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Old 02-14-2013, 20:50   #1
rock_jock
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What will happen when the US defaults on the national debt?

Serious thread. What specifically will happen? Not the vague descriptions of doom and gloom, but the inevitable consequences.

Will we go into receivership, with creditor countries dictating a budget for us?
Can we unilaterally discharge our debt and, if so, what will be the effect on the world?
Can we devalue our currency, go into a massive inflationary cycle, and pay off the debt with worthless dollars?
Will we be forced by international court into liquidation of assets?
What will happen when the banking system collapses?

I'm surprised that no one seems to be covering this, not even Fox News. I think most Americans find the idea so unsettling that they cannot seem to rationally confront it as a reality, one that I believe is not just a potential but rather as an inevitability.

I see one consequence occurring. I think secession will go from a fantasy of the far-right to a blueprint for a new republic.
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Old 02-14-2013, 21:05   #2
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Originally Posted by rock_jock View Post
Serious thread. What specifically will happen? Not the vague descriptions of doom and gloom, but the inevitable consequences.

Will we go into receivership, with creditor countries dictating a budget for us?
Can we unilaterally discharge our debt and, if so, what will be the effect on the world?
Can we devalue our currency, go into a massive inflationary cycle, and pay off the debt with worthless dollars?
Will we be forced by international court into liquidation of assets?
What will happen when the banking system collapses?

I'm surprised that no one seems to be covering this, not even Fox News. I think most Americans find the idea so unsettling that they cannot seem to rationally confront it as a reality, one that I believe is not just a potential but rather as an inevitability.

I see one consequence occurring. I think secession will go from a fantasy of the far-right to a blueprint for a new republic.
How can you default when you just print more money?

The problem then becomes inflation. The only thing preventing runaway inflation at this point is low interest rates.

There will be no callopse of the financial system until those that hold dollers view them as worthless. The biggest danger is losing the status as the worlds reserve currency.

If the rest of the world doesn't want to deal in dollars, then we will have a problem.
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Old 02-15-2013, 00:35   #3
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There will be no callopse of the financial system until those that hold dollers view them as worthless. The biggest danger is losing the status as the worlds reserve currency.
It's crazy to think, but... as bad off as the US dollar is, every other currency is worse.

I'm sure that one day the US dollar will lose its status as the world's reserve currency, but it won't happen anytime soon.
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Old 02-18-2013, 16:10   #4
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It's crazy to think, but... as bad off as the US dollar is, every other currency is worse.

I'm sure that one day the US dollar will lose its status as the world's reserve currency, but it won't happen anytime soon.
Don't be so sure

Is the Dollar Dying? Why US Currency Is in Danger
http://www.cnbc.com/id/100461159

"Bove uses several metrics to make his point, focusing on the dollar as a percentage of total world money supply.That total has plunged from nearly 90 percent in 1952 to closer to 15 percent now. He also notes that the Chinese yuan, the yen and the euro each have a greater share of that total."

"The No. 1 security issue we have as a nation is the preservation of the U.S. dollar as the world's reserve currency," said Michael Pento, president of Pento Portfolio Strategies. "It's a thousand times more important than a nuclear bomb being tested by North Korea. It's a thousand times more important that we keep the dollar as the world's reserve currency, and yet we are doing everything to abuse that status."

The dollar's seemingly precarious status is why Pento remains bullish on gold and believes the dollar's demise as the premier reserve currency could end even sooner than Bove predicts -- perhaps by 2015.

"Five to 10 years -- that would be an outlier," he said. "I would say 2015, 2016, that would be the time when it becomes a particularly salient issue. When we're spending 30 to 50 percent of our revenue on debt service payments, we enter into a bond market crisis. The dollar starts to drop along with bond prices. That would set off the whole thing."
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Old 02-18-2013, 16:57   #5
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Originally Posted by czsmithGT View Post
Don't be so sure
From the beginning of the article you link to:

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While the American currency still reigns supreme -- it constitutes $3.72 trillion, or 62 percent, of the $6 trillion in allocated foreign exchange holdings by the world's central banks -- the Japanese yen, Swiss franc and what the IMF classifies as "other currencies" such as the Chinese yuan are gaining.
This article is junk. This paragraph at the beginning says "here's why this can't happen" and then the rest of the article is about "yeah, but IF it did..."

