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The US Government has never defaulted on its debt under the current (~50 year old) global financial system. It HAS defaulted when transitioning off the gold/si

The US Government has never defaulted on its debt under the current (~50 year old) global financial system. It HAS defaulted when transitioning off the gold/silver standard, when the world moved off Breton Woods, and during the Civil War. I’d note that each of those defaults were related to the total collapse of the existing rules for national/global finance. So ultimately, these defaults do bolster the case for the “never defaulted” folks: a default could literally bring an end to the current global financial system. Edit: corrected 75->50 year old system

throw0101a 3y ago
> The US Government has never defaulted on its debt under the current (~75 year old) global financial system. Except for 1979: * https://www.reuters.com/article/usa-debt-default-idUSN1E76A0XA20110711 https://www.reuters.com/article/usa-debt-default-idUSN1E76A0... * https://www.theatlantic.com/business/archive/2013/01/heres-what-happened-the-last-time-the-us-defaulted-on-its-debt/267205/ https://www.theatlantic.com/business/archive/2013/01/heres-w... * https://archive.is/jKayD https://archive.is/jKayD
- calgarymicro 3y ago
  > technical default 32 years ago was blamed on check-processing glitches and quickly corrected . . . affected only a tiny percentage of maturing securities at the time. Not exactly the same thing.
  - jdasdf 3y ago
    A default is a default is a default. Doesn't matter the reason. Doesn't matter the justification.
    - EatingWithForks 3y ago
      Actually I think the financial system doesn't function as a rigid categorization structure. I think it's more like a negotiation of resource management. Things like leverage and political power apply here in ways that cause the rules to become far more flexible. A powerful government like the United States commands far more favorable (good faith) experiences with finance than, say, a person who is late on paying rent due to the same checking error.
deleted 3y ago
[deleted]
tivert 3y ago
> The US Government has never defaulted on its debt under the current (~75 year old) global financial system. > It HAS defaulted when transitioning off the gold/silver standard, when the world moved off Breton Woods, and during the Civil War. If moving off of Breton Woods was a default, then your first statement is wrong, and the US hasn't defaulted on its debt in 50 years: https://en.wikipedia.org/wiki/Bretton_Woods_system#Paralysis_of_international_monetary_management https://en.wikipedia.org/wiki/Bretton_Woods_system#Paralysis...
- curiousllama 3y ago
  This is economics the numbers are made up anyway (Changed it)
d00wgnir 3y ago
Perhaps history shows that "literally bring[ing] an end to the current global financial system" is not as uncommon as people expect.
- gizmo686 3y ago
  But doing so when you are at the top of said system; for no reason other than politcal gamesmanship?
  - neodymiumphish 3y ago
    I'm curious who is engaging in the gamesmanship in this scenario. This has been an issue long in the making with our deficit ballooning, even after significant increases in federal revenue. The bill signed by Republicans is hardly extreme, and when we considering the amount of expenses being paid to interest alone, it's clear the federal government needs to do something at this point. Legislators across both aisles have demonstrated they have no interest in decreasing spending. This bill forces their hand while there's still leverage.
    - bryanlarsen 3y ago
      Cutting 1/3 of discretionary non-military spending is extreme. (edited for typo)
      - neodymiumphish 3y ago
        They want the levels set to the 2022 levels. The idea that they increased by 1/3 in one budgetary cycle is bonkers.
        bryanlarsen 3y ago
        Huh? 2020 budget was $6.5T. 2021 was $7.3T. 2022 was $6T. 2023 is $6T. Considering inflation, spending is down ~10%. And any increases were across the board. Asking them to cut all of the increases from only ~10% of the expenditures is ludicrous.
Jedd 3y ago
> ... when the world moved off Breton Woods ... When Nixon decided to end Bretton Woods.
- curiousllama 3y ago
  “…when the world moved past the Kennedy Administration…”
- tastyfreeze 3y ago
  When Nixon stole gold from other countries by breaking an international treaty. The US is lucky no country declared war over the thievery.
  - adventured 3y ago
    > The US is lucky no country declared war over the thievery. There were no other countries capable of going to war with the sole global superpower. Not even remotely close. Western Europe desperately needed the US to continue standing off the Soviets. Who was going to declare war? Nobody of course. That remains true today (China for example can't project force outside of its borders effectively and the Europeans still desperately require the US to stand off the Russians).
stareatgoats 3y ago
Is it (a US default) at all possible given all we know? and if yes, is it possible to envision what would happen specifically? If it will have global repercussions then maybe it is something the global community should insure against, somehow? These are questions I'd like to have have a grip on. Not an economist, obviously.
