Of Course the US Government Will Default on Its Debt

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Of Course the US Government Will Default on Its Debt

05/09/2016

Tho Bishop

Last week Donald Trump set the financial punditry class aflame with his suggestion that the United States may end up asking lenders to take a haircut on its debt obligations. The resulting firestorm created a race to see who could come up with the strongest condemnation of Trump, David Ader of CRT Capital Group told Bloomberg the comments were “stupid and ridiculous,” while Business Insider’s Josh Borro labeled them “insane.” Vox’s Matt Yglesias described the proposal as a threat to “incinerate the world economy.”

While Yglesias is correct that a US default would have major ramifications for the global economy, lost in all this hand wringing is the fact that the damage has largely already been done. As Jim Grant noted in his Time cover article this month, the United States debt situation is far more serious than most "experts" would like to believe. By accumulating a debt that now towers over $19 trillion, the United States government has written a check it will not be able to cash.

Of course the irony here is that many of the same pundits attacking Trump for his comments today are those who have encouraged on the fiscally reckless policies that have led us to this point. For example, The Weekly Standard described Trump’s comments as a “Plan to Destroy the U.S. Economy”, highlighting the pain that Americans would feel from such a move. Of course, this publication was perhaps the loudest cheerleader for the Afghanistan and Iraq Wars, which could end up costing taxpayers over 6 trillion dollars, and continues to campaign for further expansion of America’s military presence that currently costs over $700 billion a year.

Meanwhile, conservative estimates of the cost of bailing out Wall Street — actions that would still be defended today by most of the mainstream financial class - weighs in at over $3 trillion dollars.

These expenditures, added on to firmly implanted and growing welfare state managed by a political class lacking the courage required to make serious attempts at debt reduction, has always made default, in some form, inevitable. As Congressman Ron Paul (who was discussing the reality of US insolvency during his last presidential campaign in 2012) was always fond of pointing out, government spending is itself a form of taxation. So while the Weekly Standard is correct that a debt default will hurt the pocketbook of American families, this is an inevitable consequence of the spending it advocated — an insidious form of tax collection, the consequence of electing politicians who followed the publications own advice.

So the real question about an American default has always been less a matter of if, and more a matter of how and when.

While it is still popular to claim that the United States has never defaulted on its debt, this is a myth. The US has been forced to default a couple of times throughout history, the last of which being when Richard Nixon&rsquo closed the gold window. By cutting the ability of foreign governments to redeem US dollars for gold, America was allowed to pay back past debt with devalued fiat money. This form of default has long been a popular option for governments with debt obligations it can’t or won’t honor.

Of course, as Peter Klein wrote last week, even Trump’s suggestion of the US restructuring its debt isn’t the doomsday scenario CNBC talking heads have made it out to be, noting that:

[T]he idea that the US can never restructure or even repudiate the national debt — that US Treasuries must always be treated as a unique and magical "risk-free" investment — is wildly speculative at best, preposterous at worst.


​
Murray Rothbard himself advocated for outright repudiating the national debt, arguing:

The government is an organization, so why not liquidate the assets of that organization and pay the creditors (the government bondholders) a pro-rata share of those assets? This solution would cost the taxpayer nothing, and, once again, relieve him of $200 billion in annual interest payments. The United States government should be forced to disgorge its assets, sell them at auction, and then pay off the creditors accordingly.

​
Click to expand...
 
FindLiberty said:
Total nonsense
Click to expand...

I agree, sort of. But if you can't say what will be done instead, you aren't saying anything at all.

Crash the currency in which T notes are paid, and the debt becomes easy to repay. If FRNs are as worthless as the currency of Zimbabwe, a billion dollars is a loaf of bread. At that point, the debt is easy to repay, even easier than defaulting. Of course, the holders of those T bills take more than a haircut. But there will be plenty of pain to go around, if we are still nailed by federal currency fiat to this cross of paper and electrons. Plenty of pain to go around.
 
FindLiberty said:
Total nonsense
Click to expand...

Yeah, right...

There are only three ways in which the debt can be paid:

1 - De-value the currency (some call this, incorrectly, "inflation") and pay it back in worthless denominations. This is the the most likely scenario, once having done that, the government will outlaw "old dollars" and all transactions will be in digital, "virtual" New Credits.

2 - Default and declare bankruptcy, and pay off in pennies on the dollar to creditors around the globe.

3 - War.
 
Anti Federalist said:
Yeah, right...

There are only three ways in which the debt can be paid:

1 - De-value the currency (some call this, incorrectly, "inflation") and pay it back in worthless denominations. This is the the most likely scenario, once having done that, the government will outlaw "old dollars" and all transactions will be in digital, "virtual" New Credits.

2 - Default and declare bankruptcy, and pay off in pennies on the dollar to creditors around the globe.

3 - War.
Click to expand...

1&3..........This nation is too great to evah declare bankruptcy......:rolleyes:
 
Somebody should call out on Obama to tell us what the plan actually is. We should have a conversation.:)
 
"I wish it were possible to obtain a single amendment to our constitution - taking from the federal government their power of borrowing." -- Thomas Jefferson

"It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world." -- Thomas Jefferson
 
I don't really understand... the money was already created right out of thin air. DONE.
Fancy words and entities explain nothing of substance where it REALLY came from,
or who's obligated to pay it back, or who pays interest... it is just nonsense.

Did they actually "borrow" $21 trillion dollars from some bank, someone or some, something, or anyone?

Fancy words: (A "reserve"? A "bond"? etc.) Where would THAT kind of money/funding be just sitting around?
Did some other country have that $$,$$$,$$$,$$$,$$$ sitting in a vault, waiting around to get loaned out from?

It started from nothing so how is it to be paid back (or the "loan" defaulted on)?
And the terms of this "contract" state that "interest" shall be paid on THAT "loan"?
All nonsense.

