Great Debates\ **Created:** [September 6, 2008, 8:57pm UTC](https://boards.straightdope.com/t/so-what-would-happen-is-the-us-decided-to-just-zero-out-its-debts-overnight/462386 "2008-09-06T20:57:47Z")\ **Posts on this page:** 3\ **Page:** 2
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [September 8, 2008, 7:06pm UTC](https://boards.straightdope.com/t/so-what-would-happen-is-the-us-decided-to-just-zero-out-its-debts-overnight/462386/21 "2008-09-08T19:06:43Z")
> [@sailor](#): > > China’s “export-based” economy is another myth as I explained in another thread. China has a huge internal demand and of its foreign buyers it is Japan who is #1. If America stopped buying Chinese stuff clearly China would suffer but it still has huge markets in Asia and Europe. America would suffer even more. Do you have a cite for this statement? From what I’ve always seen, it’s US, Europe and then Japan as a distant 3rd. ---
**Author:** ![sailor](https://avatars.discourse-cdn.com/v4/letter/s/a587f6/32.png) [@sailor](https://boards.straightdope.com/u/sailor)\ **Post date:** [September 9, 2008, 12:12am UTC](https://boards.straightdope.com/t/so-what-would-happen-is-the-us-decided-to-just-zero-out-its-debts-overnight/462386/22 "2008-09-09T00:12:45Z")
> [@msmith537](#): > > Do you have a cite for this statement? From what I’ve always seen, it’s US, Europe and then Japan as a distant 3rd. You may be right. I remember finding a cite some time ago which supported what I said but I may be misremembering or it may be calculated differently. [This page](http://internationaltrade.suite101.com/article.cfm/chinas_top_trading_partners) supports what you say. But I have found that you can find different pages giving wildly different numbers for public debt holders and such things. I suppose there is no simple way to calculate such things and so the calculations are just based on different parameters. That page shows Japan is #1 in imports into China so I may be mixing things up. It shows Hong Kong as #2 importer from China but that is stuff which is re-exported and we would need to know where it goes. At this point counting HK as a separate country does not make sense. mazinger\_z, we’ll have to agree to disagree and time will tell who was right. I have no doubt that America cannot continue to have a 114.2 billion yearly trade deficit with China indefinitely. Sooner or later the day of reckoning will come. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [September 9, 2008, 4:12am UTC](https://boards.straightdope.com/t/so-what-would-happen-is-the-us-decided-to-just-zero-out-its-debts-overnight/462386/23 "2008-09-09T04:12:17Z")
Tyler Cowen, a libertarian-leaning economist, presents the [nightmare scenario](http://www.marginalrevolution.com/marginalrevolution/2008/09/could-you-clari.html) that applies if Fannie Mae and Freddie Mac went bankrupt. The same story applies if the Federal Government renegs on its Treasuries except it becomes _much_ more likely and even more intense. > [@Tyler Cowen](#): > > But let’s say that the Treasury did not support the debt of the mortgage agencies. The Chinese bought over $300 billion of that stuff and they were told that it is essentially riskless. The flow of capital from them and from other central banks, sovereign wealth funds, and plain old ordinary investors would shut down very quickly. The dollar would fall say 30-40 percent in a week, there would be payments system gridlock, margin calls at the clearinghouses would go unmet, and only a trading shutdown would stop the Dow from shedding half its value. Most of the U.S. banking system would be insolvent. Emergency Fed/Treasury action would recapitalize the FDIC but we would lose an independent central bank and setting the money supply would be a crapshoot. The rate of unemployment would climb into double digits and stay there. Many Americans would not have access to their savings. The future supply of foreign investment would be noticeably lower. The Federal government would lose its AAA rating and we would pay much more in borrowing costs. The deficit would skyrocket. Substitute “Federal debt would be considered an international joke” for “lose its AAA rating” and stir. There’s a link in the post with a contrary point of view by the libertarian [Jeffrey Rogers Hummel](http://hnn.us/blogs/entries/53544.html): he is in the extreme minority and may even be thought of as a quack. For example, > [@Jeffrey Rogers Hummel](#): > > But my major disagreement with Tyler and Arnold is that I believe that a U.S. government default, rather than being “the end of the world,” could possibly be a good thing. I even advocated repudiating the national debt in a 1981 issue of CALIBER (the newsletter of the California Libertarian Party), long before predicting a default. My arguments were moral, economic, and political, and I would only soften them slightly today. Good for a few laughs. That said, Mr. Hummel is certainly learned and he’s not exactly a crank in my view. But I view his position with extreme trepidation. [Previous page](https://boards.straightdope.com/t/so-what-would-happen-is-the-us-decided-to-just-zero-out-its-debts-overnight/462386.md?page=1)