- rootusrootus 3y ago
  > Is it (a US default) at all possible given all we know? An open question, nobody really knows. As I recall, the president has no option that isn't technically a constitutional violation. We might want to throw this to the SCOTUS and settle it.
- somenameforme 3y ago
  Literally nobody knows the answer to these questions beyond the obvious answer of 'yes it's possible, and no it's not probable.' Everything beyond that is speculation, which is going to be more driven by ideological worldview than the unique specifics of the current situation. People who think things won't change (not only referring to this specific issue) because the USD is still quite strong, remains the world reserve currency, and has survived rough waters in the past have a perfectly reasonable argument, even if it will inevitably be wrong one day. And those who take a bearish outlook on the situation also have a reasonable argument - we're obviously living through a major inflection point in history, the world has been de-dollarizing for decades, and the global economic (and geopolitical) winds are shifting. It's quite reasonable to see a storm on the horizon right now. The hedging/insuring is "real" stuff. In an economic collapse any sort of financial vessel will become worthless. But after all is said and done, land, rare metals, and "things" in general will all maintain their value. Bill Gates and Ted Turner are currently the top 2 owners of farmland in the US. [1] [1] - https://www.farmlandriches.com/largest-farmland-owners/ https://www.farmlandriches.com/largest-farmland-owners/
georgeecollins 3y ago
Right! This article very misleadingly confuses leaving the Bretton wood agreement and going off the gold standard as defaults. I think that is the same only in the mind of this author, who seems to be trying to normalize something that would be very dumb to do.
- somenameforme 3y ago
  They literally were defaults. The reason for Bretton Woods, and the reason the USD became the overwhelming world reserve currency, is that it was directly convertible to gold. Buying USD was as good as buying gold, which meant the currency was not dependent on any given country. But then due to poor economic policy we found ourselves in a situation where we had far more issued debt (currency) than we had gold. We were forced to default on those debts, withdraw from Bretton Woods, and basically just told the rest of the world 'deal with it.' A famous quote from the Secretary of the Treasury at the time was, "The dollar is our currency, but it's your problem."
  - georgeecollins 3y ago
    You say we left Bretton Wood due to "poor economic policy". If that were true the economy of the US has performed poorly since 1972. That's crazy. Worse, it implies that we should go back to the gold standard. That's also tin foil hat proposition. A default is by definition when you break a contract. On July 1944, the US signed the Bretton Woods Agreement. Agreements between countries change, they aren't contracts. That is why I don't think it is literally a default. Also, history has shown it was a sensible and beneficial thing to do.
    - somenameforme 3y ago
      I'm not going to debate semantics, but I will hit on the other issue. This is a site you may find interesting: https://wtfhappenedin1971.com/ https://wtfhappenedin1971.com/ The reason we were forced to default (or whatever you want to call it) on our obligations under Bretton Woods is that our economic policies were enabling inflation to start spiraling out of control. Cumulative inflation from 1913 to 1970 increased 306%. That was a major problem. From 1913 to today? It's 3091%. This causes countless problems in society. Take wealth inequality for instance. Workers have always expected annual raises, even in times of negligible inflation, but in inflationary times those those raises often struggle to even keep up with inflation. This [1] is a graph of real wage for workers. It understates the picture as it starts in 1979, at which point the decline was already in full swing. But even there, you see but a 10% real increase in wages over the past 40 years. By contrast, real GDP/capita [2] has increased by more than 100%. And not only are there are far more basic costs to life today than in 1979 (internet, electronic devices, etc) but many things like housing and education costs have accelerated dramatically far ahead of nominal inflation. So you have a world with more billionaires than ever, and one where more people than ever can't afford to even feed themselves without government assistance. And this is not even scratching the surface of the issues. Basically we had a small problem in 1971. Instead of solving it, we stuck a bandage on it - leaving a later generation to solve a dramatically larger problem. [1] - https://fred.stlouisfed.org/series/LES1252881600Q https://fred.stlouisfed.org/series/LES1252881600Q [2] - https://fred.stlouisfed.org/series/A939RX0Q048SBEA https://fred.stlouisfed.org/series/A939RX0Q048SBEA
GordonAShumway 3y ago
Well, given the extensive use of US Treasuries as collateral, a globe spanning margin call would probably create a collapse of the system.

