What happens if the USA defaults on its debts??????????

Given the US debt, and the global crisis unfolding, the question above should be seriously considered. My knowledge of economics is pretty poor, but I refuse to accept that experts are the only ones who have something to say, so....

(btw, this is something carried over from the Greek thread: out of the labyrinth.)

I quoted this comparison of the USA with Greece:

the United States is in a similar mess. The same anachronistic, taxation-as-subjugation mentality exists among many and may lead to default on its debts in August.

(from here)
To which redsdisease responded:

Once past the debt ceiling the treasury won't have enough money to pay all of it's bills, which means that it would have to default on some loan payments. Officially they hit that limit last month, however, due to some financial wrangling (temporarily suspending investment into retirement funds) they managed to stave off default until August 2nd. This gives congress a little over a month to raise the ceiling, but their's been serious political deadlock: Democrats wanting to just raise the debt limit while Republicans refuse to do this without really serious spending cuts.
Personally, I'd be shocked if they didn't manage raise the ceiling, as the economic consequences of a default would be enormous, not to mention the political consequences

Now today I read:

World stock markets suffered another bout of heavy losses on Thursday, driven down by fears over the eurozone debt crisis and fresh evidence that global economic growth is faltering....
"Everyone is running away from any sort of risk today," explained David Jones, chief market strategist at IG Index. "The big cloud is Greece, but every day something else comes along [to knock confidence]."
Reports from America that talks to raise the US debt ceiling had collapsed also alarmed traders.

- here.
Given Mouvement Communiste's, admittedly drily economistic, assessment of Greece's economy - which ends

The outline of the important characteristics that we’ve set out shows that in the Greek zone capital is not doing too badly, at least as far as the big companies are concerned, and the impact of the crisis of 2008 didn’t hit it any harder than in the other countries of the euro zone. This is why it would be a mistake to attribute the present sovereign debt crisis to the industrial decline of the country.

....given this, my understanding is that the Greek debt crisis is more punishment for the class struggle, the margin of resistance to modern capitalist social relations of which December 2008 was the most public expression, than any purely economic assessment of the country's productivity or not. And given this, what would any possible US default mean? Although this is speaking a little too soon, since the US might very well not default given that, as redsdisease points out, "the economic consequences of a default would be enormous, not to mention the political consequences", I feel that anyone who wants the world to turn in a revolutionary direction (hopefully everyone reading this apart from the State & its paid thinkers) needs to get ready, at least intellectually, for such a possibility.

So my question - "What would happen if the US defaults?" - must inevitably be followed by another question - why would the US ruling class want to provoke the inevitable Great Leap Forward in crisis that would follow? The beginning of an answer to this last question would have to be "punishment" - ie an attempt to regain the initiative by creating chaos and intensifying social control through the chaos - but certainly not for anything happening within the US (though anticipation of a hotting up of social war within the US would be on their minds) but for all the social movements beginning to find their way globally.

There was a cartoon in the late 1960s that had 2 obviously bourgeois men talking to each other; one said "You know, they're saying that the final crisis of Western capitalism is at hand?", the other replies, "Really Charles? Well, how do we make some money out of it?". Clearly there's never a final crisis until the end of the world or the end of their world, but clearly the ruling scum are hoping to continue making cash from chaos, whether it be from a possible nuclear war, economic depression on an unprecedented scale, or the domino effect of environmental disasters - but, insofar as this is possible, we should follow the American boy scouts' motto - "Be Prepared!".