World holdings of the US dollar dwarf those of any other currency. The yen is in big trouble. The Swiss franc is not, but Switzerland simply isn't a large economy and the only thing that Switzerland really sells is secrecy (I exaggerate, Switzerland is a manufacturing nation too, but they're just not that big). China holds too much in USD reserves to mess with the USD right now.

Is the dollar in trouble? Yes, yes it is. Will it lose its status as the world's reserve currency? Maybe. In my lifetime? Perhaps. By 2015? Not on your life.
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Old 02-18-2013, 17:49   #6
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Originally Posted by devildog2067 View Post
From the beginning of the article you link to:



This article is junk. This paragraph at the beginning says "here's why this can't happen" and then the rest of the article is about "yeah, but IF it did..."

World holdings of the US dollar dwarf those of any other currency. The yen is in big trouble. The Swiss franc is not, but Switzerland simply isn't a large economy and the only thing that Switzerland really sells is secrecy (I exaggerate, Switzerland is a manufacturing nation too, but they're just not that big). China holds too much in USD reserves to mess with the USD right now.

Is the dollar in trouble? Yes, yes it is. Will it lose its status as the world's reserve currency? Maybe. In my lifetime? Perhaps. By 2015? Not on your life.
I wish you were right, I really do. But unfortunately you are wrong. Is 2015 the magic year? Who knows. Will it happen within the next 3-7 years? It is almost a certainty. Nothing can stop the acceleration of the negative dollar trajectory.
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Old 02-18-2013, 19:00   #7
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Why does the world even need a reserve currency?

Lower the cost of / make it easier to trade between countries sure - why else?

It is not like without a reserve currency the world would stop turning.

What else am I missing?
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Old 02-18-2013, 06:00   #8
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How can you default when you just print more money?

The problem then becomes inflation. The only thing preventing runaway inflation at this point is low interest rates.

There will be no callopse of the financial system until those that hold dollers view them as worthless. The biggest danger is losing the status as the worlds reserve currency.

If the rest of the world doesn't want to deal in dollars, then we will have a problem.
This is the plan and its already being put into play through quanitative easing and the buying of our own debt with essentially printed dollars.

And, yes, the result will probably be hyper-inflation, and the eventual collapse of our country. But, it does kick the can down the road a little farther, the only apparent goal of our fiscal policy.
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Old 02-14-2013, 21:41   #9
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China stops devaluing their RMB and makes a push for it to replace US dollar as the world currency. China is buying huge sums of gold and stockpiling it. They are under-reporting how much gold they own now as well in order to strengthen their claim to world currency WHEN we default.

Then we are truly screwed.
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Old 02-14-2013, 21:48   #10
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We sell China West Virginia coal for their steel making processes. WV coal is extra special compared to that dirty Montana and Wyoming coal. However, that coal is good enough for Chinese power plants.

Germany also wants WV coal. They are shutting down all their nuclear power plants and are looking at the Hatfield and McCoy families to help them out.

Japan loves our beef. So does Italy. Switzerland imports about half their food.

We don't have to buy German or Japanese cars. Computer factories could be re-started here in the USA. We still have chemical plants. WE export gasoline to other countries.

The US is a lot more independent than many people think.

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Old 02-14-2013, 22:31   #11
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Most americans don't care. I've been asking around, at work and out and about. Some of the people have said they didn't know that we as a country carry debt.
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Old 02-18-2013, 18:53   #12
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We sell China West Virginia coal for their steel making processes. WV coal is extra special compared to that dirty Montana and Wyoming coal. However, that coal is good enough for Chinese power plants.

Germany also wants WV coal. They are shutting down all their nuclear power plants and are looking at the Hatfield and McCoy families to help them out.

Japan loves our beef. So does Italy. Switzerland imports about half their food.

We don't have to buy German or Japanese cars. Computer factories could be re-started here in the USA. We still have chemical plants. WE export gasoline to other countries.

The US is a lot more independent than many people think.
this is true but balance of payments in the supply chain are the problem.

If inflation kicks in to high gear, imagine value changing daily, or several times a day.

You are producer x and have a commodity. That commodity is needed at the supermarket for people to eat. You put it freight on board expecting Y price for it.

By the time its handed over to a distributor to go to market 5 days later, its market value has gone up …50, 75%.

Have you taken payment up front? 2/10Net 30? payment on delivery? The product left your farm at one price and now its almost doubled. Meantime, you have to buy seed and pay laborers or whatever…at the NEW higher prices because everything else is skyrocketing too.