throw0101a 3y ago

> The US Government has never defaulted on its debt under the current (~75 year old) global financial system. Except for 1979: * https://www.reuters.com/article/usa-debt-default-idUSN1E76A0XA20110711 https://www.reuters.com/article/usa-debt-default-idUSN1E76A0... * https://www.theatlantic.com/business/archive/2013/01/heres-what-happened-the-last-time-the-us-defaulted-on-its-debt/267205/ https://www.theatlantic.com/business/archive/2013/01/heres-w... * https://archive.is/jKayD https://archive.is/jKayD

calgarymicro 3y ago
> technical default 32 years ago was blamed on check-processing glitches and quickly corrected . . . affected only a tiny percentage of maturing securities at the time. Not exactly the same thing.
- jdasdf 3y ago
  A default is a default is a default. Doesn't matter the reason. Doesn't matter the justification.
  - EatingWithForks 3y ago
    Actually I think the financial system doesn't function as a rigid categorization structure. I think it's more like a negotiation of resource management. Things like leverage and political power apply here in ways that cause the rules to become far more flexible. A powerful government like the United States commands far more favorable (good faith) experiences with finance than, say, a person who is late on paying rent due to the same checking error.

deleted 3y ago

[deleted]

tivert 3y ago

> The US Government has never defaulted on its debt under the current (~75 year old) global financial system. > It HAS defaulted when transitioning off the gold/silver standard, when the world moved off Breton Woods, and during the Civil War. If moving off of Breton Woods was a default, then your first statement is wrong, and the US hasn't defaulted on its debt in 50 years: https://en.wikipedia.org/wiki/Bretton_Woods_system#Paralysis_of_international_monetary_management https://en.wikipedia.org/wiki/Bretton_Woods_system#Paralysis...

curiousllama 3y ago
This is economics the numbers are made up anyway (Changed it)

d00wgnir 3y ago

Perhaps history shows that "literally bring[ing] an end to the current global financial system" is not as uncommon as people expect.

gizmo686 3y ago
But doing so when you are at the top of said system; for no reason other than politcal gamesmanship?
- neodymiumphish 3y ago
  I'm curious who is engaging in the gamesmanship in this scenario. This has been an issue long in the making with our deficit ballooning, even after significant increases in federal revenue. The bill signed by Republicans is hardly extreme, and when we considering the amount of expenses being paid to interest alone, it's clear the federal government needs to do something at this point. Legislators across both aisles have demonstrated they have no interest in decreasing spending. This bill forces their hand while there's still leverage.
  - bryanlarsen 3y ago
    Cutting 1/3 of discretionary non-military spending is extreme. (edited for typo)
    - neodymiumphish 3y ago
      They want the levels set to the 2022 levels. The idea that they increased by 1/3 in one budgetary cycle is bonkers.
      - bryanlarsen 3y ago
        Huh? 2020 budget was $6.5T. 2021 was $7.3T. 2022 was $6T. 2023 is $6T. Considering inflation, spending is down ~10%. And any increases were across the board. Asking them to cut all of the increases from only ~10% of the expenditures is ludicrous.

Jedd 3y ago

> ... when the world moved off Breton Woods ... When Nixon decided to end Bretton Woods.

curiousllama 3y ago
“…when the world moved past the Kennedy Administration…”
tastyfreeze 3y ago
When Nixon stole gold from other countries by breaking an international treaty. The US is lucky no country declared war over the thievery.
- adventured 3y ago
  > The US is lucky no country declared war over the thievery. There were no other countries capable of going to war with the sole global superpower. Not even remotely close. Western Europe desperately needed the US to continue standing off the Soviets. Who was going to declare war? Nobody of course. That remains true today (China for example can't project force outside of its borders effectively and the Europeans still desperately require the US to stand off the Russians).

stareatgoats 3y ago

Is it (a US default) at all possible given all we know? and if yes, is it possible to envision what would happen specifically? If it will have global repercussions then maybe it is something the global community should insure against, somehow? These are questions I'd like to have have a grip on. Not an economist, obviously.

