Default on debt affect on legal job market/upcoming OCI Forum

[BlueDiamond]

If there is a default or a deal with no change in spending (and a subsequent downgrade in US bond ratings) there would be a big spurt of legal work as everyone required to have AAA collateral would be SOL until they were able to work something out.... then we'd be fighting with sticks.

The stick fights may not actually happen until after China invades to get all the money in our economy back, since they lent it to us.

only like a trillion of it is from China.. not to make a trillion sound like peas.. but i mean we increased the debt by something like 1.5 tril just this past fiscal year.. we got bigger problems than China wanting their bread back

Yeah, but when they gang up with India, Germany, Saudi Arabia, and Goldman Sachs, and they ALL come looking for their money...

oh my bad.. i didnt know we were also considering things that would never happen.. not to mention that none of those countries hold a significant amount of our debt with the exception of China

[LoyalRebel]

Treasury bonds are risk free, as the fed can print money whenever they want. The only thing that could really cause a default on that type of debt is for the US to openly give the proverbial "finger" to the rest of the world and stop sending them their interest payments.

[Unitas]

It's commercially practiced all the time.

Also agreed. However, it is still not common practice on home loans or private loans-I should've been more specific. An example of the double standard is when the Mortgage Bankers Association while in the process of strategically default on its headquarters was also telling people how morally wrong it was to default on home loans.

While people care little about that, the debate should become more complicated if the United States chooses to default. I think the moral imperative will fade away greatly.

[BlueDiamond]

Treasury bonds are risk free, as the fed can print money whenever they want. The only thing that could really cause a default on that type of debt is for the US to openly give the proverbial "finger" to the rest of the world and stop sending them their interest payments.

which is basically what will happen if there is no deal struck.. we would have no money left to pay our obligations.. one of those obligations is interest payments

[LoyalRebel]

Treasury bonds are risk free, as the fed can print money whenever they want. The only thing that could really cause a default on that type of debt is for the US to openly give the proverbial "finger" to the rest of the world and stop sending them their interest payments.

which is basically what will happen if there is no deal struck.. we would have no money left to pay our obligations.. one of those obligations is interest payments

If you're referring to the debt ceiling, that's different than printing money. The debt ceiling is the limit to what the government can borrow, which is one way that they can pay their obligations without causing (much) inflation.

The Federal Reserve is responsible for printing money. It's a Federal Agency that operates on its own, kind of like the IRS. The board that controls it (Ben Bernake and company) can effectively print as much money as they would like without a vote from congress.

If you read into it, you'll realize how extremely centralized the economic policy making is in the United States, and it's really kind of frightening.

Bottom line: New debt can be issued to repay old debt, but there are other ways of paying obligations if we can't borrow it from China - not that printing money out of thin air is a good thing.

[BlueDiamond]

Treasury bonds are risk free, as the fed can print money whenever they want. The only thing that could really cause a default on that type of debt is for the US to openly give the proverbial "finger" to the rest of the world and stop sending them their interest payments.

which is basically what will happen if there is no deal struck.. we would have no money left to pay our obligations.. one of those obligations is interest payments

If you're referring to the debt ceiling, that's different than printing money. The debt ceiling is the limit to what the government can borrow, which is one way that they can pay their obligations without causing (much) inflation.

The Federal Reserve is responsible for printing money. It's a Federal Agency that operates on its own, kind of like the IRS. The board that controls it (Ben Bernake and company) can effectively print as much money as they would like without a vote from congress.

If you read into it, you'll realize how extremely centralized the economic policy making is in the United States, and it's really kind of frightening.

Bottom line: New debt can be issued to repay old debt, but there are other ways of paying obligations if we can't borrow it from China - not that printing money out of thin air is a good thing.

I think the very last line says it all though.. it is a totally unreasonable option on so many levels and would exacerbate the problem

[Army2Law]

There will be little to no consequence even if the deadline passes. There is a ton of money to service/rollover the debt. The fed can turn over its profits a month early (last year it turned over 80 billion to the treasury- it is obligated to turn over any profits from FOMC activities). If interest rates, spike uncle ben will turn on the printing presses, buy treasuries and keep the interest rates low until a debt ceiling hike is passed.



