The notion that US will default someday is completely ludicrous. Rosenberg

[Jim Nickerson]

From 8/19/10 David Rosenberg's pdf commentary via Gluskin Sheff.com

Furthermore, I feel strongly that this notion that the U.S. government, with all its taxing power and vast holdings of the national assets and treasures (dare we say, including what lies beneath Fort Knox) is going to default someday is completely ludicrous. All we seem to talk about is the gross debt burden. This is not to downplay the fiscal situation, which is dire, but becoming hysterical could lead to poor judgment and decision-making.

Canada faced similar structural deficits in the early 1990s, had its credit rating downgraded several times, and there were hues and cries back then as well over Canada’s ability to service its debts. However, years of shared sacrifice cured those ills and there were no defaults, late payments, haircuts or even a move to inflate the liabilities away. So give me a giant break on U.S. sovereign credit risks. Talk of default is complete and utter nonsense — and frankly, it’s obnoxious. More likely, America is going to go on a multi-year path towards fiscal probity, which will involve more taxation, sharply lower spending on non-essential services, and shared sacrifice, as was the case in the 30s and north of the border in the 90s.

I particularly liked the part in bold so I emphasized it.

This is really not a "News" topic, but would better be in a thread of Bonds or Deflation categories, but no such threads exist.

[Rajiv]

Re: The notion that US will default someday is completely ludicrous. Rosenberg

Jim,

Look also (if you have not already done so) at the CBO: Federal Debt and the Risk of a Fiscal Crisis thread. There were some good links discussing MMT (Modern Monetary Theory.) Understanding MMT will give you a better understanding of why the US default is extremely unlikely. And if a default were to occur, it would be done very purposefully.

[jk]

Re: The notion that US will default someday is completely ludicrous. Rosenberg

From 8/19/10 David Rosenberg's pdf commentary via Gluskin Sheff.com



I particularly liked the part in bold so I emphasized it.

This is really not a "News" topic, but would better be in a thread of Bonds or Deflation categories, but no such threads exist.

i don't think anyone around here is saying the u.s. will default in the sense of refusing to pay. just that the dollars used to repay will be worth a lot less. and rosenberg is a smart guy, but it's hard for me to picture "fiscal probity" breaking out in congress anytime soon.

[Mega]

Re: The notion that US will default someday is completely ludicrous. Rosenberg

Hi Jim
Been awhile, how are you?
Mike

[gwynedd1]

Re: The notion that US will default someday is completely ludicrous. Rosenberg

How do you default in a debt denominated in your own currency?

[sunskyfan]

Re: The notion that US will default someday is completely ludicrous. Rosenberg

Easy, if enough money leaves the legal context of your system so that debt obligations exceed available monies you will default. If you are a "reserve currency" the possibility gets even higher as separate self sustaining economies form apart from your control. Say, I create a much of money via debt and that money then goes to China and eventually those dollars are essentially trapped in China being used as exchange and the never return home at least in the average time of the loans that created the debt then you would have a default.

The title of the article is itself ludicrous. Sure the US won't default if we choose to sell our assets and not be the US anymore.

[ThePythonicCow]

Re: The notion that US will default someday is completely ludicrous. Rosenberg

How do you default in a debt denominated in your own currency?

We (Americans) will not default. We will get defaulted. The overreach and grotesque, fraudulent disregard for the well being of others by America's most powerful is weakening them; other nations, peoples and powerful interests will subordinate America's military and monetary power to the will of other institutions and constraints of other mechanisms. Then the American Dollar can default just as readily as any other peso, ruble or pound.

[jk]

Re: The notion that US will default someday is completely ludicrous. Rosenberg

the treasury sells some bonds to the primary dealers. the primary dealers hold them briefly, then sell them or repo them to the fed, which issues them "cash" electronically. the treasury uses the proceeds of its sale to roll over the earlier debts. viola. no default. how hard was that?

[metalman]

Re: The notion that US will default someday is completely ludicrous. Rosenberg

itulip's been saying 'usa will not default' since 1998... will repay with smaller $$$... dollar is off 40% since that forecast.

[sunskyfan]

Re: The notion that US will default someday is completely ludicrous. Rosenberg

That will go on until there is a threat that the expatriated dollars will be repatriated and then hyperinflation is the result causing all inflation sensitive payouts to increase in kind and again default. Yes, the "government" can always print money but eventually conflicting obligations comparable size will happen. When the government chooses to default on one of its obligations that is a default.

[Starving Steve]

Re: The notion that US will default someday is completely ludicrous. Rosenberg

I have my doubts that Americans, even the so-called, "conservatives" in the South and South-west, would stand for the taxation and austerity necessary to pay-down deficits. Americans do not pay their bills the way Canadians do. For the Americans, it is always, "We can grow our way out of any deficits; we can grow the pie bigger." Ever hear Americans talk, "We are the greatest nation on Earth."?

The day of reckoning in America will be like nothing the world has ever seen, and there will be a day of reckoning down in the U.S. The problem is that nations like Canada have sold their gold reserve and now depend entirely on the U.S. dollar as a reserve currency. So the demise of America may mean every nation goes down-the-drain with the death of the U.S. dollar.

[we_are_toast]

Re: The notion that US will default someday is completely ludicrous. Rosenberg

I have my doubts that Americans, even the so-called, "conservatives" in the South and South-west, would stand for the taxation and austerity necessary to pay-down deficits. ... For the Americans, it is always, "We can grow our way out of any deficits; we can grow the pie bigger." Ever hear Americans talk, "We are the greatest nation on Earth."?

This may be a 1st, and I'll mark it on the calendar, but I actually agree with SS on something. Americans are so deluded, they actually believe they have a right to have everything, whether they pay for it or not. They will vote anyone out of office who actually suggests there needs to be "shared sacrifice" to get out of this mess. So I'm not sure where this ends up, but I don't rule out default.

As far as deflating the currency, what good does it do if you're still running a deficit? The deficit will simply rise with the inflation. Even getting the deficit down to 0 will take sacrifice Americans aren't willing to make. The simple solution of course is to wait until interest on the debt reaches the same level as the deficit, then default.