IT IS ALL MADE UP.

If this year's deficit is $581 billion, just this year requires that amount of "printing"
since that is far more "need" than the USA has a "source" to fund everything done
by the gov in 2016.

Did we recently borrow that money from some other country in the last 12 months?
(I'm under the impression that it gets added to the debt figure, and then we start
next year with a brand new deficit again.)

BTW, the "unfunded obligations" of $122 trillion include the interest to be paid on bonds
etc. (again, where did that money come from that was on hand to purchase/loan out with)

http://www.usdebtclock.org/current-rates.html
 
FindLiberty said:
I don't really understand... the money was already created right out of thin air. DONE.
Fancy words and entities explain nothing of substance where it REALLY came from,
or who's obligated to pay it back, or who pays interest... it is just nonsense.

Did they actually "borrow" $21 trillion dollars from some bank, someone or some, something, or anyone?

Fancy words: (A "reserve"? A "bond"? etc.) Where would THAT kind of money/funding be just sitting around?
Did some other country have that $$,$$$,$$$,$$$,$$$ sitting in a vault, waiting around to get loaned out from?

It started from nothing so how is it to be paid back (or the "loan" defaulted on)?
And the terms of this "contract" state that "interest" shall be paid on THAT "loan"?
All nonsense.

IT IS ALL MADE UP.

If this year's deficit is $581 billion, just this year requires that amount of "printing"
since that is far more "need" than the USA has a "source" to fund everything done
by the gov in 2016.

Did we recently borrow that money from some other country in the last 12 months?
(I'm under the impression that it gets added to the debt figure, and then we start
next year with a brand new deficit again.)

BTW, the "unfunded obligations" of $122 trillion include the interest to be paid on bonds
etc. (again, where did that money come from that was on hand to purchase/loan out with)

http://www.usdebtclock.org/current-rates.html
Click to expand...


Sounds to me like a very strong candidate for default and total repudiation.

Why not?

IT IS ALL MADE UP.
 
timosman said:
Y'all do not understand modern economics.;)
Click to expand...

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." -- Henry Ford
 
timosman said:
Y'all do not understand modern economics.;)
Click to expand...

OK, please help me understand if I'm wrong-headed here. I can take it.

Modern Economics is an art, black magic mumbo that needs to be left alone.

Why would there (ever) need to be a "default" of any kind when
the status quo "can" just needs to be kicked along once more?

They try to keep inflation perceptions low, regulate/fix a few priced,
and honor all bonds, loans, T-bill sales and interest, buy-backs, etc.

Bail out failed banks, failed corporations and friends as necessary.

They don't even eliminate the US Penny to save the cost
of producing them at a loss.

Print a little more. "Pay" any interest rate and make tasty offers
(using more printed money) and then print up what ever is
ultimately needed to accomplish that. (the total debt always
goes up and it's claimed that "it brings new money into existence".

The fed reserve and banks play a zero sum paper game, but
the money just flies in a big circle - it's generated at some point
out of nothing.

If anyone (local or foreign) does not like/accept it , they get
overthrown and/or totally crushed by USG military.
 
FindLiberty said:
OK, please help me understand if I'm wrong-headed here. I can take it.

Modern Economics is an art, black magic mumbo that needs to be left alone.

Why would there (ever) need to be a "default" of any kind when
the status quo "can" just needs to be kicked along once more?

They try to keep inflation perceptions low, regulate/fix a few priced,
and honor all bonds, loans, T-bill sales and interest, buy-backs, etc.

Bail out failed banks, failed corporations and friends as necessary.

They don't even eliminate the US Penny to save the cost
of producing them at a loss.

Print a little more. "Pay" any interest rate and make tasty offers
(using more printed money) and then print up what ever is
ultimately needed to accomplish that. (the total debt always
goes up and it's claimed that "it brings new money into existence".

The fed reserve and banks play a zero sum paper game, but
the money just flies in a big circle - it's generated at some point
out of nothing.

If anyone (local or foreign) does not like/accept it , they get
overthrown and/or totally crushed by USG military.
Click to expand...

https://mises.org/library/what-has-government-done-our-money

[h=2]Repudiating the National Debt[/h]https://mises.org/library/repudiating-national-debt
 
Last edited:
Anti Federalist said:
Yeah, right...

There are only three ways in which the debt can be paid:

1 - De-value the currency (some call this, incorrectly, "inflation") and pay it back in worthless denominations. This is the the most likely scenario, once having done that, the government will outlaw "old dollars" and all transactions will be in digital, "virtual" New Credits.

2 - Default and declare bankruptcy, and pay off in pennies on the dollar to creditors around the globe.

3 - War.
Click to expand...

I am sort of expecting a combo of all three , no paying back domestically , war ,de value and pay foriegn , and outlaw cash .
 
Nope,

I read “Repudiating the National Debt” and conclude that
their explanation is complete nonsense.

The money is supposedly "borrowed from those banks"
SORRY TO SAY, it will not, doesn't now and it never has existed.

Pay it back? lol

I do not believe they had trillions sitting in their vault, just waiting
to be loaned out (at interest yet, lol). Where'd they get all that? roflol

"Brother, are they going to be pissed when we don't give them their
$22,000,000,000,000.00 back!"

That's pretty silly. Never gonna' happen.

What if they really still have 1,000,000 times more money to loan out
and they are SO DARN RICH that they don't even care about ever getting
a single penny paid back, wouldn't that be good news?
Might as well believe that too. All BS IMHO

Come on! Just forget about this. There is literally nothing to see there.

Now if The Wizard of Oz could persuade everyone into thinking that the magical
cash producing slippers were real, well that'd be a horse of a different color!
 
Last edited:
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