rootusrootus 3y ago
> Is it (a US default) at all possible given all we know? An open question, nobody really knows. As I recall, the president has no option that isn't technically a constitutional violation. We might want to throw this to the SCOTUS and settle it.
somenameforme 3y ago
Literally nobody knows the answer to these questions beyond the obvious answer of 'yes it's possible, and no it's not probable.' Everything beyond that is speculation, which is going to be more driven by ideological worldview than the unique specifics of the current situation. People who think things won't change (not only referring to this specific issue) because the USD is still quite strong, remains the world reserve currency, and has survived rough waters in the past have a perfectly reasonable argument, even if it will inevitably be wrong one day. And those who take a bearish outlook on the situation also have a reasonable argument - we're obviously living through a major inflection point in history, the world has been de-dollarizing for decades, and the global economic (and geopolitical) winds are shifting. It's quite reasonable to see a storm on the horizon right now. The hedging/insuring is "real" stuff. In an economic collapse any sort of financial vessel will become worthless. But after all is said and done, land, rare metals, and "things" in general will all maintain their value. Bill Gates and Ted Turner are currently the top 2 owners of farmland in the US. [1] [1] - https://www.farmlandriches.com/largest-farmland-owners/ https://www.farmlandriches.com/largest-farmland-owners/

georgeecollins 3y ago

Right! This article very misleadingly confuses leaving the Bretton wood agreement and going off the gold standard as defaults. I think that is the same only in the mind of this author, who seems to be trying to normalize something that would be very dumb to do.

somenameforme 3y ago
They literally were defaults. The reason for Bretton Woods, and the reason the USD became the overwhelming world reserve currency, is that it was directly convertible to gold. Buying USD was as good as buying gold, which meant the currency was not dependent on any given country. But then due to poor economic policy we found ourselves in a situation where we had far more issued debt (currency) than we had gold. We were forced to default on those debts, withdraw from Bretton Woods, and basically just told the rest of the world 'deal with it.' A famous quote from the Secretary of the Treasury at the time was, "The dollar is our currency, but it's your problem."
- georgeecollins 3y ago
  You say we left Bretton Wood due to "poor economic policy". If that were true the economy of the US has performed poorly since 1972. That's crazy. Worse, it implies that we should go back to the gold standard. That's also tin foil hat proposition. A default is by definition when you break a contract. On July 1944, the US signed the Bretton Woods Agreement. Agreements between countries change, they aren't contracts. That is why I don't think it is literally a default. Also, history has shown it was a sensible and beneficial thing to do.
  - somenameforme 3y ago
    I'm not going to debate semantics, but I will hit on the other issue. This is a site you may find interesting: https://wtfhappenedin1971.com/ https://wtfhappenedin1971.com/ The reason we were forced to default (or whatever you want to call it) on our obligations under Bretton Woods is that our economic policies were enabling inflation to start spiraling out of control. Cumulative inflation from 1913 to 1970 increased 306%. That was a major problem. From 1913 to today? It's 3091%. This causes countless problems in society. Take wealth inequality for instance. Workers have always expected annual raises, even in times of negligible inflation, but in inflationary times those those raises often struggle to even keep up with inflation. This [1] is a graph of real wage for workers. It understates the picture as it starts in 1979, at which point the decline was already in full swing. But even there, you see but a 10% real increase in wages over the past 40 years. By contrast, real GDP/capita [2] has increased by more than 100%. And not only are there are far more basic costs to life today than in 1979 (internet, electronic devices, etc) but many things like housing and education costs have accelerated dramatically far ahead of nominal inflation. So you have a world with more billionaires than ever, and one where more people than ever can't afford to even feed themselves without government assistance. And this is not even scratching the surface of the issues. Basically we had a small problem in 1971. Instead of solving it, we stuck a bandage on it - leaving a later generation to solve a dramatically larger problem. [1] - https://fred.stlouisfed.org/series/LES1252881600Q https://fred.stlouisfed.org/series/LES1252881600Q [2] - https://fred.stlouisfed.org/series/A939RX0Q048SBEA https://fred.stlouisfed.org/series/A939RX0Q048SBEA

GordonAShumway 3y ago

Well, given the extensive use of US Treasuries as collateral, a globe spanning margin call would probably create a collapse of the system.