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Jun 24 2011 05:03



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Jun 25 2011 06:21

This is from almost 3 weeks ago:

China warns U.S. debt-default idea is "playing with fire"
Republican lawmakers are "playing with fire" by contemplating even a brief debt default as a means to force deeper government spending cuts, an adviser to China's central bank said on Wednesday.
The idea of a technical default -- essentially delaying interest payments for a few days -- has gained backing from a growing number of mainstream Republicans who see it as a price worth paying if it forces the White House to slash spending, Reuters reported on Tuesday.
But any form of default could destabilize the global economy and sour already tense relations with big U.S. creditors such as China, government officials and investors warn.
Li Daokui, an adviser to the People's Bank of China, said a default could undermine the U.S. dollar, and Beijing needed to dissuade Washington from pursuing this course of action.
"I think there is a risk that the U.S. debt default may happen," Li told reporters on the sidelines of a forum in Beijing. "The result will be very serious and I really hope that they would stop playing with fire."
China is the largest foreign creditor to the United States, holding more than $1 trillion in Treasury debt as of March, U.S. data shows, so its concerns carry considerable weight in Washington.

And this is from way before (May 24th 2010) the tentative movements that have been springing up since the Tunisian uprising:

Learn To Love A U.S. Default
John Tamny...
Contrary to popular belief, government spending is our economy's crisis, and a default would be its cure.
Government debt problems in Greece have predictably generated a great deal of domestic hand-wringing over nosebleed deficits and spending in the U.S.
By now most are familiar with what the experts say is ahead, including, but not limited to, a downgrade of U.S. debt, no more “kindness of strangers” as investors the world over turn their backs on a country lacking any spending discipline, and finally, skyrocketing interest rates as U.S. Treasury yields rise to match their well-earned junk reputation. To believe the experts, the U.S. is Greece, only larger, and the Titanic is nearing the iceberg.
Let’s hope. Indeed, rather than fear what some say is inevitable anyway, it’s time we learn to love the idea of a U.S. default. Contrary to conventional wisdom, government spending itself is our economy’s crisis, while a default would be its cure.
For Americans to worry about a debt default is like the parent of a heroin addict fearing that his dealers will cease feeding the addiction. In truth, just as the much-needed heroin withdrawals would mark the beginning of the addict’s recovery, so would a cessation on the part of investors when it comes to funding federal waste signal a United States on the mend.

Jun 25 2011 07:44

Samotnaf, I'd also like to know what's likely to happen. More specifically, I'd like to know how the real economy might be affected, and what we can do to plan for its future health. These articles are quite abstract it: "the economic consequences of a default would be enormous," "could destabilize the global economy," etc.

"For Americans to worry about a debt default is like the parent of a heroin addict fearing that his dealers will cease feeding the addiction."

I love that analogy. However, it's not necessarily true that symptoms of withdrawal are a sign of recovery. You don't unilateraly "cure" the addict by taking away his drugs. That might drive him to seek his fix through increasingly desperate measures. Kicking addiction requires commitment from the addict...

Jun 26 2011 08:19

Rabbit: Sorry for the delayed response - wrote one then somehow it got knocked off and didn't have time/energy to re-write it.

Firstly that quote from John Tamny - he's a right-wing economist, and his desire for a default is a desire for even greater government spending cuts, the bulk of which would obviously fall on the working class. I wasn't quoting him positively.

As for abstractions - well, that partly necessarily follows any speculation about a future possible or even probable event (e.g.who, after Munich 1938, could give anything but an abstract outline of the course of the inevitable war "in our time"?). Personally, unless there's a massive upsurge of class struggle within the next few months, I doubt if the US ruling class would risk a default during election year, though a temporary default "to test the water" might happen (each party blaming the other if things go unpredictably wrong). After November 2012 almost anything is possible.

For us, global and local networks of solidarity (which should certainly not develop at the expense of the progress of very thorough mutual critiques) are about the only way we can "prepare" practically. On a theoretical level, preparation should perhaps concentrate on such questions as:
What would be the consequences of a massive economic trade war with China (the US's main creditor)?
What if this leads to global war, starting off say in the Middle East - the present conflicts between Turkey and Iran over Syria could be a catalyst - and there's a real possiblity of it going nuclear...and we should ask ourselves what would be the consequences on the consciousness of proletarians if it does?
What practical forms of resistance, past and present, could be applied to such things as : how to stop evictions, how to stop paying for vast increases in prices of utilities, how to get food given that shortages are likely? How have past and present movements around these questions been limited both in terms of numbers participating in them and in more "qualitative" terms (failure to confront those who pretend to be friends of these movements but in fact act as obstacles, lack of inventiveness in tactics...). What practical initiatives have been suggested but never been tried out? What ideological, and other, blocks prevent proletarians embarking on such adventures?

