Reply #12: Interesting question. [View All]

[LooseWilly]

If the debt is Treasury Bonds, then all the investors who bought them will suddenly stop getting payment on them. That would be... I'm not sure. Investors, investment banks trying to hedge risk with "safe" investments, Chinese banks and Saudi banks also seeking to hedge risk, individual investors looking for tax-free "safe" investments, 401K funds...

So what happens if they all find that they can't redeem the bonds and collect their money? They lose money.

401K funds would likely take a hit. Retirement/pension funds too. Banks. Foreign banks. Wealthy capital portfolio jugglers.

:shrug:

Meanwhile, the government would suddenly be out from under all the interest expenses of finance charges related to debt. There'd be money to "unfreeze" federal employee wages, make payments to states to provide for services facing cuts, investments in... lots of stuff and programs. With the renewed spending would, potentially, come a return of jobs, and more business for businesses, and then more jobs...

If the Government then decided to go with a National Bank into which to deposit all government revenues, and which could then lend the money back to the government at 0% interest... then there would be almost no need to shoulder the burden of the debt interest any more.

Since the default would likely cause all those pissed off investors to never buy Treasury Bonds ever again, interest on any such bonds would be insanely high, to draw in those who might be willing to take the chance... though, if there's a National Bank that's lending at 0% interest—who cares?

There're some guesses that sound logical... ;)