How about our military? Will our fighting men want to fight when their paychecks become worthless overnight?

And the food we have to give them…that is not made at some factory labeled Government Factory. Nor does it come from the PX fairy. We buy it on the open market. One aircraft carrier has 5000 guys on it, who eat 3 times a DAY, times 60 or 90 day deployments. We have one carrier now that is having maintainence and refueling delayed, and another having a cruise canceled. And we're not even at a crisis yet.

It is going to get BAD.

It will affect National Security.


Mark Levin floated an idea Friday night as to why Homeland security has 5 bullets for every American. They're just wargaming the likelihood of society unraveling.

The spark will come in the food chain. People have to eat before they can do anything else. We don't tolerate our kids starving in this country, but that's what will happen. The supply chain for food will be disrupted by a crisis in payments, loss of trust in the credit system and rampant inflation.

Our military will look down on a worthless paycheck and when its food supply gets disrupted it will get ugly.

If you're smart, you will stock a YEAR's supply of food at home. Everyone reading this message. I am not kidding. Food riots are not pretty.
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Old 02-18-2013, 19:54   #13
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Originally Posted by G29Reload View Post
this is true but balance of payments in the supply chain are the problem.

If inflation kicks in to high gear, imagine value changing daily, or several times a day.

You are producer x and have a commodity. That commodity is needed at the supermarket for people to eat. You put it freight on board expecting Y price for it.

By the time its handed over to a distributor to go to market 5 days later, its market value has gone up …50, 75%.

Have you taken payment up front? 2/10Net 30? payment on delivery? The product left your farm at one price and now its almost doubled. Meantime, you have to buy seed and pay laborers or whatever…at the NEW higher prices because everything else is skyrocketing too.

How about our military? Will our fighting men want to fight when their paychecks become worthless overnight?

And the food we have to give them…that is not made at some factory labeled Government Factory. Nor does it come from the PX fairy. We buy it on the open market. One aircraft carrier has 5000 guys on it, who eat 3 times a DAY, times 60 or 90 day deployments. We have one carrier now that is having maintainence and refueling delayed, and another having a cruise canceled. And we're not even at a crisis yet.

It is going to get BAD.

It will affect National Security.


Mark Levin floated an idea Friday night as to why Homeland security has 5 bullets for every American. They're just wargaming the likelihood of society unraveling.

The spark will come in the food chain. People have to eat before they can do anything else. We don't tolerate our kids starving in this country, but that's what will happen. The supply chain for food will be disrupted by a crisis in payments, loss of trust in the credit system and rampant inflation.

Our military will look down on a worthless paycheck and when its food supply gets disrupted it will get ugly.

If you're smart, you will stock a YEAR's supply of food at home. Everyone reading this message. I am not kidding. Food riots are not pretty.
I have no qualms about eating progressives if needed. There will be plenty of them lying around.
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Old 02-18-2013, 20:11   #14
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I have no qualms about eating progressives if needed. There will be plenty of them lying around.
no cannibalism or rancid meat for me, thanks. Buzzards gotta eat too.
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Old 02-19-2013, 07:09   #15
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If you're smart, you will stock a YEAR's supply of food at home. Everyone reading this message. I am not kidding. Food riots are not pretty.
I've been trying to do this for a while. Everytime I go to the grocery store, I try and buy more than I need in long term storage food items, to put away. If I need it, I figure I am going to really need it. If it looks like magic fairy dust is going to fix everything, I will just eat it and save a little on groceries one day.
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Old 02-15-2013, 00:35   #16
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China stops devaluing their RMB and makes a push for it to replace US dollar as the world currency.
Right now, they can't. We make too much stuff they need. This is a good bet for how it goes down in the future, though.
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Old 02-15-2013, 11:23   #17
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China stops devaluing their RMB and makes a push for it to replace US dollar as the world currency. China is buying huge sums of gold and stockpiling it. They are under-reporting how much gold they own now as well in order to strengthen their claim to world currency WHEN we default.

Then we are truly screwed.
You can't eat Gold.....cut off wheat and corn to them. They'll need clean water soon also.
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Old 02-14-2013, 22:41   #18
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We sell China West Virginia coal for their steel making processes. WV coal is extra special compared to that dirty Montana and Wyoming coal. However, that coal is good enough for Chinese power plants.

Germany also wants WV coal. They are shutting down all their nuclear power plants and are looking at the Hatfield and McCoy families to help them out.

