Why Doesn't USA Just Default??

[Mircea]

Originally Posted by JoeyT

Didn't Rissia default on its massive debt in the late 90's.

No, they did not.

Russia inherited the debts of the Soviet Union, and paid off every single penny it owed to the IMF and to the Paris Club of Creditors.

Also:

And that, said David C. Mulford, the U.S. Treasury's undersecretary for international affairs, should give Moscow the breathing space it needs to undertake fundamental economic reforms and to marshal its export earnings to repay its foreign debt, estimated to total between $65 billion and $100 billion.

Soviet debt wasn't really that much.

I mean seriously, you're comparing perhaps as much as $100 Billion to $14.3 TRILLION?

That's only 0.7% of what the US currently owes.

Of note too is that Russia paid off the debts of the USSR ahead of schedule.

I think the biggest problem is the propaganda machine. Most US media announced it as "debt relief" which many Americans equate with either bankruptcy or debt-forgiveness.

Russia, and even the Soviet Union before dissolving, did get debt relief from foreign creditors, but it was in the form of restructured payments and extended loan times.

Originally Posted by Wild Style

hmmm,

Am I in the twilight zone? Why doesn't the US just default? Hmmmm well lets see. You will crush the confidence of those who invest in America. That means no more people willing to buy US bonds and such. That means a wall street that will be renamed dead street. That means unemployment the likes of which you have never seen. That means crime, that means a lot of horrific crap that no one in their right mind wants to see happen.

That would sum it up.

Originally Posted by JoeyT

take a good look at Moscow today. I don't see int'l businesses ostracizing them.

No kidding. That's because neither the Soviet Union nor Russia defaulted on their debt.

The Soviet Union did default on debt payments, but that is not the same as defaulting on the entire amount owed, and as I said, the West granted relief in the form of debt restructuring, and as you might expect, the IMF forced Russia into austerity to programs to make absolutely certain Russia paid off the USSR's debts to the IMF (which were just a few $Billion).

[numbskull]

We don't owe China anything. If anybody owes someone something then that would be China. We helped build the economy they are enjoying now by bringing businesses their(literally) and buying their products. Without our consumerism No Strong Tiger in the East! Goes for India, too.

[tijlover]

No mention of Argentina's default on their debts here. And they've recovered fairly well. And foreign investors are still lending to them.

To put it all in a much smaller sphere, put on a personal basis, when an individual files for bankruptcy, defaults on their debts.

Even though I let everyone of my credit cards go into default in the 70's, there were still eager-beaver salesmen eager to sell me something. Quite simply, I just needed a little more of a downpayment.

[Mircea]

Originally Posted by tijlover

No mention of Argentina's default on their debts here. And they've recovered fairly well. And foreign investors are still lending to them.

Again, you're equating default with debt-forgiveness.

Yes, Argentina did default on its loan payments, however, its foreign debt was not wiped clean like in a bankruptcy nor was their foreign debt forgiven. Argentina's debt was restructured so that it could make payments.

And when Argentina when back into recession it defaulted again.

I would also point out that, um, Argentina's total debt was only $81 Billion. Again that is a drop in the bucket compared to US foreign debt.

That countries have defaulted on their debts, sure, but this bizarre and false belief that their debts was simply dumped and wipe cleaned and that they got away Scot-free without paying a single penny, well, I don't know where you people get your facts from, but maybe you all should consider reading more authoritative sources.

[Willy702]

Originally Posted by Mircea

No, they did not.

Russia inherited the debts of the Soviet Union, and paid off every single penny it owed to the IMF and to the Paris Club of Creditors.

Also:



Soviet debt wasn't really that much.

I mean seriously, you're comparing perhaps as much as $100 Billion to $14.3 TRILLION?

That's only 0.7% of what the US currently owes.

Of note too is that Russia paid off the debts of the USSR ahead of schedule.

I think the biggest problem is the propaganda machine. Most US media announced it as "debt relief" which many Americans equate with either bankruptcy or debt-forgiveness.

Russia, and even the Soviet Union before dissolving, did get debt relief from foreign creditors, but it was in the form of restructured payments and extended loan times.



That would sum it up.



No kidding. That's because neither the Soviet Union nor Russia defaulted on their debt.

