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.
> 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.
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.
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.
We have a budget process. If they fail to pass a budget, we get a government shutdown. Shutdowns are already extreme, but at least they are well understood and incremental. A 1 day shutdown is not too bad. A 1 year shutdown is untenable. Why do they need more leverage?
I answered that in my second paragraph. They've proven they're incapable of developing a budget that doesn't balloon. Non-discretionary spending is through the roof, as evidenced by their demand of latching spending to the 2022 budget levels. That's last year. How is this extreme or outside the realm of even negotiation?
Recall that the largest contribution to the budget shortfall is not increased spending, but tax cuts. If this were not simple gamesmanship, the proposed solution would include tax increases to pay for that which we have already agreed to purchase.
The term ballooning is so qualitative and subjective that it is essentially a Barnum statement.
How would you determine if the number for the debt is too high? And why?
And how would you determine if it is too low?
For example would the calculation consider the current population? the current factory capacity? Agricultural capacity? the year? Interest Rates? Tax Revenue? The populations desired rate of saving? The current desires and goals of the nation and its citizens? If there is no exact formula, then would a representative body that debates and agrees on a best estimate number be a reasonable way to decide that? If so isn't that what congress does already?
Without including meaningful tax increases, I don't think that the Republican bill can really be said to be a serious proposal. "We get everything we want and you get nothing" isn't a good faith negotiating position.
Spending is the side of the equation that's most problematic, though. Renevue has increased substantially lately, but the federal government has continued blowing past it at pretty insane rates. Both parties are obviously at fault, but this is the first major effort intended to curb it that we've seen in a long while.
I don't understand why this time it's different than every other debt ceiling show. Republicans refuse, Democrats call them a bunch of names, there's a "government shutdown" where about 5% of the federal government is furloughed - the things most visible and painful to the average citizen like passport renewals, immigration, national parks etc... and then the Republicans admit defeat and everything opens up again.
The government shutdowns have been over failures to pass a budget. We have never failed to raise the debt ceiling yet [0]
[0] Unless you count forcing the treasury department to take extraordinary measures, which has happened several times; and has been going on since January.
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.
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]
> 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.
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.
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."
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.
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/
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.
Imagine I promise to pay you back in Johannes-money that is pegged to the value of 1kg gold and then when it’s time to pay back I change the peg to 1kg rasins. I bet that’s pretty close to a default in most peoples opinions.
I can imagine that, but because I know about finance I know that in reality a person in the US could not exchange $35 for an ounce of gold in 1971. In theory sovereign nations had that right up until 1972, but in practice lots of agreements between nations made in the decade and a half before 1972 undermined that right by limiting exchanges or asking foreign governments to hold dollars in place of gold.
> 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).
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