# what will actually happens if the US economy goes into default? **URL:** \ **Category:** Factual Questions\ **Created:** [July 18, 2011, 7:41pm UTC](https://boards.straightdope.com/t/what-will-actually-happens-if-the-us-economy-goes-into-default/589480 "2011-07-18T19:41:25Z")\ **Posts on this page:** 17\ **Page:** 2
**Author:** ![Whack-a-Mole](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/whack-a-mole/32/141_2.png) [@Whack-a-Mole](https://boards.straightdope.com/u/Whack-a-Mole)\ **Post date:** [July 19, 2011, 6:11pm UTC](https://boards.straightdope.com/t/what-will-actually-happens-if-the-us-economy-goes-into-default/589480/21 "2011-07-19T18:11:30Z")
> [@isaiahrobinson](#): > > There could well still be a debt crisis. The court system would have to get involved to determine whether his action was constitutional. If they found that it wasn’t, that would instantly create a debt crisis. And how secure do you think the market is going to feel while the court is weighing up that decision, with no precedents to work from? Plus the Republicans would probably try and bring impeachment hearings against Obama for it. It would probably cause an absolute storm, both economically and politically. Not that it’s going to happen. The markets would certainly be rocked but the president would be paying debts as usual till a court could hear the case. I suspect such a case would get extremely expedited treatment and would likely go straight to the Supreme Court (the court heard Bush v. Gore in very quick fashion so they can do it obviously). The supreme court in recent years has been pretty generous in determining presidential powers. I also cannot see the court saying the president cannot do it which would immediately pull the plug on the economy and simultaneously see Obama facing impeachment. While it is an open question legally there are good arguments to be made for and against this option so the court need not just make something up. They could manage a legal rationale for it. I suspect Congress overall would really not like to see this happen so, in this game of chicken, I think congress is more likely to blink first. ---
**Author:** ![md2000](https://avatars.discourse-cdn.com/v4/letter/m/73ab20/32.png) [@md2000](https://boards.straightdope.com/u/md2000)\ **Post date:** [July 19, 2011, 6:21pm UTC](https://boards.straightdope.com/t/what-will-actually-happens-if-the-us-economy-goes-into-default/589480/22 "2011-07-19T18:21:55Z")
Remember its as much politics as economics or law. The more radical Republicans want to portray Obama as the guy throwing away your hard-earned money and bankrupting the country, while Obama tries to show he’s being reasonable and the Republicans instead are being obstinate and refusing to do what they’ve done for decades and for every other president. Suddenly discovering or granting yourself new powers to bypass congress and spend even more does not get the same PR value as stopping the social security cheques, soldiers’ paycheques and contractors’ bills and then saying “…because congress made me do it.” ---
**Author:** ![Machine\_Elf](https://avatars.discourse-cdn.com/v4/letter/m/82dd89/32.png) [@Machine\_Elf](https://boards.straightdope.com/u/Machine_Elf)\ **Post date:** [July 19, 2011, 6:25pm UTC](https://boards.straightdope.com/t/what-will-actually-happens-if-the-us-economy-goes-into-default/589480/23 "2011-07-19T18:25:52Z")
> [@md2000](#): > > The point is that the USA, unlike Greece or Portugal, is not in the situation where they might not pay their debts because they cannot. They are likely to default simply because for technical governmental procedural (really, for political) reasons, they are not allowed to proceed with business as usual. Once the parties resolve their political fight, there will be plenty of money to pay the debts. > > It’s like the difference between a couple who don’t have enough money to pay their debts because they are unemployed and broke, vs. a couple who are late with payments because they are arguing and the wife hid the husband’s chequebook. One couple’s a much better bet to eventually pay than the other couple. Your analogy is flawed. The wife didn’t hide the husband’s checkbook, she hid the _credit card._ ---
