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Should the US Default

Contra
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10/20/2012 10:18:43 PM
Posted: 4 years ago
That's my question. Do you guys believe that the US should default and stop paying the interest on the national debt? (this is assuming that the gov't was able to balance the budget without the use of debt).

What would be the negative/positive effects of defaulting on the debt? I'd like to hear opinions.
"The solution [for Republicans] is to admit that Bush was a bad president, stop this racist homophobic stuff, stop trying to give most of the tax cuts to the rich, propose a real alternative to Obamacare that actually works, and propose smart free market solutions to our economic problems." - Distraff

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Contra
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10/20/2012 10:22:50 PM
Posted: 4 years ago
At 10/20/2012 10:19:22 PM, darkkermit wrote:
God no! Why would that ever be a good idea?

The $200 billion + is a drain on the economy. You could massively cut spending and taxes so that the government could run with a balanced budget at a 10% flat rate.

The availability of debt is the alcohol that the gov't can drink so that spending goes out of control and the fiscal situation is wrecked. A default would hurt in the short term, but not in the long run (predictably).
"The solution [for Republicans] is to admit that Bush was a bad president, stop this racist homophobic stuff, stop trying to give most of the tax cuts to the rich, propose a real alternative to Obamacare that actually works, and propose smart free market solutions to our economic problems." - Distraff

"Americans are better off in a dynamic, free-enterprise-based economy that fosters economic growth, opportunity and upward mobility." - Paul Ryan
darkkermit
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10/20/2012 10:32:05 PM
Posted: 4 years ago
At 10/20/2012 10:22:50 PM, Contra wrote:
At 10/20/2012 10:19:22 PM, darkkermit wrote:
God no! Why would that ever be a good idea?

The $200 billion + is a drain on the economy. You could massively cut spending and taxes so that the government could run with a balanced budget at a 10% flat rate.

The availability of debt is the alcohol that the gov't can drink so that spending goes out of control and the fiscal situation is wrecked. A default would hurt in the short term, but not in the long run (predictably).

If the US defaulted, then it would increase the interest rates of US treasury bonds, causing greater problems. Also, If the government just stropped its obligation to pay off its debt, then they make themselves incredibly vulnerable to foreign and domestic threats, considering they would never be able to raise money for war, counter terrorism, or to stop riots. Not to mention that many banks own US treasury bills, causing them to become insolvent with all their bad debt, which ends with a bank run causing massive deflation. And there would be no keynesian remedy since there would be no deficiet spending.

Basically a default would cause a gigantic economic recession and perhaps even the collapse of the federal government.
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lewis20
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10/23/2012 6:24:08 PM
Posted: 4 years ago
Would defaulting wipe out everyone's investments in t bills and stuff?
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sadolite
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10/23/2012 8:26:24 PM
Posted: 4 years ago
At 10/20/2012 10:18:43 PM, Contra wrote:
That's my question. Do you guys believe that the US should default and stop paying the interest on the national debt? (this is assuming that the gov't was able to balance the budget without the use of debt).

What would be the negative/positive effects of defaulting on the debt? I'd like to hear opinions.

It's not a matter of "should" it is a matter of "when".
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twocupcakes
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10/23/2012 8:31:32 PM
Posted: 4 years ago
If the USA was going to default, they would borrow from one source to pay another. It is highly unlikely the USA defaults. That is why USA T-bills are regarded as risk free.
lewis20
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10/23/2012 10:10:49 PM
Posted: 4 years ago
At 10/23/2012 8:31:32 PM, twocupcakes wrote:
If the USA was going to default, they would borrow from one source to pay another. It is highly unlikely the USA defaults. That is why USA T-bills are regarded as risk free.

They won't borrow, they'll print.
"If you are a racist I will attack you with the north"- Abraham Lincoln

"Do not wear clothing woven of two kinds of material" - Leviticus 19 19

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Contra
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10/23/2012 10:17:02 PM
Posted: 4 years ago
At 10/23/2012 6:24:08 PM, lewis20 wrote:
Would defaulting wipe out everyone's investments in t bills and stuff?

In Treasury Bonds, basically yes. It would cause a shock in the market. But it would free up $200 billion in tax cuts for individuals all across this country.
"The solution [for Republicans] is to admit that Bush was a bad president, stop this racist homophobic stuff, stop trying to give most of the tax cuts to the rich, propose a real alternative to Obamacare that actually works, and propose smart free market solutions to our economic problems." - Distraff

"Americans are better off in a dynamic, free-enterprise-based economy that fosters economic growth, opportunity and upward mobility." - Paul Ryan
darkkermit
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10/23/2012 10:20:11 PM
Posted: 4 years ago
At 10/23/2012 10:17:02 PM, Contra wrote:
At 10/23/2012 6:24:08 PM, lewis20 wrote:
Would defaulting wipe out everyone's investments in t bills and stuff?