The Soviet Union did default on debt payments, but that is not the same as defaulting on the entire amount owed, and as I said, the West granted relief in the form of debt restructuring, and as you might expect, the IMF forced Russia into austerity to programs to make absolutely certain Russia paid off the USSR's debts to the IMF (which were just a few $Billion).

The definition of a debt default is to not remain in compliance with any of the obligations you agree to when issuing debt. Russia stopped making payments for a period of time. That is a default, end of discussion. It has hurt Russia to this day, lots of investors are still leery of loaning to the Russian government because of their actions in the 90s.

[CaptainNJ]

Originally Posted by JoeyT

Didn't Rissia default on its massive debt in the late 90's. I don't see THEM being the worst for wear as a result. In fact, they seem to have done just peachy in the 10 years since. I know there'd be a lot of bumps along the way but what's the alternative? It's a stupid question to ask if we're ever going to be able to pay off the pending baby boomer Medicare/SS debt of 30+ trillion. And that's just for starters. Couldn't America do the same and just start over like Russia did?

i wouldnt mind a default once the budget is balanced to add no additional debt.

to speak of defaulting without balancing the budget is silly.

[bale002]

In a fractional reserve system, debt equates to the supply of money (closely related to energy supply, eventually food supply), the unit of account, means of exchange, and store of value. What is the money supply (debt) worth? And to whom?

To be sure, a clear definition of default is necessary to have a meaningful discussion.

I believe that in the cases of Argentina and Russia, the default, or restructuring, was on debt in USD, not on bonds denominated in their own domestic currencies held largely by residents. I believe that Iceland's default was also in securities or deposits in foreign currency.

There are recent and current cases of default, or threat of default or restructuring, among sovereign, though very small, nations using a foreign currency as their domestic currency, e.g. Ecuador, Greece, Ireland, and most recently Portugal.

A few years ago, Ecuador, whose domestic currency is the USD, faced with deteriorating terms of trade when the oil price basically halved in 2008-2009 (the price of oil largely determines money supply in Ecuador), forced buy-backs of a portion of its foreign-held debt denominated in USD at steeply discounted prices, threatening those who did not accept the buy-back offer with default, in some cases actually carried out I believe. As a consequence, it no longer seeks financing for domestic infrastructure and social spending projects on international (i.e. US-European) financial markets, but rather seeks it through regional supranational bodies and government-to-government loans (China, Russia). In addition, it has raised import tariffs significantly. This equates to a tightening of the money supply and reduced domestic consumption, especially of manufactured imports.

In the European cases, the threat of default means cuts in real wages, especially among government sector employees, and a deterioration of such services as pensions and health care, and increases in public transportation prices.

As mentioned, Russia still has enormous energy reserves to sell around the world, in proportion so does Ecuador. Argentina has a somewhat diversified economy. The prospects for Greece, Ireland and Portugal would be dimmer, but they will continue to receive EU/IMF subsidies, enough to keep them going and part of the EU, as a matter of political will.

Generally speaking, with the global spread of industrialization, the standard of living of the average worker in the countries of early industrialization is in relative decline, there is not enough energy and financial capacity to maintain such high standards of living in the face of global competition, which dwarfs them numerically, for even a fraction of a similar standard of living: in other words, short of default, the solution, natural or not, is a relative decline in the standard of living for the average US, European, Japanese worker.

In the case of the US, in my view default implies a political decision to break-up the political economic unit as it has been known for the past 235 years or so. Reread some of the explainations at the top of this thread started two years ago.

I do not think that political break-up is likely, more likely is a steady erosion of the standard of living for the average worker: e.g. medicare and social security will continue to exist, but the actual value of such services will be significantly diminished compared to, say, the 1960s-1990s.

Political break-up, then, or controlled relative decline in standard of living? What is the money supply (debt) worth? In other words energy, utilities, food, transportation, manufactured goods, etc. how they are delivered and who?

That is the question.

The same question that inhabitants of the Roman Empire, for example, faced many years ago (multiple constraints: labor supply, food supply, gold supply, but mainly constraints on energy and transportation technology), conscious of it or not: the answer was ambiguous and took centuries to play out across geography and cultures.

Good Luck!