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Suppose that consumers and banks simply stopped repaying their loans, and the central bank increased the money supply so that new loans would continue to be made at the same rate as before, despite the fact the money from the old loans will never leave the money supply since the loans are never repaid. Could this, in theory, reverse the situation we have now where the total US dollars in circulation are insufficient to repay the national debt?
This would collapse faith in the system and you'd just end up with an economy in shambles, regardless of the outcome. I'd want to be in gold or bitcoin in such a situation.
In order for the circulatory system that is the global credit markets to function, the arteries need to be intact. If you start going in with a scalpel and just cutting the arteries, the system will not function. It will come to a grinding halt.
This would collapse faith in the system and you'd just end up with an economy in shambles, regardless of the outcome. I'd want to be in gold or bitcoin in such a situation.
Goats and chickens might perform better in the event of a shambles.
Quote:
Originally Posted by stockwiz
In order for the circulatory system that is the global credit markets to function, the arteries need to be intact. If you start going in with a scalpel and just cutting the arteries, the system will not function. It will come to a grinding halt.
Look what happened merely from exceeding built-in tolerances for bad paper in something so remote as secondary mortgage markets.
Suppose that consumers and banks simply stopped repaying their loans
Secured debt would be foreclosed on, unsecured debt would go to bill collectors unless or until bankruptcy via a federal court was ordered. If you earn more than half the median wage in your state, a court is likely to order you to make payments and give you a monthly stipend to live on.
It would be a disaster for banks, for real estate, for car sales, for used car sales, and for the economy. It would also be a disaster for consumers and the public.
Suppose that consumers and banks simply stopped repaying their loans, and the central bank increased the money supply so that new loans would continue to be made at the same rate as before, despite the fact the money from the old loans will never leave the money supply since the loans are never repaid. Could this, in theory, reverse the situation we have now where the total US dollars in circulation are insufficient to repay the national debt?
If your scenario should happen IMO that would mean that we already are experiencing a physical national disaster, millions affected and paying off loans is way down on the list of urgency. An intact central bank could still operate.
But the idea that circulating currency is used to pay off national debt is silly. National debt is paid down, never off. And this happens when we pay federal taxes. Circulating currency only amounts to a few $T.
The last time federal receipts were used for paying down the public debt was in the part of FY 2001 that came before Bush-43 could start running up deficits that rather quickly curtailed the practice. All in all, $363 billion in debt held by the public was bought down through the four years of Clinton's budget surpluses. It may be that none of us will live to see the likes of that sort of thing again.
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