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Depends on your definition of default. Since the dollar is a fiat currency there is essentially no chance of the US government skipping an interest or principa
by bd_at_rivenhill 16y ago
Depends on your definition of default. Since the dollar is a fiat currency there is essentially no chance of the US government skipping an interest or principal payment. However, it seems highly likely that they will attempt to orchestrate some steady devaluation of the dollar to reduce the value of the debt in real terms. The high impact event would be if they mismanage the devaluation and accidentally introduce high (or hyper) inflation for some period of time before they can get things under control. Check out the history of inflation and interest rates in the 1970's to see what this might look like.
- nradov 16y agoThat's what everyone thought about Russia before 1998. But they chose to default on ruble denominated debt rather than hyperinflating the currency.
- bd_at_rivenhill 16y agoHopefully the Fed is smarter than the Russians, an actual US Treasury default would be a cataclysmic event that would drive all risk premiums everywhere through the roof. I suspect that they will choose riding the inflation tiger and trying to terrify the politicians into some semblance of fiscal rectitude over seeing them just plain crap out on the debt. I also don't suspect that the Russians have anything approaching the political neutrality of the Fed anywhere in their government, nor have they ever.