If America defaults?

sabretoothtigger

USA has already defaulted on its obligations in the past. It wont be anything that new in theory unless they really did refuse to pay anyone


I noticed the amount of 'spin' in press talks has risen from bs to outright lying recently. Desperation, this I think even the Chinese will notice a bad tone

They say usa never has defaulted. USA stopped paying out gold, that was a default and so on

lvader wrote: »

That might not work out that well. The USD is still likely to be seen as a safe haven in volatile markets. Shorting the DOW is likely to be more effective.

I know price can go anywhere but the fundamentals of companies many of them partly or majority foreign based is better diversified then a printed currency equal to a recirculating cheque

If America defaults?
What actually happens to the man on the street.....how will everyday life be affected?

If government is forced to stop (over)spending, it is possible a massive benefit occurs to currency value.
Obviously a lot of pain behind that but the unintended consequence could be a net positive, many or almost all even see this as impossible (which makes it very possible)


Sophie's choice

bengalknights

ChiefGrasscutter wrote: »

Well, the US government would have to decide who it pays first, who it pays second and who it doesn't pay.
If I was them I'd default (ie not pay) on some internal social secuity payments. The USA is not going to default on payments of Treasury bond under any circumstances short of the entire world being hit by an asteriod.

Although the current debt limit is fixed by law - it apparantely does not apply to the production of hard coinage. Therefore it seems to me the obvious way out is to mint a special "1 Trillion dollar coin" and promptly deposit said coin at the Fed' -where it would be simply added into the balance held - job done!

Wasnt this the plans some democrats come up with, im surprised they arent taking the pee and making a 5 trillion dollar coin just to tide them over for another 5 years lol

lvader

sabretoothtigger wrote: »

I know price can go anywhere but the fundamentals of companies many of them partly or majority foreign based is better diversified then a printed currency equal to a recirculating cheque

I was talking in terms of the very short term reaction to a delay, we all know that the debt ceiling is going to get rasied sooner or later.

MoneySaverLog

lvader wrote: »

That might not work out that well. The USD is still likely to be seen as a safe haven in volatile markets. Shorting the DOW is likely to be more effective.

Surely if the US defaults, the dollar would become worthless.

lvader

Defaults on what? Some debt, all debt? If the debt is removed the USD is worth more.

Bloomberg

ipri wrote: »

What actually happens to the man on the street.....how will everyday life be affected?

I think that we all need to worry about a US default, the effects could be very far reaching. As oil is purchased and priced in USD we could see oil prices rising sharply as the USD weakens. This would in turn have a very adverse inflationary effect. Britain along with other countries may be forced to raise interest rates.

The Bank of England want to keep rates low for another year or so. This plan would have to reviewed with some urgency. Needless to say a sharp interest rate hike would mean mortgage rates rising significantly and less high street spending which leads to more unemployment.

ChiefGrasscutter

Bloomberg wrote: »

Needless to say a sharp interest rate hike would mean mortgage rates rising significantly and less high street spending which leads to more unemployment.

Wrong way round for me....Higher UK interest rates would mean I get more interest from my savings and hence more disposable spare income so I'm going to be spending more in the shops/on holidays....and paying more tax to HMG from both my higher income and from higher VAT on my spending.
A side effect migh be a rise in the £ which would lower the price of imports principally food and oil/gas products leading to reducing inflation.
Also a possibility that hot money attracted into the UK by the higher rates would now be available to lend thereby actually reducing business lending rates by making more funds available.

Ark_Welder

If the Dollar weakens then Sterling is likely to be stronger against it. So if the price of oil increases in Dollar terms the overall effect in Sterling terms should be negligible.

Surely if the US defaults, the dollar would become worthless

No. The issue with the US is not one of solvency, it is political. So a default will be for technical reasons. Any coupon payments that are missed will be paid in full when the political issues are sorted out.

The prices of Treasury bonds have fallen slightly in the past week, but not by much. Whereas Greek sovereign bonds trade at 50%-60% of their redemption value. If institutional investors really believed in a 'worthless dollar' then they would bale out of both Treasuries and the Dollar. With what is happening in the rest of the world, the Dollar - and Treasuries - are still seen as something of a safe haven.

gadgetmind

MoneySaverLog wrote: »

Shorting the US Dollar looks good ;-)

I don't have any direct positions on the dollar, but I do hold a chunk of a well known IT that is (after some flip-flopping) long on the dollar.

Fingers crossed!

Bloomberg

ChiefGrasscutter wrote: »

Wrong way round for me....Higher UK interest rates would mean I get more interest from my savings and hence more disposable spare income so I'm going to be spending more in the shops/on holidays....and paying more tax to HMG from both my higher income and from higher VAT on my spending.
A side effect migh be a rise in the £ which would lower the price of imports principally food and oil/gas products leading to reducing inflation.
Also a possibility that hot money attracted into the UK by the higher rates would now be available to lend thereby actually reducing business lending rates by making more funds available.

If you have savings then a higher interest rate would benefit you, the sad reality is that few people nowadays have liquid cash. There are also millions of households who cannot afford any kind of a rate rise of any size.

Whilst higher interest rates would put more money in your pocket the
effect on the nation as a whole would be an adverse one. You mention that there would be hot money attracted to the UK with the advent of higher interest rates which could in turn be lent to small businesses at a lower rate.

If rates rise the banks would more than likely pass the increase on to everyone, even if businesses did have loans at lower rates this benefit would cancelled out by the hammering that consumer confidence would take.