Japan loves our beef. So does Italy. Switzerland imports about half their food.

We don't have to buy German or Japanese cars. Computer factories could be re-started here in the USA. We still have chemical plants. WE export gasoline to other countries.

The US is a lot more independent than many people think.
A lot of countries are starting to get their meat from NZ and other countries now though because they have less hormones and other crap.

We'll be "ok" until the rest of the world doesn't want the U.S dollar anymore. The chances of this happening will increase as the U.S. dollar becomes worth less. Which is happening. China will make a strong push for their currency. As said before, they hold a LOT if gold. Most of the world's product comes from China. At some point it is very likely that it will make sense for countries to use the Chinese currency.

Its not a doom or gloom situation but very well could be.
Something REALLY needs to be done about our spending.

Ironically, we always speak of Obama in relation to Nazi Germany. We can actually learn something about our finances from post-nazi era Germany though.
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Old 02-14-2013, 22:43   #19
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Most americans don't care. I've been asking around, at work and out and about. Some of the people have said they didn't know that we as a country carry debt.
This.
People just don't want to know. They don't think it will effect them.
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Old 02-14-2013, 23:37   #20
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What will happen when the US defaults on the national debt?
I've been wanting to ask Dr. Walter E. Williams this exact question for a few years now.
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Old 02-14-2013, 23:49   #21
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the US makes up about 35% of the world's consumption of consumer goods. We import so much from so many countries, including China, that they would have a harder economic time than we would if they cut off our credit.

Honestly, interest rates would go through the roof, driving more investment into the US. The Fed will probably go into quantative easing, devaluing the Dollar, making goods more expensive but debt repayment cheaper. Remember, inflation is good for the debtor and bad for the creditor.

There are 3 countries in the world that will never fail do to their consumptive power. Germany, China and the US. I would be more worried about a shift from the Petro-Dollar to a Petro-Euro, which will never hapen because of the relationship between euroean powers and Israel.
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Old 02-15-2013, 00:05   #22
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... I would be more worried about a shift from the Petro-Dollar to a Petro-Euro, which will never hapen because of the relationship between euroean powers...
I know I cherry picked a piece of your post for the quote, and usually don't this way...

Part of the goal of the Euro was to replace the Dollar as the world currency. Why they were all so quick to jump into bed together with it, and why England still uses their own currency in addition to. (yea, we're friends, we're just over here so gotta do what they do, ya know.)

England has been like those that contribute to both political parties so they can stand with the winner and say 'I gave, was on your side'. Riiiight.

Look how well that's working out. Ironically the half-commitment of England will leave them in the best spot when the Euro collapses completely. Things may not be great for the Dollar, but they're a lot better then what the Euro is going through.

The Euro failed to establish itself as the world currency, replacing the dollar, because of a decided lack of stability individually, overlooked on a gang run for the prize.

The Euro was the best shot the world could muster to replace the Dollar. That wasn't it's only mission, sure, but definitely part of it. Whatever may happen, it'll be a while before something comes along to displace it.

The absence of a better alternative leaves the status quo.

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Old 02-15-2013, 00:37   #23
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I would be more worried about a shift from the Petro-Dollar to a Petro-Euro, which will never hapen because of the relationship between euroean powers and Israel.
Less to do with that, and more to do with the structural problems that you get when you make different countries with different economic policy all get together into a currency union. The Euro is doomed to failure as soon as the Germans get tired of paying for it.
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Old 02-14-2013, 23:58   #24
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Best case scenario. No country will do business with the US, forcing the US to become economically and industrially self sufficient again. Tremendous internal strife as those on the dole can not be afforded a free income any longer. US ends the Fed, outlaws fractional reserve banking, and dissolves any acknowledgement of debt to the Fed.

Worst case scenario. China and lender countries demand payment in land, and will take it by force if necessary. Ground invasion of the US sparking a third world war.
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Old 02-15-2013, 00:11   #25
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Best case scenario. No country will do business with the US, forcing the US to become economically and industrially self sufficient again. Tremendous internal strife as those on the dole can not be afforded a free income any longer. US ends the Fed, outlaws fractional reserve banking, and dissolves any acknowledgement of debt to the Fed.
I've been all about that happening anyways. It would do this country a heck of a lot of good.

It sucks that it would take a failure of such measure on our part as a nation to bring us back to something really worthy of being proud of, instead of living in the shadow of past glories.

Some of the stuff going on with this country is just shameful.
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