I've been following the recent threads about the national debt, Paul Ryan's plan, tax rates, etc. One thing I've been curious about is... What would actually happen if the federal government went bankrupt? I mean this as a serious question. When an individual files for bankruptcy due to insurmountable debts, their slate is wiped clean (well, mostly at least), and they obviously take a hit on their credit report, etc. but it's not forever. They can eventually recover from the bankruptcy and get their act together. Of course, hopefully they change their ways to avoid a future bankruptcy but that's beside the point. It's pretty clear that given our current trajectory, this government will become unsustainable without some HUGE concessions by everyone... huge cuts in spending, tax increases or at least tax reform that results in increasing revenue, a cessation of lies from our elected officials, etc. We can (and obviously will) argue over the details, but in the end we need a combination of higher revenue and decreased spending in order to avoid a disaster. So, let's assume that this government can't get it's collective act together (and there's no evidence whatsoever that this current crop of clowns in DC have any idea how to get it's act together) and we go bankrupt. What would that mean to the country? To our military? Would I still be paying $4 a gallon for gas or would it be $40. Would food costs and other things skyrocket? Would the country survive? Would China invade and essentially "re-possess" what they feel is their's?
I don't think anyone has an aswer. Just hold tight, you are going to hear everything under the sun while the debate over raising the debt ceiling takes place.
I would think a lot of this depends on what we're required to spend on servicing the debt. I don't know what that is, or what the terms/conditions/penalties may be with respect to those obligations. Our country is way past the point of being "broke" but, as a practical matter, what does that really mean? How is it that China keeps lending money - are they so flush with cash that they can keep lending indefinitely? What is their recourse if we can't/won't pay? I have to live within my means. I wish our government would do the same.
I'm starting to think we should all just encourage the clowns in DC to continue their current behavior, maybe even encourage them to accelerate things a bit so that we can hurry up and get the big enema treatment over with, kick them all out on their *** (all 536 of them), and form a new government. This is what it will take to establish some common sense in Washington.
The prospect of defaulting on our debt is an absurd one IMO. The federal government has over $2 trillion in revenues for FY2011, and just over $200 billion in interest payments. The problem is we are spending $3.6 trillion on other goodies. So imagine you have an income of $200,000, of which $20,000 goes toward interest on your mortgage, credit cards, car and student loans. Yet you manage to spend a further $360,000, which requires borrowing $180,000. If all of a sudden your creditors decide to stop lending you money, you will keep making your debt service payments--you just have to cut your absurd levels of spending elsewhere.
for starters, the dollar would drop severely in value and interest rates would spike like crazy, making it 1000x harder to borrow money. that's just the tip of the iceberg.
Every time a European nation like Greece or Portugal gets near bankruptcy, the World Stock Markets drop like stones until the EU collectively bails them out. I assume that if the U.S. goes belly up there'll be financial chaos. It'll probably be much like the scenario in that 60s sci fi movie, "Panic In The Year Zero" (the A-Bomb dropped just as a family was leaving LA on vacation with their well stocked AirStream). A complete breakdown of society followed. We'll all have to go to the mattresses and fight off roving hordes of zombies and illegal aliens.
Maybe we should ask the rest of the world to bail us out for a change. If we go down, we will take them all with us.
Gone is right. No way a bankruptcy court would allow a "wipe out" of debt on someone making as much money as the govt takes in versus their debt service. Its not actually an individuals choice to file, they have to qualify.
The government debt is in dollars and needs to be paid back in dollars. Who exactly controls the printing and supply of dollars? The original purchasers of T-bills will be screwed when they get their money back which in real terms is worth much less than what they lent, and we'll all be screwed once inflation hits 40%, but US will not default on its debt.
