What can the Fed expect if US defaults?

sammysilver

sammysilver

Well-Known Member
Silver Stacker
We often talk about the US tanking and not being able to pay out its 19 trillion loan. Should this happen, does the Fed, and its bank owners take ownership of the country? What are the ramifications?
 
Firstly, I would expect that the US will just keep printing money to meet interest payments and then when it finally becomes untenable, either an agreed "write down" of the debt or if there is a way to compartmentalise some of the debt with a particular creditor(s) (eg, China) and then screw them (eg, start a war) then that would do the job too.

Alternatively, a global financial system collapse triggered by an irresponsible banking sector (not unlike 2008 GFC) would also give politicians cover to be able to wipe the debt via a financial system "reset"

I can't see the US going into administration or liquidation like a typically insolvent business would. The voting public wouldn't stand for it.
 
What are the consequences of a US default?

No one really knows exactly what would happen, but the likelihood is that markets around the world would plunge and global interest rates would rise.

This is because if the US government could not repay the money it owed bondholders, the value of the bonds would decrease. And the yield - the return the government pays to an investor - would rise. This is because it would be perceived as a less safe investment.
This would prompt interest rates around the world, which are often tied to those of US Treasuries, to spike.
Furthermore, the impact on the US's creditors could be dire. Japan, for instance, owns about $1.14 trillion of US debt - which is equivalent to 20% of its annual economic output.

In the US, Goldman Sachs estimates that $175bn would immediately be withdrawn from the US economy and it could lead to a very deep recession.

http://www.bbc.com/news/business-24453400
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Following on from the above, if global interest rates were to spike, the Australian housing market would have the mother-of-all callapses.





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sammysilver said:
We often talk about the US tanking and not being able to pay out its 19 trillion loan. Should this happen, does the Fed, and its bank owners take ownership of the country? What are the ramifications?
Click to expand...


Yes.

I think that's the whole point just like Greece. Banks help governments run up massive unpayable debts that when they cant be met a countries assets are ceased and sold for cents in the dollar to the people with access to 0% money (banks) and then everything is privatised. Beaches, Roads, National parks. The great barrier reef should fetch a few million
 
Fed said to have emergency plan to intervene if U.S. defaulted on debt

The Federal Reserve drew up extensive plans for handling a U.S. debt default that included scheduling deferred payments and lending cash to investors, according to a lawmaker who cited Fed documents.

America courted disaster in 2011 and 2013 when political fights over the national debt nearly left the federal government unable to pay its bills.

Analysts and officials warned that missing payments could lead to economic calamity, and details have only slowly emerged over how financial officials braced for the unthinkable.

In a June 2014 letter to Treasury Secretary Jack Lew seen by Reuters on Monday, Republican Representative Jeb Hensarling of Texas said his staff had reviewed the Fed's unclassified plans for how to handle a default. (bit.ly/1GZDmKo)

The plans included scheduling new payment dates for defaulted securities, Hensarling said in the letter which was also signed by Republican Representative Patrick McHenry of North Carolina.

The New York Fed, which carries out the will of the Fed in financial markets, would also conduct "business as usual" with regard to accepting Treasury securities as collateral, according to the letter.

The plans continue to be relevant to investors because debt ceiling debates have become a perennial danger from Washington.

The Treasury is currently scraping up against an $18.1 trillion borrowing cap, and the Congressional Budget Office estimates the government could struggle to pay bills by October or November if Congress and the White House do not agree to lift the cap.

Debt defaults in other countries have triggered financial crises.

In an effort to try to maintain calm on Wall Street, the U.S. central bank could lend investors money after taking Treasuries as collateral under so-called repo transactions, Hensarling said. The Fed also proposed "compensatory payments" for investors who were paid late.

In the letter, Hensarling said the documents also showed that the Treasury had the ability to pick which obligations it can pay, which would allow it to favor bond investors over its many other obligations.

The Treasury has maintained that picking which bills to pay would be experimental and dangerous.