**Author:** ![penultima\_thule](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/penultima_thule/32/3833_2.png) [@penultima\_thule](https://boards.straightdope.com/u/penultima_thule)\ **Post date:** [July 19, 2011, 11:30pm UTC](https://boards.straightdope.com/t/what-will-actually-happens-if-the-us-economy-goes-into-default/589480/24 "2011-07-19T23:30:37Z")
> [@septimus](#): > > I’ve noticed in the past that American financial trouble often leads, paradoxically, to a stronger dollar! I doubt that this is caused by irrational algorithms, rather it recognizes that the world depends on U.S. economy. Not a paradox, supply and demand. Most recently during the GFC US institutions needed USD to staunch the losses stateside, so by necessity they sold their holdings in non-USD denominated securities and bought the USD they needed, which pushes the price (exchange rate) of USD. ---
**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:** [July 20, 2011, 1:13am UTC](https://boards.straightdope.com/t/what-will-actually-happens-if-the-us-economy-goes-into-default/589480/25 "2011-07-20T01:13:02Z")
> [@UDS](#): > > Not being able to meet your obligations as they fall due is pretty much the definition of bankruptcy, actually. What will be missing is an orderly legally-imposed procedure for regulating the competing claims of unpaid creditors. Panic among unpaid creditors will be limited as long as they remain confident that a political solution _will_ be found, and that it will involve paying them all, in full, with interest or other compensation for the delay in payment. Obviously, the longer they remain unpaid after the due date the less confident they will be of this. Hm. I’m not sure social security checks count as obligations. But arguably, payments to contractors do. If the government puts employees on furlough, that may or may not be comparable to bankruptcy, depending upon the employment contract. Nice point though. I’m guessing the financial crisis will be pretty short-lived, though it could have costs in the billions of dollars. If it’s not though, the economist [Simon Johnson](http://www.slate.com/id/2299460/) sketches the scenario. The man knows about this: he used to design austerity packages for the IMF. And there’s at least a 50% chance of a last-minute deal. ---
**Author:** ![Leo\_Bloom](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/leo_bloom/32/10377_2.png) [@Leo\_Bloom](https://boards.straightdope.com/u/Leo_Bloom)\ **Post date:** [July 20, 2011, 3:33am UTC](https://boards.straightdope.com/t/what-will-actually-happens-if-the-us-economy-goes-into-default/589480/26 "2011-07-20T03:33:02Z")
> [@septimus](#): > > Sorry for the poor phrasing. Americans are _wonderfully_ active politically. “You can have my Uzi when you pry it out of my dead fingers.” “If we allow gay marriage, what’s next? Marriage to farm animals?” blah blah blah … > > What I meant was politically active in a way that resembles intelligence. **Septimus,** Please keep political posturing asinine satire off GQ. Mod: I do not believe this comment is strictly ad hominem. It is responding to a type of noxiousness that pops up way too much, I believe. ---
**Author:** ![Whack-a-Mole](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/whack-a-mole/32/141_2.png) [@Whack-a-Mole](https://boards.straightdope.com/u/Whack-a-Mole)\ **Post date:** [July 20, 2011, 4:01am UTC](https://boards.straightdope.com/t/what-will-actually-happens-if-the-us-economy-goes-into-default/589480/27 "2011-07-20T04:01:06Z")
> [@md2000](#): > > Remember its as much politics as economics or law. The more radical Republicans want to portray Obama as the guy throwing away your hard-earned money and bankrupting the country, while Obama tries to show he’s being reasonable and the Republicans instead are being obstinate and refusing to do what they’ve done for decades and for every other president. > > Suddenly discovering or granting yourself new powers to bypass congress and spend even more does not get the same PR value as stopping the social security cheques, soldiers’ paycheques and contractors’ bills and then saying “…because congress made me do it.” Ok, pretend you are the president and you are faced with the situation that the debt limit is reached. What do you do? Your options are conveniently small: 1. The government stops writing checks completely. 