5 to 10 years from now when people dont want to lend to the us govt. because the debt burden is too high, then we might be in real trouble. But, the Fed could just inflate the debt away at that point anyway.

Genuinely curious question, because you are literally the first person I've read who says anything to the effect of "There will be little to no consequence." Are there any economists or professors of economics who are predicting what you are predicting? If so, please throw me the link, because I want a little twig of optimism at this point.

There was a piece in the WSJ last week with that prediction, I'm too lazy to find it right now.

[LoyalRebel]

Treasury bonds are risk free, as the fed can print money whenever they want. The only thing that could really cause a default on that type of debt is for the US to openly give the proverbial "finger" to the rest of the world and stop sending them their interest payments.

which is basically what will happen if there is no deal struck.. we would have no money left to pay our obligations.. one of those obligations is interest payments

If you're referring to the debt ceiling, that's different than printing money. The debt ceiling is the limit to what the government can borrow, which is one way that they can pay their obligations without causing (much) inflation.

The Federal Reserve is responsible for printing money. It's a Federal Agency that operates on its own, kind of like the IRS. The board that controls it (Ben Bernake and company) can effectively print as much money as they would like without a vote from congress.

If you read into it, you'll realize how extremely centralized the economic policy making is in the United States, and it's really kind of frightening.

Bottom line: New debt can be issued to repay old debt, but there are other ways of paying obligations if we can't borrow it from China - not that printing money out of thin air is a good thing.

I think the very last line says it all though.. it is a totally unreasonable option on so many levels and would exacerbate the problem

Here's what I think would happen.

Assume an extreme situation and imagine that we printed a large amount of money and paid down a big chunk of our debt. Inflation would spike nations that invested in us would get effectively ripped off (ie. the money they are getting back now is not as valuable as the money they invested in the first place). Our debt would get a lot more expensive, and interest rates would spike. Home ownership and real estate would drop off significantly, which is a big chunk of the economy. Capital investment would be down and jobs would be lost.

However...

I'd say the main reason that America has been able to sustain its export deficit is because of its strong currency. American dollars have historically been the most valuable (thanks to some slick deal making with OPEC, making them agree to only sell oil for US dollars) currency, so it was hard to export merchandise because people in other countries couldn't afford the exchange rate.

If inflation spikes and our currency goes down, exports will rise and the US will start manufacturing again. Yes, life as we know it would change dramatically, but at least the US economy would be would be running on something tangible again.

[BlueDiamond]

Here's what I think would happen.

Assume an extreme situation and imagine that we printed a large amount of money and paid down a big chunk of our debt. Inflation would spike nations that invested in us would get effectively ripped off (ie. the money they are getting back now is not as valuable as the money they invested in the first place). Our debt would get a lot more expensive, and interest rates would spike. Home ownership and real estate would drop off significantly, which is a big chunk of the economy. Capital investment would be down and jobs would be lost.

However...

I'd say the main reason that America has been able to sustain its export deficit is because of its strong currency. American dollars have historically been the most valuable (thanks to some slick deal making with OPEC, making them agree to only sell oil for US dollars) currency, so it was hard to export merchandise because people in other countries couldn't afford the exchange rate.

If inflation spikes and our currency goes down, exports will rise and the US will start manufacturing again. Yes, life as we know it would change dramatically, but at least the US economy would be would be running on something tangible again.

I agree with everything before "However..." haha.. I mean hey nobody knows what will truly happen it is all speculative at this point.. but that is a pipe dream scenario you've schemed up in my own personal opinion.. and an opinion is exactly what it is

[LoyalRebel]

Here's what I think would happen.

Assume an extreme situation and imagine that we printed a large amount of money and paid down a big chunk of our debt. Inflation would spike nations that invested in us would get effectively ripped off (ie. the money they are getting back now is not as valuable as the money they invested in the first place). Our debt would get a lot more expensive, and interest rates would spike. Home ownership and real estate would drop off significantly, which is a big chunk of the economy. Capital investment would be down and jobs would be lost.

However...

I'd say the main reason that America has been able to sustain its export deficit is because of its strong currency. American dollars have historically been the most valuable (thanks to some slick deal making with OPEC, making them agree to only sell oil for US dollars) currency, so it was hard to export merchandise because people in other countries couldn't afford the exchange rate.

