Ask HN: what would happen if the US defaulted?

Nobody really knows.<p>We have a good idea that it would be bad (worse than if the .gov hadn't stepped in to prop up the economy in 2008) but the actual practical consequences are literally unknowable.<p>If you're nihilistic you may think that a disruption like this would be a salutary thing for the United States forcing us into the long overdue reappraisal of our place in the world and our ability to dictate terms to the rest of the planet. But the truth of the matter is that our far flung logistical system means that many of us are more dependent on global trade than we realise and that a sovereign default on the part of the United States of America would have repercussions that will affect pretty much everyone on the planet who has an electrical outlet in their house.<p>Fucking with the flow of money at that scale will certainly cause chaos and civil disorder as primary effects, but it will also disable most of the tools we have to control chaos and civil disorder.<p>Think of it as being like a power outage, only it's a money outage. Your bank won't be able to count on getting it's regular operating loans, your employers bank, the same, various payments into the system for housing vouchers, food stamps, agricultural subsidies, road construction contracts , all the paper that keeps our society from collapsing will stop moving. Some of it may resume, but if enough of the economy is broken...<p>So best case scenario: economic hardship, generational unemployment, millions of people displaced from their homes, and the US can wave bye bye to the dream of hegemonic leadership, economic or military, for the foreseeable future.<p>Worst case scenario: War. It is traditionally the cause and cure of sovereign default. And while we (the US of A) are currently fighting multiple colonial wars (mideast, north africa, south america) which is part of what has spun up the numbers on the debt; we have not really begun to tap our poulations war making capabilities, one of the few untapped resources we have left.

It's not likely to happen (sorry for bypassing the answer).<p>Simply because the international impact would be too big. Too many international trades rely on the US dollar. Until the Yuan takes over (speculative(!), if it would, in the next 50 years) the US is pretty much safe from defaulting.<p>If it really did, it'd be the end of the global keynesian economies and throw us back in pre-globalization.<p>Most economy would pull back from global exposure (that's non-realistic). Although we're seeing this on a small scale (when France refuses to adopt more EU policies for example, or when all EU goes pissed at Greece (particularly Germany)), it just won't happen.<p>What's going to happen, is massive sweeping under the carpets, "deal with it later", and a whole bunch of plans to lower debt-creep and keep face publicly.<p>Think of it as, bumping a massive bug to "next version" in the understanding that everyone already knows about it, and it's can of worms that would require too many structural changes, to the point that it would change the nature of the software itself.

Here is the thing I don't understand - why are people acting as if failing to raise the debt ceiling is the same thing as default?<p>I.e., I might run up my credit card until I reach my $1500 limit, but I don't default if the bank fails to raise my credit limit. I only default if I fail to stop spending more money than I earn and refuse to pay my credit card bills.

The assumption is there is no good reason for the US to default, as it can always print more dollars and pay debt with them. In contrast, Greece can't print euros by itself.

Unless I'm mistaken, a default only happens if we don't pay our creditors that service our debt. For August that's supposed to be around $29billion [1]. We have more than enough to cover that (the article predicts ~$150 billion in revenue). Every other expense is legally optional and failing to pay those is in no legal sense of the word a default.<p>[1] <a href="http://about.bgov.com/2011/07/12/august-invoices-show-u-s-treasury%E2%80%99s-limited-choices/" rel="nofollow">http://about.bgov.com/2011/07/12/august-invoices-show-u-s-tr...</a>

I think a proper response to this question would be in the form of another... What would happen if the US <i>doesn't</i> default? I was raised to think that my parents tried their damndest to leave this world a better place for their children. They might have, but their generation sure failed in that respect. Continuing the charade as if a debt-based economy isn't hurting anyone is just asking for more trouble down the line. Why don't we, as a people of the world, do the responsible thing and get rid of the corruption linking politicians, multinational corporations and banks. The people of the world are suffering and it ain't getting any easier. I heard Latvia just voted to oust their parliament because it was as bad as the US government. Corrupt politicians doing favors for the ones with the "money" and leaving the little guy (the other 99%) to fend for himself.<p><a href="http://english.aljazeera.net/news/europe/2011/07/2011723215535185126.html" rel="nofollow">http://english.aljazeera.net/news/europe/2011/07/20117232155...</a><p>Also, Ron Paul has some words of wisdom on this topic. He has been saying the same thing his entire career and people keep calling him crazy. I think it's about time we listen.<p><a href="http://www.bloomberg.com/news/2011-07-22/default-now-or-suffer-a-more-expensive-crisis-later-ron-paul.html" rel="nofollow">http://www.bloomberg.com/news/2011-07-22/default-now-or-suff...</a>

Is there any reason to expect the US to default? Currently we can easily pay for our debt service using our tax revenue.