In Treasury Bonds, basically yes. It would cause a shock in the market. But it would free up $200 billion in tax cuts for individuals all across this country.

I've read through predictions that a default would cause a 20-30% decrease in gdp. The US economy is somewhere around $15 trillion, so that's a $3 trillion loss in a year compared to a $200 billion gain. Not worth it.
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Greyparrot
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10/24/2012 9:51:34 AM
Posted: 4 years ago
At 10/23/2012 10:10:49 PM, lewis20 wrote:
At 10/23/2012 8:31:32 PM, twocupcakes wrote:
If the USA was going to default, they would borrow from one source to pay another. It is highly unlikely the USA defaults. That is why USA T-bills are regarded as risk free.

They won't borrow, they'll print.

Yah, thats alot safer security wise than defaulting, even 3rd world countries know this.
ax123man
Posts: 317
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10/24/2012 6:05:37 PM
Posted: 4 years ago
I've read through predictions that a default would cause a 20-30% decrease in gdp. The US economy is somewhere around $15 trillion, so that's a $3 trillion loss in a year compared to a $200 billion gain. Not worth it.

How does $250 billion cause a $3 trillion loss in GDP?
ax123man
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10/24/2012 6:11:10 PM
Posted: 4 years ago
Would $300 billion even help much? We are still $1 trillion in the hole each year. The possibly ripple affect thru bond markets wouldn't be worth it. It's easier to just debase the dollar. That lets Bernanke pay favored interests, while also fighting currency wars with China.
darkkermit
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10/24/2012 6:46:59 PM
Posted: 4 years ago
At 10/24/2012 6:05:37 PM, ax123man wrote:
I've read through predictions that a default would cause a 20-30% decrease in gdp. The US economy is somewhere around $15 trillion, so that's a $3 trillion loss in a year compared to a $200 billion gain. Not worth it.


How does $250 billion cause a $3 trillion loss in GDP?

the effects of defaulting would cause a recession that would reduce US GDP by 20-30%. Lots of negative effects from defaulting.
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RyuuKyuzo
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10/24/2012 7:28:02 PM
Posted: 4 years ago
They don't have to. Considering the road you guys are on, it'll happen soon enough on its own.
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twocupcakes
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10/26/2012 2:16:06 PM
Posted: 4 years ago
At 10/23/2012 10:10:49 PM, lewis20 wrote:
At 10/23/2012 8:31:32 PM, twocupcakes wrote:
If the USA was going to default, they would borrow from one source to pay another. It is highly unlikely the USA defaults. That is why USA T-bills are regarded as risk free.

They won't borrow, they'll print.

If they print too much, they will devalue the currency, and a lot of the same results of defaulting would occur.
lewis20
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10/26/2012 2:30:05 PM
Posted: 4 years ago
At 10/26/2012 2:16:06 PM, twocupcakes wrote:
At 10/23/2012 10:10:49 PM, lewis20 wrote:
At 10/23/2012 8:31:32 PM, twocupcakes wrote:
If the USA was going to default, they would borrow from one source to pay another. It is highly unlikely the USA defaults. That is why USA T-bills are regarded as risk free.

They won't borrow, they'll print.

If they print too much, they will devalue the currency, and a lot of the same results of defaulting would occur.
They'll devalue the dollar? Say it ain't so.
We've been devaluing the dollar for a century.
"If you are a racist I will attack you with the north"- Abraham Lincoln

"Do not wear clothing woven of two kinds of material" - Leviticus 19 19

"War is a racket" - Smedley Butler
Deathbeforedishonour
Posts: 1,058
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10/26/2012 2:32:54 PM
Posted: 4 years ago
haha no..
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Contra
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10/26/2012 3:42:32 PM
Posted: 4 years ago
At 10/26/2012 6:28:26 AM, keepinitreal wrote:
Can the USA pay off its debt? If not, then USA should default.

Paying off the debt would take a long time and hurt the economy (running $200 billion surpluses would take 80 years to get America out of debt, and think how the economy would be harmed.
"The solution [for Republicans] is to admit that Bush was a bad president, stop this racist homophobic stuff, stop trying to give most of the tax cuts to the rich, propose a real alternative to Obamacare that actually works, and propose smart free market solutions to our economic problems." - Distraff

"Americans are better off in a dynamic, free-enterprise-based economy that fosters economic growth, opportunity and upward mobility." - Paul Ryan
darkkermit
Posts: 11,204
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10/26/2012 5:20:35 PM
Posted: 4 years ago
At 10/26/2012 3:42:32 PM, Contra wrote:
At 10/26/2012 6:28:26 AM, keepinitreal wrote:
Can the USA pay off its debt? If not, then USA should default.