I suspect you could think of more questions - but the real question is to prepare with the people we know and with people we could get to know, and I don't think most of that can be answered online. Moreover, precise answers to some of these questions online can be picked up by our enemies and used to pre-empt any practical answers to them, so really when it comes to anything less abstract than what I've posed here, we should confine ourselves to those we trust and to forms of communication that are more secure than an online discussion forum.

Jun 27 2011 00:53

Samotnaf could you explain some of the reasoning behind this,

my understanding is that the Greek debt crisis is more punishment for the class struggle, the margin of resistance to modern capitalist social relations of which December 2008 was the most public expression, than any purely economic assessment of the country's productivity or not.

also one other thing, about the US, from the little I understand, the US's debt is in dollars so I think the government can always pay it back just by printing more dollars, which would make inflation increase but still they can avoid defaulting in a way that Greece can't. Is this right? Or are the debts not independent of inflation?

Jun 27 2011 03:54

I said right at the start of this thread that "My knowledge of economics is pretty poor,"; but given that, according to Mouvement Communiste's article, which I linked to, the Greek economy has been pretty strong (certainly far stronger than the US's), I can't see any other interpretation for the IMF etc. imposing such austerity measures. Perhaps you, or someone else, can. In the age of our domination by finance/fictive capital, money is, above all, a method of social control.

As for printing dollars to pay foreign debts, I'd have thought that couldn't work - it'd work as some measure internally (say, to pay a public sector pay increase) but externally...? But, I repeat, "My knowledge of economics is pretty poor" - so again, if there's anybody out there reading this who can clarify the position, that'd save me a lot of research time, which today, and certainly at this time of the morning, I have neither time nor energy to do. This thread is as much an attempt to educate myself as it is to communicate my own understanding of things.

But maybe this begins to explain things:

Jul 15 2011 07:53
The US faces the prospect of a "catastrophe" as President Barack Obama stands firm against Republican demands for deep spending cuts without any tax increases as the condition for raising the country's borrowing limit and avoiding a debt default.
With Washington gripped by a growing sense that it may be too late to avert a crisis, the president has said he will give the increasingly rancorous negotiations until the end of next week to reach agreement on the terms for raising the US's $14.3 trillion (£8.9tn) debt ceiling.
The White House has said that if there is no agreement by 22 July, then discussion about budget cuts and taxes should be abandoned in favour of legislation dealing solely with raising the debt ceiling before the borrowing limit is reached on 2 August. But the Republicans have rejected legislation without agreement on budget cuts.
With European leaders also facing a potentially ruinous debt crisis, a leading Wall Street figure described the prospect of a US default as catastrophic.
Jamie Dimon, chief executive of JP Morgan, one of Wall Street's biggest banks, said: "No one can tell me with certainty that a US default wouldn't cause catastrophe and wouldn't severely damage the US or global economy. And it would be irresponsible to take that chance."
On Wednesday, Ben Bernanke, the chairman of the Federal Reserve, warned of a "huge financial calamity" if a political agreement is not reached. He told Congress a default would "send shockwaves through the entire financial system".
Hours later, the credit ratings agency Moody's warned that it may downgrade the US's AAA credit rating, saying there is a "rising possibility" that no deal will be reached by next month's deadline.


Jul 23 2011 01:57

Debt ceiling talks between Obama and Republicans collapse

Any radical online articles about this that I've not noticed,?

I said earlier (June 26th):

I doubt if the US ruling class would risk a default during election year, though a temporary default "to test the water" might happen (each party blaming the other if things go unpredictably wrong). After November 2012 almost anything is possible.

Any further thoughts? Or are we all rabbits hypnotised by the oncoming headlights, somehow hoping they'll swerve away at the last moment?