The big problems really come with default.
US Treasury notes are chosen because they are considered the safest place to put ones money. It is the hedge against disruption. If they aren’t safe after all, then investors will need to get their money out and find a different hedge.
This would eliminate confidence in other investments, too. People would need to get their money out of the stock and bond markets, leaving them devastated. In 2008, the recession hit stock markets by about 37%. But, a default could mean depression - not just a recession.
The world wide lack of confidence would not lead to easier loans, as any loan would of necessity be considered more risky - thus more expensive.
What expensive borrowing means is unemployment. Remember that the 2008 recession took us from 5% unemployment to over 9% unemployment. And, that is not a depression.
People here and throughout the world would be looking to get rid of their dollars, meaning that our dollars would lose a significant percent of their buying power as prices for everything domestic and foreign soar. That includes homeowner interest rates that can change, as the dollars of homeowners would not be worth as much.
For anyone nearing retirement, that means a huge hit to savings at the same time costs soar.
A default of only a few months would leave the government unable to cover SS payouts.
Banks live on other people’s money. In fact, they are in debt today at nearly $2T. If there were a default, percentages of that start disappearing. Banks could simply close. It’s not just a matter of high interest rates and lack of confidence - the banks could end up with nothing to loan.
Global markets, the IMF, China/Japan - these folks would all want their money back. Yes, we may default on that but they would absolutely get what they could. Surely this would have a strong downward pressure here, as even a marginal loss in confidence could lead to serious selloffs of treasury notes, stocks and bonds.
Any argument that we would only default “a little bit” would still have major ramifications of exactly the same type. And, the very fact that we’re willing to go there would tell those who invest that as it turns out, they overestimated the safety of US investments including treasury notes. And that would absolutely mean that investors would demande significantly higher return for such investments - making the borrowing done by our nation enormously expensive.
This whole direction is a loser. Any shaft we give our investors would be returned in full, but multiplied by the magnitude of our debt.
This whole idea of defaulting is about as profoundly stupid as can possibly be imagined.
Our entire financial world is designed to win when people follow the rules and fulfill their commitments.
It’s very different for guys like Trump and Kushner. They can stiff those people they owe, then use their connections to find some Russian oligarch to load them millions and have beauty contests.
This is just one of the ways that our government is NOT like a private business.