Paying off the debt would take a long time and hurt the economy (running $200 billion surpluses would take 80 years to get America out of debt, and think how the economy would be harmed.

Off course it would take a long time to pay off the debt. But so what? Actually the US doesn't even need to pay off its debt, just pay its current obligations. The US hasn't been debt free since Andrew Jackson, and that hasn't harmed us. Plus if you consider inflation and growth $200 billion will be worth less in 80 years then it does now. $200 billion is also such a small part of our economy. It's a $15 trillion growing economy. That's only 1/75 of the economy.
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darkkermit
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10/27/2012 3:42:09 PM
Posted: 4 years ago
At 10/27/2012 2:40:53 PM, Greyparrot wrote:
Every country should have some debt because we ALL know the cake is a lie.

Every country does have some debt.
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Contra
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10/27/2012 4:51:45 PM
Posted: 4 years ago
Would it be reasonable to assume that if *hypothetically* the US started having balanced budgets, and the money supply stayed the same as now, that debt payments on interest would decline because the risk would be less and the debt accumulation would stop?
"The solution [for Republicans] is to admit that Bush was a bad president, stop this racist homophobic stuff, stop trying to give most of the tax cuts to the rich, propose a real alternative to Obamacare that actually works, and propose smart free market solutions to our economic problems." - Distraff

"Americans are better off in a dynamic, free-enterprise-based economy that fosters economic growth, opportunity and upward mobility." - Paul Ryan
darkkermit
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10/27/2012 5:12:53 PM
Posted: 4 years ago
At 10/27/2012 4:51:45 PM, Contra wrote:
Would it be reasonable to assume that if *hypothetically* the US started having balanced budgets, and the money supply stayed the same as now, that debt payments on interest would decline because the risk would be less and the debt accumulation would stop?

why would the money supply stay the same? In a growing economy, the money supply should at the very least keep up with gdp growth, otherwise you get deflation.

The debt payments on interest are already incredibly low. Look at the treasury rates.
http://www.treasury.gov...

The interest rate is only 0.12% on a 1 month bond.
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darkkermit
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10/27/2012 5:16:43 PM
Posted: 4 years ago
Compare the interest rate now to what it was 10 years ago and the interes rate is quite significantly lower in today's economy.
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FREEDO
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10/28/2012 1:21:17 AM
Posted: 4 years ago
That's a pretty retarded idea, frankly. I don't think we're anywhere near having a reason for it.
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Contra
Posts: 3,941
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10/28/2012 11:03:59 AM
Posted: 4 years ago
At 10/27/2012 5:12:53 PM, darkkermit wrote:
At 10/27/2012 4:51:45 PM, Contra wrote:
Would it be reasonable to assume that if *hypothetically* the US started having balanced budgets, and the money supply stayed the same as now, that debt payments on interest would decline because the risk would be less and the debt accumulation would stop?

why would the money supply stay the same? In a growing economy, the money supply should at the very least keep up with gdp growth, otherwise you get deflation.

The debt payments on interest are already incredibly low. Look at the treasury rates.
http://www.treasury.gov...

The interest rate is only 0.12% on a 1 month bond.

Well, I meant for the 30 year bonds because of lower risk. I assumed that the monetary supply would be slowly growing, but not at the current rate.
"The solution [for Republicans] is to admit that Bush was a bad president, stop this racist homophobic stuff, stop trying to give most of the tax cuts to the rich, propose a real alternative to Obamacare that actually works, and propose smart free market solutions to our economic problems." - Distraff

"Americans are better off in a dynamic, free-enterprise-based economy that fosters economic growth, opportunity and upward mobility." - Paul Ryan
darkkermit
Posts: 11,204
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10/28/2012 2:23:59 PM
Posted: 4 years ago
At 10/28/2012 11:03:59 AM, Contra wrote:
At 10/27/2012 5:12:53 PM, darkkermit wrote:
At 10/27/2012 4:51:45 PM, Contra wrote:
Would it be reasonable to assume that if *hypothetically* the US started having balanced budgets, and the money supply stayed the same as now, that debt payments on interest would decline because the risk would be less and the debt accumulation would stop?

why would the money supply stay the same? In a growing economy, the money supply should at the very least keep up with gdp growth, otherwise you get deflation.

The debt payments on interest are already incredibly low. Look at the treasury rates.
http://www.treasury.gov...

The interest rate is only 0.12% on a 1 month bond.

Well, I meant for the 30 year bonds because of lower risk. I assumed that the monetary supply would be slowly growing, but not at the current rate.

Even for a 30 year interest rate, that is incredibly low price. The reason why the 30 year bond is higher priced then the shorter-term bonds is because the interest rate will likely rise in the future, not because of fears of US default.
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