4 ms·

If America defaults and wipes the foreign debt, what happens worldwide?

ivalm 5y ago
Why would it default? It has USD (fiat it controls) denominated debt, it can literally pay any debt through monitory expansion.
- literallyaduck 5y ago
  Not that it would, it just a thought experiment. Hyperinflation and passing the tax via watering down the money supply to the foreign investors is essential the same as default right?
  - Ekaros 5y ago
    Not exactly, but end result is very much the same. Raise of rates you have to pay for new loans to above your inflation rate. Probably overall you have slightly less to pay as risks are lower, but it won't be pretty.
- medvezhenok 5y ago
  > Why would it default? It has USD (fiat it controls) denominated debt, it can literally pay any debt through monitory expansion. Not if it wants to be able to borrow in the future... Look at what happened in 1978 - they had to issue non-USD bonds since foreign banks weren't willing to purchase USD bonds: https://en.wikipedia.org/wiki/Carter_bonds https://en.wikipedia.org/wiki/Carter_bonds
mywittyname 5y ago
I don't think we want to find out. Best, and most probable case, the government renegotiates the debt and agrees to pay stiff penalties. Worst case? Countries start seizing assets worldwide. Maybe just America government assets, maybe also American citizen's assets. Who knows how far that escalates. Perhaps the government will reimburse citizens, maybe they will sabre rattle. It's hard to tell. This is like Brexit. It's really hard to predict what will happen as a result, but we know it's going to be both bad, and far reaching. I strongly suspect that the Administration, Treasury, and Fed all have provisions in place for if this were to happen. The debt ceiling debacle has been getting worse every year, and given the events of 2020, it's not crazy to think that there is a real possibility of default. There are probably members of Congress who are hoping for a default, thinking it may cripple the country.

Why would it default? It has USD (fiat it controls) denominated debt, it can literally pay any debt through monitory expansion.

literallyaduck 5y ago
Not that it would, it just a thought experiment. Hyperinflation and passing the tax via watering down the money supply to the foreign investors is essential the same as default right?
- Ekaros 5y ago
  Not exactly, but end result is very much the same. Raise of rates you have to pay for new loans to above your inflation rate. Probably overall you have slightly less to pay as risks are lower, but it won't be pretty.
medvezhenok 5y ago
> Why would it default? It has USD (fiat it controls) denominated debt, it can literally pay any debt through monitory expansion. Not if it wants to be able to borrow in the future... Look at what happened in 1978 - they had to issue non-USD bonds since foreign banks weren't willing to purchase USD bonds: https://en.wikipedia.org/wiki/Carter_bonds https://en.wikipedia.org/wiki/Carter_bonds

mywittyname 5y ago

I don't think we want to find out. Best, and most probable case, the government renegotiates the debt and agrees to pay stiff penalties. Worst case? Countries start seizing assets worldwide. Maybe just America government assets, maybe also American citizen's assets. Who knows how far that escalates. Perhaps the government will reimburse citizens, maybe they will sabre rattle. It's hard to tell. This is like Brexit. It's really hard to predict what will happen as a result, but we know it's going to be both bad, and far reaching. I strongly suspect that the Administration, Treasury, and Fed all have provisions in place for if this were to happen. The debt ceiling debacle has been getting worse every year, and given the events of 2020, it's not crazy to think that there is a real possibility of default. There are probably members of Congress who are hoping for a default, thinking it may cripple the country.