Earlier on Monday, Hensarling subpoenaed documents from the Treasury and New York Fed regarding debt ceiling contingency plans. The Treasury had no comment on Hensarling's letter, but an official at the department said it was willing to work with the committee to "get it the information it needs."

http://www.reuters.com/article/us-usa-debt-idUSKBN0NW1YS20150511
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Trust on money created from debt lies on the capability of the issuer to provide future goods and services in exchange for the issued money (which is used to purchase present goods and services).
If a creditor thinks that his debtor will not be able to fulfil his promises of future deliveries, he should -normally- rush to acquire present g&s because.... better an egg today etc. etc.
If a lot of creditors get worried and start competing for the debtor's resources and if the amount of resources cannot meet demand at current prices, inflation usually kicks in.

The US$ situation is a bit different, though. In virtue of being the world reserve currency it represents -partially- also future goods and services of other countries using $ as reserves. I.e., non-USD countries are willing to exchange tangible value among them for USD and this has not much to do with the ability of the USA to deliver on future promises (USA is just the global banker in this case)

So, before anything really bad happens to the USA in isolation, I believe that the USD must lose its status of main world reserve currency.
 
SilverPete said:
Following on from the above, if global interest rates were to spike, the Australian housing market would have the mother-of-all callapses.
Click to expand...

Bring it on!
I could do with a nice beachside.
 
sammysilver said:
We often talk about the US tanking and not being able to pay out its 19 trillion loan. Should this happen, does the Fed, and its bank owners take ownership of the country? What are the ramifications?
Click to expand...

put the crack pipe away Sammy it is that time of year it seems

like $36 by Easter predictions this is a fantasy

The USA's debt is all in US$$$ so IF they get in trouble they can just print their way out, then reset the currency like has happened many many times the world over already.
 
Court Jester said:
sammysilver said:
We often talk about the US tanking and not being able to pay out its 19 trillion loan. Should this happen, does the Fed, and its bank owners take ownership of the country? What are the ramifications?
Click to expand...

put the crack pipe away Sammy it is that time of year it seems

like $36 by Easter predictions this is a fantasy

The USA's debt is all in US$$$ so IF they get in trouble they can just print their way out, then reset the currency like has happened many many times the world over already.
Click to expand...

There is a difference between the Fed and the US government, which is the point of the thread.
 
sammysilver said:
SilverDJ said:
SilverPete said:
Following on from the above, if global interest rates were to spike, the Australian housing market would have the mother-of-all callapses.
Click to expand...

Bring it on!
I could do with a nice beachside.
Click to expand...

Neighbours?
Click to expand...

[youtube]http://www.youtube.com/watch?v=MRWowww2lEI[/youtube]
 
sammysilver said:
Court Jester said:
sammysilver said:
We often talk about the US tanking and not being able to pay out its 19 trillion loan. Should this happen, does the Fed, and its bank owners take ownership of the country? What are the ramifications?
Click to expand...

put the crack pipe away Sammy it is that time of year it seems

like $36 by Easter predictions this is a fantasy

The USA's debt is all in US$$$ so IF they get in trouble they can just print their way out, then reset the currency like has happened many many times the world over already.
Click to expand...

There is a difference between the Fed and the US government, which is the point of the thread.
Click to expand...


7513_smokincrack.jpg
 
Has any nation ever defaulted on debt denominated in their own currency (fiat currency printed by the government) ?
 
sammysilver said:
We often talk about the US tanking and not being able to pay out its 19 trillion loan. Should this happen, does the Fed, and its bank owners take ownership of the country? What are the ramifications?
Click to expand...


Two civil wars leading to the breakup of the USA?
 
Skyrocket said:
sammysilver said:
We often talk about the US tanking and not being able to pay out its 19 trillion loan. Should this happen, does the Fed, and its bank owners take ownership of the country? What are the ramifications?
Click to expand...


Two civil wars leading to the breakup of the USA?
Click to expand...
How about transformation into a repressive domestic police/surveillance state where people are conscripted to fight and die in overseas military actions?
 
^ a police state will likely happen if the US goes broke and that could be another reason for causing civil wars. Too many guns in the US. Imo people there will not tolerate a police state for long if it is against their stupid constitution.
 
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