The federal government could default on its debt as soon as July, a new forecast from the Bipartisan Policy Center warns, raising pressure on Congress for action.
The prominent think tank forecast Monday that the so-called “X-Date” would likely arrive between mid-July and early October.
How so? We have trillions in debt. We always just add more to it.
That’s the point. You can’t add to the debt if no one is willing to lend the money (I mean it’s more complicated, but that’s the essence of it). Borrowing is going to become very expensive for us if no one trusts us to pay our debts, and it will probably trash the bond market which is where anyone nearing or after retirement probably has all of their savings.
Adding further onto your point emphasizing why this will be severe: Borrowing will become more expensive, and we can’t just stop spending to stop borrowing. Much of the current debt is in short term positions that regularly get re-issued. The cost of issuing new short term debts just to replace the current ones coming due will increase even if spending stays the same (or decreases).
And of course, there’s a huge impact to the dollar’s value internationally if major financial markets shift away from holding US debt. You know the trade deficit Republicans like to rage about … Yeah, it’ll get a lot worse when fewer people want to hold US dollars for the purpose of investing in US bonds.
National debt doesn’t work like personal debt. It’s much more complex.
Anyway if all government spending stopped due to a default it would get very very bad. Like you don’t have food to eat bad
Governments incur debt by selling bonds, which guarantee a certain repayment at a certain date. If the government fails to make the bond payments, fewer people will buy bonds in the future. You can’t “just add more” debt if no one is willing to actually lend you money.
Even talking about not making the payments damages the value of future bonds. This kills the dollar.
The really crazy part is that the US is absolutely solvent and capable of paying its debts. There is no good reason for this to even be a point of discussion. Not making the payments only hurts the country.
China would benefit most from the collapsing value of the US dollar.
Beyond basic debt stuff, most of the global financial system uses US Treasury bonds/bills as a base. Argentina can default. But when people talk about a foreign central bank owning “dollars,” they don’t have stacks of hundred dollar bills in a cellar. They have interest-paying treasuries. Probably 99% of countries and major corporations use US treasuries as collateral for loans. Every retiree who can afford it shifts from stocks to bonds because bonds are supposed to be the ultimate safe asset. Contracts between companies often assume U.S. debt instruments are the safest asset.
So, if the U.S. actually defaults, the house of cards comes crashing down and there’s chaos and anarchy. Not the imaginary fun kind of anarchy, either. Most corporations probably fail. (And having Bitcoin on your gaming PC isn’t going to save you when there’s riots and no electricity or internet.)
My guess is that if it really happened, it’d be reversed within hours or they’d mint the trillion dollar coin or do some shenanigans to keep society from collapsing. The U.S. cannot default on debts.
The whole reason MAGA Republicans use the debt ceiling as leverage is because it would cause societal collapse. They’re basically saying, “I don’t give a fuck about the financial system. Cut aid to poor people or we’ll blow it all up.”
But we’ve made every payment on that debt since we started borrowing. If lenders can’t count on those debt payments, they lose some faith in the currency that undergirds the world economy.
This is quite bad, regardless of where you live.
Future borrowing, both public and private, becomes more expensive (higher risk demands higher returns). This is bad if you live in the US.
People involved in international trade start questioning if the USD is really what they want as the reserve currency (the Dollar is the go between for all other currencies, so if you’re in Europe trading with Japan, you exchange euros for dollars for yen, which while a bit cumbersome, is wonderfully predictable) and what they might want to use instead (euros? renminbi? rubles? The chaotic world of direct exchanges of currencies?). This is bad if the country you live in imports goods that you need or exports goods that other people need.
You haven’t really thought through this have you