If inflation spikes and our currency goes down, exports will rise and the US will start manufacturing again. Yes, life as we know it would change dramatically, but at least the US economy would be would be running on something tangible again.

I agree with everything before "However..." haha.. I mean hey nobody knows what will truly happen it is all speculative at this point.. but that is a pipe dream scenario you've schemed up in my own personal opinion.. and an opinion is exactly what it is

Well of course... But I feel like I use pretty sound reasoning.

[AreJay711]

Treasury bonds are risk free, as the fed can print money whenever they want. The only thing that could really cause a default on that type of debt is for the US to openly give the proverbial "finger" to the rest of the world and stop sending them their interest payments.

which is basically what will happen if there is no deal struck.. we would have no money left to pay our obligations.. one of those obligations is interest payments

If you're referring to the debt ceiling, that's different than printing money. The debt ceiling is the limit to what the government can borrow, which is one way that they can pay their obligations without causing (much) inflation.

The Federal Reserve is responsible for printing money. It's a Federal Agency that operates on its own, kind of like the IRS. The board that controls it (Ben Bernake and company) can effectively print as much money as they would like without a vote from congress.

If you read into it, you'll realize how extremely centralized the economic policy making is in the United States, and it's really kind of frightening.

Bottom line: New debt can be issued to repay old debt, but there are other ways of paying obligations if we can't borrow it from China - not that printing money out of thin air is a good thing.

I think the very last line says it all though.. it is a totally unreasonable option on so many levels and would exacerbate the problem

Wait, you've heard of Quantitative Easing right? It is basically monetizing the debt and it wasn't a bid deal.

[rayiner]

Genuinely curious question, because you are literally the first person I've read who says anything to the effect of "There will be little to no consequence." Are there any economists or professors of economics who are predicting what you are predicting? If so, please throw me the link, because I want a little twig of optimism at this point.

Me too. Because every prediction I've seen ends with us living in caves and fighting with sticks.

Paul Krugman doesn't seem that worried.

In any case, look at the market. There's very little indication on the various metrics that apocalypse is near. The situation is exactly the opposite of the recent financial turmoil. There on paper everything was great but nobody knew what the assets were worth. In this case, there might be trouble on paper, but nobody seems to doubt the ability of the US Government to pay its debts.

We're days away from default and there isn't exploding CDS spreads or rising Treasury yields. No huge stock selloffs. Investors don't seem to believe that apocalypse is imminent. Why? Two possibilities:

1) Investors have tremendous faith in Washington and the ability of the (D)'s and the (R)'s to compromise.
2) Investors just aren't worried about a technical default.

While I'm not saying it's not (1), I do think (2) is plausible.

[thesealocust]

I think it's more that the only winning move is not to play. If we actually were to default in a bad way, the system would basically go down in flames and your CDS would be worth about as much as my treasuries and his stocks and that guys mortgage.

Which is why I sold all of my stocks and clothes and bought all of the tequila. Nothing says panic like tequila.

[Renzo]

Genuinely curious question, because you are literally the first person I've read who says anything to the effect of "There will be little to no consequence." Are there any economists or professors of economics who are predicting what you are predicting? If so, please throw me the link, because I want a little twig of optimism at this point.

Me too. Because every prediction I've seen ends with us living in caves and fighting with sticks.

Paul Krugman doesn't seem that worried.

In any case, look at the market. There's very little indication on the various metrics that apocalypse is near. The situation is exactly the opposite of the recent financial turmoil. There on paper everything was great but nobody knew what the assets were worth. In this case, there might be trouble on paper, but nobody seems to doubt the ability of the US Government to pay its debts.

We're days away from default and there isn't exploding CDS spreads or rising Treasury yields. No huge stock selloffs. Investors don't seem to believe that apocalypse is imminent. Why? Two possibilities:

1) Investors have tremendous faith in Washington and the ability of the (D)'s and the (R)'s to compromise.
2) Investors just aren't worried about a technical default.

While I'm not saying it's not (1), I do think (2) is plausible.