2. You decide which bills to pay and which not to pay. 3. You ignore the debt limit and keep writing checks. That’s it. Those are your choices. YOU are the president. What do you do? #1 will collapse the global economy overnight. It’ll make the Great Depression look like peanuts. At least you are not “granting yourself new powers” though so I suppose you can take some small comfort in that. #2 you start to decide who gets paid and who doesn’t. Unfortunately here you have granted yourself new powers. Congress told you to spend money on X, Y and Z except you do not have the money to spend on all those. It is impossible to do so. So, YOU have to start making decisions on what checks to write. Congress can direct you in this…if they get their shit together. Don’t hold your breath on that. In the meantime someone needs to say who gets paid. That someone is you (if not you then who else?). Congratulations, you just granted yourself new powers. Also, this route will at least collapse the US economy overnight and may well take the world with it. #3 you invoke the 14th amendment and tell congress the debt limit is bullshit and continue to write checks and direct the Treasury to issue new bonds. You are granting yourself new powers here but arguably under the cover of the 14th amendment (so not really granting yourself power…merely executing the constitution you took an oath to uphold). The economy will probably wobble from the shit storm this creates but of the three choices is the least damaging to the economy. So, what do you choose Mr. President? ---
**Author:** ![Duckster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/duckster/32/1244_2.png) [@Duckster](https://boards.straightdope.com/u/Duckster)\ **Post date:** [July 20, 2011, 4:16am UTC](https://boards.straightdope.com/t/what-will-actually-happens-if-the-us-economy-goes-into-default/589480/28 "2011-07-20T04:16:13Z")
> [@Whack-a-Mole](#): > > So, what do you choose Mr. President? The choice isn’t up to the president. Existing laws determine priorities the president is required to invoke. The president have may some discretionary authority in some areas, but still be guided by conventional practice. The president takes the public political hit, even if the president is merely following directions required by law previously passed by Congress. ---
**Author:** ![UDS](https://avatars.discourse-cdn.com/v4/letter/u/ecae2f/32.png) [@UDS](https://boards.straightdope.com/u/UDS)\ **Post date:** [July 20, 2011, 4:19am UTC](https://boards.straightdope.com/t/what-will-actually-happens-if-the-us-economy-goes-into-default/589480/29 "2011-07-20T04:19:23Z")
> [@Measure\_for\_Measure](#): > > Hm. I’m not sure social security checks count as obligations. They certainly do. The social security program is legally established. If you qualify for a social security payment, then you have a legal entitlement to it. It’s an obligation of the government. > [@Measure\_for\_Measure](#): > > But arguably, payments to contractors do. There’s no “arguably” about it. > [@Measure\_for\_Measure](#): > > If the government puts employees on furlough, that may or may not be comparable to bankruptcy, depending upon the employment contract. Nice point though. Suspending or firing someone to avoid incurring an obligation to pay him for services rendered in the future is not an act of bankruptcy (though it may, as you point out, be a breach of other legal obligations, e.g. his employment contract). But if he doesn’t get the paycheck for services which he has already rendered, or is allowed/encouraged to render in the future, that is. ---
**Author:** ![Whack-a-Mole](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/whack-a-mole/32/141_2.png) [@Whack-a-Mole](https://boards.straightdope.com/u/Whack-a-Mole)\ **Post date:** [July 20, 2011, 4:29am UTC](https://boards.straightdope.com/t/what-will-actually-happens-if-the-us-economy-goes-into-default/589480/30 "2011-07-20T04:29:19Z")
> [@Duckster](#): > > The choice isn’t up to the president. Existing laws determine priorities the president is required to invoke. The president have may some discretionary authority in some areas, but still be guided by conventional practice. > > The president takes the public political hit, even if the president is merely following directions required by law previously passed by Congress. This is unprecedented (if it happens). What existing laws cover this? The laws in place demand the impossible in this case. The president is mandated to spend “X” but he only has “Y” dollars and Y \< X. If I have a contract with you that stipulates you send me $1000/month but you only have $500 this month that’s that. All the law in the world does not change the reality that you cannot pay. If there is any law at all to guide the president here it is the 14th amendment and the president ignores the debt limit. When your choice is that or complete default and economic catastrophe what would you choose? ---