We will find out what the libertarian ideal of a world without government entitlements looks like would be my guess.

A related question: what, if anything, are you doing to shield your savings from a crash in the USD?<p>I always thought the gold bugs were nuts but if I'd dumped my savings into gold in 2003 when I was considering it seriously I'd be a very happy man right now.

There's a good list by Megan Mcardle here.<p>What people don't get is that increasing US debt is a short term fix. People are going to stop buying Treasuries and the US is going to default. It's just a question of whether it happens on Aug. 2 (unlikely) or in a few years (very likely).<p><a href="http://www.theatlantic.com/business/archive/2011/07/getting-specific-on-spending/242240/" rel="nofollow">http://www.theatlantic.com/business/archive/2011/07/getting-...</a><p><pre><code> - You just cut the IRS and all the accountants at Treasury, which means that the actual revenue you have to spend is $0. - The nation's nuclear arsenal is no longer being watched or maintained - The doors of federal prisons have been thrown open, because none of the guards will work without being paid, and the vendors will not deliver food, medical supplies, electricity,etc. - The border control stations are entirely unmanned, so anyone who can buy a plane ticket, or stroll across the Mexican border, is entering the country. All the illegal immigrants currently in detention are released, since we don't have the money to put them on a plane, and we cannot actually simply leave them in a cell without electricity, sanitation, or food to see what happens. - All of our troops stationed abroad quickly run out of electricity or fuel. Many of them are sitting in a desert with billions worth of equipment, and no way to get themselves or their equipment back to the US. - Our embassies are no longer operating, which will make things difficult for foreign travellers - No federal emergency assistance, or help fighting things like wildfires or floods. Sorry, tornado people! Sorry, wildfire victims! Try to live in the northeast next time! - Housing projects shut down, and Section 8 vouchers are not paid. Families hit the streets. - The money your local school district was expecting at the October 1 commencement of the 2012 fiscal year does not materialize, making it unclear who's going to be teaching your kids without a special property tax assessment. - The market for guaranteed student loans plunges into chaos. Hope your kid wasn't going to college this year! - The mortgage market evaporates. Hope you didn't need to buy or sell a house! - The FDIC and the PBGC suddenly don't have a government backstop for their funds, which has all sorts of interesting implications for your bank account. - The TSA shuts down. Yay! But don't worry about terrorist attacks, you TSA-lovers, because air traffic control shut down too. Hope you don't have a vacation planned in August, much less any work travel. - Unemployment money is no longer going to the states, which means that pretty soon, it won't be going to the unemployed people.</code></pre>

Cascading default in state, local and foreign governments along with the end of a largish chunk of firms, ending with a series of currency unpeggings that make the end of Bretton Woods look carefully choreographed.<p>There may be riots in China. Wars are a distinct possibility. Depending on how the back-end is handled on letters of credit, international trade could grind to a halt. See riots in China above.

to paraphrase larry summers: "post-lehman on steroids"<p>think what you will of the guy, this is a good description of the most probable scenario, i think:<p><a href="http://www.charlierose.com/view/interview/11777" rel="nofollow">http://www.charlierose.com/view/interview/11777</a><p>(at ~ 4:10)

The US telecom infrastructure would become privatized. Oh, wait.

From what I understand, it wouldn't be as bad as everyone is saying. The US has been the safe bet for decades. Suddenly, we would no longer be the international currency, we would be less trustworthy. The international community would move away from the dollar, maybe to the Yuan, or a mixture of currencies. We would have a harder time trading, which would spiral us further down in recession. This wouldn't happen overnight, though.<p>Internally, I don't think any of the horror stories would happen. Decisions would have to be made, fast, about what spending to cut. Federal employees would probable get vouchers for awhile until things get sorted out. Lots of furloughs, but air traffic controllers and prison guards would most certainly stay employed.<p>By the way, this Planet Money on debt was interesting: <a href="http://www.npr.org/blogs/money/2011/07/20/138518262/the-tuesday-podcast-how-much-debt-is-too-much" rel="nofollow">http://www.npr.org/blogs/money/2011/07/20/138518262/the-tues...</a> (TL;DL the US is near 100% debt to GDP, countries historically run into problems when they exceed 90%, but it's not a guaranteed outcome, and Britain reached debt to GDP rations over 250% after the war, yet still exists)