I don't know, but I hope you're right. Although, I can't lie: a teeny tiny part of my want a technical default to destroy capital markets for like 36 hours, just so that Rand Paul will have to sit down and shut the fuck up with his non-understanding of economics.

[drays917]

It's a Federal Agency that operates on its own, kind of like the IRS.

The IRS operates within the Treasury.

Nothing says panic like tequila.

Incidentally, nothing says "success" like tequila either. Sounds like you made a smart move.

just so that Rand Paul will have to sit down and shut the fuck up with his non-understanding of economics.

Dare to dream.

[viking138]

Treasury bonds are risk free, as the fed can print money whenever they want. The only thing that could really cause a default on that type of debt is for the US to openly give the proverbial "finger" to the rest of the world and stop sending them their interest payments.

which is basically what will happen if there is no deal struck.. we would have no money left to pay our obligations.. one of those obligations is interest payments

If you're referring to the debt ceiling, that's different than printing money. The debt ceiling is the limit to what the government can borrow, which is one way that they can pay their obligations without causing (much) inflation.

The Federal Reserve is responsible for printing money. It's a Federal Agency that operates on its own, kind of like the IRS. The board that controls it (Ben Bernake and company) can effectively print as much money as they would like without a vote from congress.

If you read into it, you'll realize how extremely centralized the economic policy making is in the United States, and it's really kind of frightening.

Bottom line: New debt can be issued to repay old debt, but there are other ways of paying obligations if we can't borrow it from China - not that printing money out of thin air is a good thing.

The Federal Reserve is not responsible for printing money. That is done by the Bureau of Engraving and Printing, which is under the Treasury. The Federal Reserve buys securities, like Treasury bonds, from banks in exchange for dollars -- increasing the money supply. It also sells securities to banks, decreasing the money supply. The Fed does not "print money".

Also, it's not an agency operating on its own like the IRS. All agencies fall under the Executive. It's entirely separate and only the Board of Governors is a government entity. The Federal Reserve banks are considered instrumentalities, and their websites are .org not .gov.

[Aston2412]

The Federal Reserve is not responsible for printing money. That is done by the Bureau of Engraving and Printing, which is under the Treasury. The Federal Reserve buys securities, like Treasury bonds, from banks in exchange for dollars -- increasing the money supply. It also sells securities to banks, decreasing the money supply. The Fed does not "print money".

Maybe I'm mistaken but don't the actions of the Fed directly lead to the BoEP printing more money? So while the Fed doesn't print it directly they do control how much is in circulation indirectly.

[viking138]

The Federal Reserve is not responsible for printing money. That is done by the Bureau of Engraving and Printing, which is under the Treasury. The Federal Reserve buys securities, like Treasury bonds, from banks in exchange for dollars -- increasing the money supply. It also sells securities to banks, decreasing the money supply. The Fed does not "print money".

Maybe I'm mistaken but don't the actions of the Fed directly lead to the BoEP printing more money? So while the Fed doesn't print it directly they do control how much is in circulation indirectly.

They order it like you order a cheeseburger. Technically, I believe the BoEP could say no. So it's not 100% under their control. I just think the distinction is important because a lot of people seem to think the Fed has a big vault and they're printing cash in it and dumping it into the market, which isn't accurate.

[viking138]

Also, if anyone has a floating rate student loan, the interest rate could be raised if U.S. debt is downgraded from AAA since it's considered more risky once the rating is lowered. Student loans are not owned by the United States since they're packaged and sold to financial institutions.

[fanmingrui]

Genuinely curious question, because you are literally the first person I've read who says anything to the effect of "There will be little to no consequence." Are there any economists or professors of economics who are predicting what you are predicting? If so, please throw me the link, because I want a little twig of optimism at this point.

Me too. Because every prediction I've seen ends with us living in caves and fighting with sticks.

Paul Krugman doesn't seem that worried.

In any case, look at the market. There's very little indication on the various metrics that apocalypse is near. The situation is exactly the opposite of the recent financial turmoil. There on paper everything was great but nobody knew what the assets were worth. In this case, there might be trouble on paper, but nobody seems to doubt the ability of the US Government to pay its debts.