**Author:** ![waterj2](https://avatars.discourse-cdn.com/v4/letter/w/858c86/32.png) [@waterj2](https://boards.straightdope.com/u/waterj2)\ **Post date:** [July 20, 2011, 5:11am UTC](https://boards.straightdope.com/t/what-will-actually-happens-if-the-us-economy-goes-into-default/589480/31 "2011-07-20T05:11:17Z")
It’s my understanding that the US did in fact default briefly during a debt limit fight like this back in 1979. The result was an increase in the interest rate on US bonds of 55 basis points (0.55%) that lasted for years. With world financial markets as shaky as they are now, that would probably be getting off very easy if we were to repeat it now. Basically, it would increase our borrowing costs by at least hundreds of billions of dollars overnight. And the thousands of other bonds whose ratings are dependent on the rating of US Treasury bonds would take a huge hit as well. ---
**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:** [July 20, 2011, 6:32am UTC](https://boards.straightdope.com/t/what-will-actually-happens-if-the-us-economy-goes-into-default/589480/32 "2011-07-20T06:32:01Z")
> [@UDS](#): > > They certainly do. The social security program is legally established. If you qualify for a social security payment, then you have a legal entitlement to it. It’s an obligation of the government. C’mon. Yes social security payments are obligations, but they are not obligations for the purposes of the bankruptcy analogy. But arguably payments to contractors are such obligations, which I thought was a good point. Ok, more than arguably. I trust the Treasury has gamed some of this out, as they did in 1995. In my view, the worst that is likely to happen is that faith in US credit is shaken, to tune of [$50 - $100 billion a year](http://motherjones.com/kevin-drum/2011/07/cost-default) for several years – that’s what 55 basis points could do. The country can survive that, though it’s the financial equivalent of a small war. And I am assuming here that the August crisis (which may not happen) is a short one. I admit that I’m biased in that I don’t like to see US finances run like those of a banana republic. ---
**Author:** ![UDS](https://avatars.discourse-cdn.com/v4/letter/u/ecae2f/32.png) [@UDS](https://boards.straightdope.com/u/UDS)\ **Post date:** [July 20, 2011, 7:29am UTC](https://boards.straightdope.com/t/what-will-actually-happens-if-the-us-economy-goes-into-default/589480/33 "2011-07-20T07:29:52Z")
> [@Measure\_for\_Measure](#): > > C’mon. Yes social security payments are obligations, but they are not obligations for the purposes of the bankruptcy analogy. I don’t see why not. As far as bankruptcy legisliation is concerned, you either owe money or you don’t, and if you do owe it you can either pay it when it’s due or you can’t, and if you can’t that’s an act of bankruptcy. The history of how you came to owe the money might have some bearing on the relative priority that the debt will enjoy in the bankruptcy proceedings, but it’s irrelevant to the question of whether you are bankrupt. ---
**Author:** ![Whack-a-Mole](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/whack-a-mole/32/141_2.png) [@Whack-a-Mole](https://boards.straightdope.com/u/Whack-a-Mole)\ **Post date:** [July 20, 2011, 7:42am UTC](https://boards.straightdope.com/t/what-will-actually-happens-if-the-us-economy-goes-into-default/589480/34 "2011-07-20T07:42:55Z")
> [@UDS](#): > > I don’t see why not. As far as bankruptcy legisliation is concerned, you either owe money or you don’t, and if you do owe it you can either pay it when it’s due or you can’t, and if you can’t that’s an act of bankruptcy. The history of how you came to owe the money might have some bearing on the relative priority that the debt will enjoy in the bankruptcy proceedings, but it’s irrelevant to the question of whether you are bankrupt. You think bankruptcy legislation has any bearing whatsoever if the US is the thing going bankrupt? Although to be fair defaulting on the debt is not the same as bankruptcy. Defaulting on the debt presumes the US just cannot pay today but may pay tomorrow. Bankruptcy is an outright confession that that you cannot pay and are dissolving all debts. You may still pay people off but at dimes on the dollar if they are lucky. The US defaulting on the debt would be catastrophic by itself. The US announcing that it will not ever honor its debts…well…doesn’t bear thinking about. ---
