It Is Impossible For The US To Default

SpacePete · Nov 26, 2014

Why there is 0% chance that the US will be forced to default on the debt:

With so many economic, political, and social problems facing us today, there is little point in focusing attention on something that is not one. The false fear of which I speak is the chance of US debt default. There is no need to speculate on what that likelihood is, I can give you the exact number:

there is 0% chance that the US will be forced to default on the debt.

We could choose to do so, just as a person trapped in a warehouse full of food could choose to starve, but we could never be forced to. This is not a theory or conjecture, it is cold, hard fact. The reason the US could never be forced to default is that every single bit of the debt is owed in the currency that we and only we can issue: dollars. Unlike Greece, we don't have to try to earn foreign exchange via exports or beg for better terms. There is simply no level of debt we could not repay with a keystroke.

Don't take my word for it. Here are just a few folks from across the political spectrum and in different walks of life saying the same thing:

"The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default." Alan Greenspan

"In the case of United States, default is absolutely impossible. All U.S. government debt is denominated in U.S. dollar assets." Peter Zeihan, Vice President of Analysis for STRATFOR

"In the case of governments boasting monetary sovereignty and debt denominated in its own currency, like the United States (but also Japan and the UK), it is technically impossible to fall into debt default." Erwan Mahe, European asset allocation and options strategies adviser

"There is never a risk of default for a sovereign nation that issues its own free-floating currency and where its debts are denominated in that currency." Mike Norman, Chief Economist for John Thomas Financial

"There is no inherent limit on federal expenses and therefore on federal spendingWhen the U.S. government decides to spend fiat money, it adds to its banking reserve system and when it taxes or borrows (issues Treasury securities) it drains reserves from its banking system. These reserve operations are done solely to maintain the target Federal Funds rate." Monty Agarwal , managing partner and chief investment officer of MA Managed Futures Fund

"As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational." Federal Reserve Bank of St. Louis

"A sovereign government can always make payments as they come due by crediting bank accounts something recognized by Chairman Ben Bernanke when he said the Fed spends by marking up the size of the reserve accounts of banks." L. Randall Wray, Professor of Economics at the University of Missouri-Kansas City and a Senior Scholar at the Levy Economics Institute
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Mind you, that doesn't mean there might not be other economic or political consequences. Inflation and currency depreciation, for example, are possibilities. Also from Dr. Wray:

"Government needs to be concerned about pressures on inflation and the exchange rate should its spending become excessive. And it should avoid "crowding out" private initiative by moving too many resources to our public sector. However, with high unemployment and idle plant and equipment, no one can reasonably argue that these dangers are imminent."
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Indeed, we have seen neither hide nor hair of inflation or high interest rates during the current run up of the debt. It is critical to bear in mind, too, that these deficits are not a result of the government trying to buy something it cannot otherwise afford (as would be the case for you or me). Rather, they are setting out to generate sufficient demand for goods and services to employ all those willing to work (that said, not every kind of government spending does this effectively, but that's a different question). As there is no limit to how much debt we can successfully carry, we should be aggressively pursuing the latter goal rather than talking about being "fiscally responsible." There is nothing responsible about leaving over 12 million Americans out of work.

We have plenty of problems in the world. No point in making one up.
http://www.forbes.com/sites/johntharvey/2012/09/10/impossible-to-default/
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Stoic Phoenix · Nov 26, 2014

I stopped reading after the first quote by Alan Greenspan...it fails to mention the fact that every dollar they print they owe money on from the moment it is printed to the reserve bank.

SpacePete · Nov 26, 2014

Stoic Phoenix said:

I stopped reading after the first quote by Alan Greenspan...it fails to mention the fact that every dollar they print they owe money on from the moment it is printed to the reserve bank.
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Meh, so?

Those dollars are still backed by something... can you guess what it is?

SpacePete · Nov 26, 2014

^^^

Answer - from Violence and the Dollar in the South China Sea:

Today, it's the threat of open warfare that keeps our economic system functioning, just as it was in the 1800s. The US dollar is no longer backed by gold, just as the British Pound Sterling was no longer backed by a pound of sterling silver. It was backed by opium and the Royal Navy's insistence that China buy opium.

Gold and silver are irrelevant when you've got guns. You can dictate terms. And so the US dollar is actually backed by Chinese faith in the US military. Remember, economic warfare, such as dumping a nation's debt or challenging reserve currency status, has proper warfare hidden behind it. Right now the Chinese are testing whether they should have faith in the US military and the balance of power in economic and military terms. Our bet is that they'll find the Americans about as insistent as the Royal Navy was.
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And there you have it. "And so the US dollar is actually backed by Chinese faith in the US military."

robertc400 · Nov 26, 2014

Initial Post - Ancient Rome said the same thing too.

dccpa · Nov 26, 2014

Stoic Phoenix said:

I stopped reading after the first quote by Alan Greenspan...it fails to mention the fact that every dollar they print they owe money on from the moment it is printed to the reserve bank.
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Another example of the misinformation going around. Why would the US Treasury owe the Federal Reserve for money printed? Answer is that they wouldn't. For the US Treasury to owe the Fed, the Treasury would have to issue bonds and have the Fed buy them. If the US Treasury just prints money, the only thing they owe is an explanation to the American people for devaluing their currency.

http://en.wikipedia.org/wiki/United_States_Department_of_the_Treasury

thatguy · Nov 26, 2014

USD is backed by GDP, emphasis on the P! Not GDS, no emphasis on the Services. The USD is backed by people who use the USD to P stuff, every USD that is printed is funded by inflation tax by those who use it to P. Can you tax infinitely? = can you print infinitely = can you debt infinitely

dccpa · Nov 26, 2014

thatguy said:

USD is backed by GDP, emphasis on the P! Not GDS, no emphasis on the Services. The USD is backed by people who use the USD to P stuff, every USD that is printed is funded by inflation tax by those who use it to P. Can you tax infinitely? = can you print infinitely = can you debt infinitely
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thatguy what brought the philosophical post? For human beings, life on earth is finite. They have certainly continued the fiscal irresponsibility much longer than I believed and it appears it will go on a while longer. The question is can these things extend beyond our earthly lifetimes. The answer is possibly.

mmm....shiney! · Nov 26, 2014

thatguy said:

USD is backed by GDP, emphasis on the P! Not GDS, no emphasis on the Services. The USD is backed by people who use the USD to P stuff, every USD that is printed is funded by inflation tax by those who use it to P. Can you tax infinitely? = can you print infinitely = can you debt infinitely
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As long as you have a compliant tax base = yes.

trew · Nov 26, 2014

Well the obvious next logical step for the U.S. based on the arguments of that article is for the us govt to just stop collecting any taxes at all and just print all the money it needs for spending, since there is no limit to the amount it can borrow or print.

What could possibly go wrong ?

Court Jester · Nov 26, 2014

trew said:

Well the obvious next logical step for the U.S. based on the arguments of that article is for the us govt to just stop collecting any taxes at all and just print all the money it needs for spending, since there is no limit to the amount it can borrow or print.

What could possibly go wrong ?
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The USA would just need to attack bomb and occupy more countries to secure its revue then

TheEnd · Nov 27, 2014

Oh great so we've all been stressing over a possible U.S default for the past few years for nothing!

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