No. of Recommendations: 16
What happens if the US defaults?
That is my central question.
"Defaults again" might be better phrasing : ) The 1934 Liberty Bond default was massive.
Of course I've just broken a US law by saying that: 4th amendment: "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned." Well, I question it.
Since all the debt is issued in US dollars, a normal default as in many other countries--simply not paying the money back--is essentially off the table, since the money can always just be created. The US theoretically could default that way, but it would make no sense since a simple signature makes the problem completely go away.
Consequently the main categories of default for the future are "technical" defaults, like T-bills getting repaid a few days late again because of a debt ceiling showdown, or "repressive" defaults, as in retrospective changes to the terms so that existing holders are limited in some way. e.g., changes to the date that the bonds get redeemed, or restrictions are added which reduce their true value, such as restrictions on transfer. The timely example here is the recently mooted forced conversion of short term debt to infinite term debt for non-US public sector holders. (or other holders as well, nobody knows unless and until it happens)
At the start of this year I owned a lot of T-bills. But, not being American, I don't lend money to the US any more.
Jim