We're days away from default and there isn't exploding CDS spreads or rising Treasury yields. No huge stock selloffs. Investors don't seem to believe that apocalypse is imminent. Why? Two possibilities:

1) Investors have tremendous faith in Washington and the ability of the (D)'s and the (R)'s to compromise.
2) Investors just aren't worried about a technical default.

While I'm not saying it's not (1), I do think (2) is plausible.

I don't know, but I hope you're right. Although, I can't lie: a teeny tiny part of my want a technical default to destroy capital markets for like 36 hours, just so that Rand Paul will have to sit down and shut the fuck up with his non-understanding of economics.

[LoyalRebel]

Treasury bonds are risk free, as the fed can print money whenever they want. The only thing that could really cause a default on that type of debt is for the US to openly give the proverbial "finger" to the rest of the world and stop sending them their interest payments.

which is basically what will happen if there is no deal struck.. we would have no money left to pay our obligations.. one of those obligations is interest payments

If you're referring to the debt ceiling, that's different than printing money. The debt ceiling is the limit to what the government can borrow, which is one way that they can pay their obligations without causing (much) inflation.

The Federal Reserve is responsible for printing money. It's a Federal Agency that operates on its own, kind of like the IRS. The board that controls it (Ben Bernake and company) can effectively print as much money as they would like without a vote from congress.

If you read into it, you'll realize how extremely centralized the economic policy making is in the United States, and it's really kind of frightening.

Bottom line: New debt can be issued to repay old debt, but there are other ways of paying obligations if we can't borrow it from China - not that printing money out of thin air is a good thing.

The Federal Reserve is not responsible for printing money. That is done by the Bureau of Engraving and Printing, which is under the Treasury. The Federal Reserve buys securities, like Treasury bonds, from banks in exchange for dollars -- increasing the money supply. It also sells securities to banks, decreasing the money supply. The Fed does not "print money".

Also, it's not an agency operating on its own like the IRS. All agencies fall under the Executive. It's entirely separate and only the Board of Governors is a government entity. The Federal Reserve banks are considered instrumentalities, and their websites are .org not .gov.

You're taking it out of context. Obviously the Federal Reserve does not "print" the money in the strictest sense of the word. I suppose "create" would be a better term. It can effectively create money.

[bjsesq]

We're days away from default and there isn't exploding CDS spreads or rising Treasury yields. No huge stock selloffs. Investors don't seem to believe that apocalypse is imminent. Why? Two possibilities:

1) Investors have tremendous faith in Washington and the ability of the (D)'s and the (R)'s to compromise.
2) Investors just aren't worried about a technical default.

While I'm not saying it's not (1), I do think (2) is plausible.

I think 1 would be better phrased:

"The investors believe this is all bullshit posturing and the gop and dems wouldn't actually let the country default."

In which case, I think 1 is accurate.

[Aston2412]

The problem is this is a case of who blinks first, the Dems or the GOP?

I find it ironic that given general GOP financial philosophy they are willing to let the US default when they would have huge issues with American citizens who defaulted on their loans.

[Tanicius]

The problem is this is a case of who blinks first, the Dems or the GOP?

I find it ironic that given general GOP financial philosophy they are willing to let the US default when they would have huge issues with American citizens who defaulted on their loans.

They're just simply selfish. Hypocrisy has not phased the GOP since Reagan. They've realized for many campaign cycles now that double standards are only as harmful as the rhetoric that highlights them - i.e., not very.

[Renzo]

The Federal Reserve is not responsible for printing money. That is done by the Bureau of Engraving and Printing, which is under the Treasury. The Federal Reserve buys securities, like Treasury bonds, from banks in exchange for dollars -- increasing the money supply. It also sells securities to banks, decreasing the money supply. The Fed does not "print money".

Maybe I'm mistaken but don't the actions of the Fed directly lead to the BoEP printing more money? So while the Fed doesn't print it directly they do control how much is in circulation indirectly.

They order it like you order a cheeseburger. Technically, I believe the BoEP could say no. So it's not 100% under their control. I just think the distinction is important because a lot of people seem to think the Fed has a big vault and they're printing cash in it and dumping it into the market, which isn't accurate.

Let's not confuse currency and money. The BoEP controls one; the Fed, the other.