4 ms·
Sorry, this doesn't make any sense. First, debt default isn't anything like suspending trade. Russia and Argentina, just to mention recent cases, had defaults
by nandemo 17y ago
Sorry, this doesn't make any sense.
First, debt default isn't anything like suspending trade. Russia and Argentina, just to mention recent cases, had defaults but didn't stop trading with other countries (that would have meant a much bigger disaster).
Now, even if you managed to get a crazy dictator that was willing to screw China (thereby probably getting into a war), he would have no practical way to stop paying only China. More than half of US debt is in form of liquid instruments, e.g., treasury bill, notes and bonds. To stop paying China would mean also stop paying whoever else holds them. But stopping payment for even a fraction of those bonds would be catastrophic, of course.
- fleitz 17y agoWhy would it be catastrophic? Do you mean it would unwind the massive amounts of leverage based on fiat currency? Please let me know how failing to pay US bonds in anyway affects the median US citizen? Put simply if you can't afford to pay your debts it is less catastrophic to not pay them. Crazy dictator? You mean like FDR who cancelled almost half the US debt by inflating the currency and barring ownership of gold? Canceling the debt would do two very important things, massively lower the debt burden of the individual US household, and increase the US workforce available for free market activities almost 50% via shrinkage of the federal and state governments.
- nandemo 17y agoThe median citizen would be unemployed. The recent credit crisis caused a surge in the unemployment rate; a US default, even if partial, would be way worse. If you read about basic finance you'll understand why. Google for "risk-free rate" and "repo", for instance. The role of the US dollar now is much bigger now than in FDR's time.