Tuesday, July 26, 2011

What happens after a US debt default

The US Republicans are in real danger of not being able to deliver any deal at all.

There is a better than 60% chance that no deal can be done to raise the US debt ceiling before August 2nd.

In which case the US AAA debt rating is now 80% going to fall this week.

We are being constantly bombarded with the quote from the half American, Churchill: "the US always does the right thing, after it has exhausted the alternatives".

Yet, what happens if the House Republicans do not do the right thing and the United States of America defaults on its debts?

I think the enormity of that question provides its own answer.

We are seven days away from a fundamental break down in American power.

If the US defaults, it is not the same as previous crises: it will substantially and permanently degrade US standing in the world. All of the U-S-A chanting fans will be chanting for a degraded power. Those politicians who pretend that the US is an untouchable power will be seen for the frauds that they are. No longer an example, but more of a warning, the country that creates such fools as Rush Limbaugh and Glenn Beck will become increasingly derided.

OK so there can be no rival to the Dollar, apparently, in which case, it will be no other currency but Gold: which will shrink the global money supply by four fifths.


The US political disfunctionalism turned out to be important after all.


Lord Blagger said...

It's not going to fall immediately.

It depends what Obama does.

Does it spend the tax revenue on debt servicing, and the remainder on government spending or vice versa?

I suspect he will carry on paying the debt.

Paul Twigg said...

Gloat all you like my dear Cicero, but the EU ain't gonna save you.

I suspect that if the US does default, followed by the realisation that the Euro-bailout is smoke and mirrors (see Germany's reaction to the latest bailout) , then as you said in previous posts we will see a re-run of the 1930s. And that means several world trade blocs, trade barriers and autarky, followed by the worst degrees of xenophobic jingoistic nationalism.

Which must send a shiver down your spine, as it does my own, being the good economic 'orange book 'liberal you are...

Whilst I understand that left- liberals hate the US, you must agree that it is better to have the dollar as the world's currency rather than that which is controlled by a group of elderly communist oligarchs in China (the alternative)?

You mention Gold as the replacement currency - not enough of it old chap and that would be too deflationary (although as a 'Euro nutter' you doubtless agree with that). Besides which the socialists and the Keynesians just wouldn't have it. Unless, of course, your advocating strip mining the asteroid belt?

ps- forget European fraternity if a dollar default happens,the EU will be the first to crack open & it would be every man (country) for himself...

Cicero said...

Paul - you missed the point, I am certainly NOT gloating. Also the point about turning to gold - it would be horribly deflationary, if transactions now have to be addressed wholly or even partly in gold, then the economy would shrink to fit the new, massively reduced money supply- and that is something that should terrify every policy maker.

It is clear to all that the US debt constitutes a grave crisis: but the Tea Party response is grossly irresponsible.

Daniel Matthews said...

http://hasamericadefaulted.com - its like that christmas website only much sadder.

Span Ows said...

No mention of Obama at all?

word verification: commi

Cicero said...

Span Ows: after the latest fiasco, it is clear that the the Republicans are making the unforced errors. Obama can not even react if the GOP can not get its act together in the house.