Tag: Default

Five Minutes to Midnight: Announcing the “Federal Government Debt Default Clock”

 

Beyond the troubling debt-ceiling standoffs we witness every few years looms a far more dire threat: a true US government default, which economists warn could lead to a collapse of confidence in the American economy, a run on the dollar, and perhaps even a global economic meltdown. How close are we to such a catastrophic federal default?

To answer this question, a group of private-sector economists and fiscal policy experts has formed a citizens’ committee, called the Default Clock Committee, to maintain an objective, fact-based Federal Government Default Clock. The Clock is designed to help the public to see and track the nearness of the danger.

For the Committee’s purposes, “default” is defined simply as a failure by the US Treasury to make a scheduled interest payment on just one direct US Government obligation such as a Treasury note or bond. “Insolvency” is defined as the point beyond which default becomes a virtual certainty.

Full Faith and Credit?

 

shutterstock_280678718Why is the United States Government today still considered the finest investment risk in the world? The answer traces to Alexander Hamilton:

In 1789, Alexander Hamilton, the first U.S. Treasury secretary, faced a dilemma still challenging Congress today. The new nation was deeply in debt, and there was a lack of consensus in Congress about how to pay for it. Of the $75 million total debt, everyone back then agreed that the U.S. had to pay in full the $10 million loans from France and other nations to finance the American Revolution. Otherwise, no nation would ever loan money to the U.S. in an emergency again. More than $44 million, however, was owed to American citizens who had purchased war bonds during the war. Many of the original purchasers of these bonds had died or sold them at a significant discount to wealthy speculators. They had lost confidence in the ability or willingness of the infant nation to pay.

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Member Post

 

Fall: football, sweatshirts, burnt orange leaves, apple cider, and the debt ceiling. It’s the start of the 4th quarter and that means one thing – it is time for the bi annual meeting of the Rage Caucus and the Surrender Caucus over if/when/how/where/why to give the federal government more of our grandchildren’s money to spend. […]

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Random Thoughts on a Greek Default

 

shutterstock_254353558It seems the IMF has thrown up its hands and terminated debt recovery talks with the Greeks. They’ve even pulled their team out of Brussels, where the talks were being held (according to an earlier iteration of the article at the link). What happens, then, if the Greeks default? A default will take some months to unroll under IMF rules. In many respects, that’s something of a quibble. Fast forward to an actual default. (Shameless plug: I’ve written about this on my blog to some extent, beginning with this.)

The default likely would lead directly to a Greek departure from the eurozone and probably (though not certainly) from the EU. This, contrary to what a lot of naysayers have been bleating, would not lead to a breakup of the eurozone or the EU. For one thing, the rest of the PIIGS are on much sounder footing these days.

The EU stock markets would be in turmoil for several days, perhaps a few weeks. (That’s a buying opportunity, though—Rothschild’s blood in the streets—for those with the bucks to play.) Then folks would look around and see that nobody’s economy in the EU or the eurozone had folded, or even been hurt overmuch. The Greek debt held by the rest of the sovereigns is really small potatoes compared to those nations’ GDPs. There would be, certainly, a number of private investors who would be burned by the default, some even bankrupted, but they’re all big boys; they knew, or should have known, the risks they’d run.