**Author:** ![UDS](https://avatars.discourse-cdn.com/v4/letter/u/ecae2f/32.png) [@UDS](https://boards.straightdope.com/u/UDS)\ **Post date:** [July 20, 2011, 8:37am UTC](https://boards.straightdope.com/t/what-will-actually-happens-if-the-us-economy-goes-into-default/589480/35 "2011-07-20T08:37:10Z")
> [@Whack-a-Mole](#): > > You think bankruptcy legislation has any bearing whatsoever if the US is the thing going bankrupt? > > Although to be fair defaulting on the debt is not the same as bankruptcy. > > Defaulting on the debt presumes the US just cannot pay today but may pay tomorrow. > > Bankruptcy is an outright confession that that you cannot pay and are dissolving all debts. You may still pay people off but at dimes on the dollar if they are lucky. > > The US defaulting on the debt would be catastrophic by itself. The US announcing that it will not ever honor its debts…well…doesn’t bear thinking about. Failure to pay is an act of bankruptcy. As in, you don’t pay me the money you owe when you owe it, I have a range of enforcement mechanisms open to me, and one of these is to petition for your bankruptcy. (And it’s the one I’ll take, if the amount you owe me is large, and I don’t hold a security over some asset that I can seize.) Of course, if in fact you can pay me, you would be very foolish to let the petition go through and find yourself adjudicated a bankrupt. But that’s up to you; I don’t have to show that you _can’t_ pay me the money, just that you _haven’t_ paid it. In this case, if the United States doesn;t pay me the money it owes me because it doesn’t have the money and can’t raise it (because it is legally constrained from borrowing) then by any standard understanding the United States is bankrupt. The issue of whether it owes me the money as a social security payment or as a coupon on a bond is irrelevant; it is enough that it owes me the money. The hypothesis that it will be able to borrow the money at some point in the future if the law is changed does not save it from being bankrupt now, any more than I can avoid bankruptcy today by saying that I can probably earn/borrow/inherit money next year/month/week. ---
**Author:** ![Nica](https://avatars.discourse-cdn.com/v4/letter/n/d2c977/32.png) [@Nica](https://boards.straightdope.com/u/Nica)\ **Post date:** [July 20, 2011, 3:25pm UTC](https://boards.straightdope.com/t/what-will-actually-happens-if-the-us-economy-goes-into-default/589480/36 "2011-07-20T15:25:26Z")
What we need is a good ol’ fashioned war to make us some money! Saves us every time, right?? WWIII: don’t be surprised. ---
**Author:** ![isaiahrobinson](https://avatars.discourse-cdn.com/v4/letter/i/85e7bf/32.png) [@isaiahrobinson](https://boards.straightdope.com/u/isaiahrobinson)\ **Post date:** [July 20, 2011, 4:12pm UTC](https://boards.straightdope.com/t/what-will-actually-happens-if-the-us-economy-goes-into-default/589480/37 "2011-07-20T16:12:07Z")
> [@Duckster](#): > > The choice isn’t up to the president. Existing laws determine priorities the president is required to invoke. The president have may some discretionary authority in some areas, but still be guided by conventional practice. > > The president takes the public political hit, even if the president is merely following directions required by law previously passed by Congress. What? What existing laws determine the priorities? As far as I’m aware there aren’t any. On most issues the executive branch simply makes a choice. There’s certainly no “conventional practice” because the government has never deliberately failed to raise the debt ceiling before. [Previous page](https://boards.straightdope.com/t/what-will-actually-happens-if-the-us-economy-goes-into-default/589480.md?page=1)