Default Questions: 2. Is this like a (state) government shutdown? Can we "undo" the damage?

[NightWatcher]

Is there any way that there can be a little default? Can we default on Aug 2 and then agree to raise the debt ceiling on the Aug 3 with minimal damage? Or is this a "once it's done, it's done" kind of thing? Once we hit default does that start us down a road that we cant easilly come back from?

[HopeHoops]

1. No.

Allowing that to happen will shatter any thin confidence other countries still have in the US.

[shraby]

2. If you defaulted on your obligations, how long would it take

to get your own personal credit worthiness back? Usually 7 years or so.
This is much much bigger than that..it involves other countries decisions on whether or not to invest (buy bonds from) the United States.
Remember the old adage..when America sneezes the whole world catches cold? We sneezed once and they all had financial trouble and if we sneeze this time, everyone will probably go under..envision mass unemployment world wide. Not a pretty picture.

[brooklynite]

3. Actually we would not default on our obligations...

...because the 14th Amendment (it doesn't have to be "invoked") wouldn't allow us to.

What would happen is that available funds would go to PAY our existing borrowing obligations, and thus not be available for new spending (salaries, Government programs, etc). That could in fact be patched up once a deal was struck, just as in a Government shutdown.

The PROBLEM is that the ANTICIPATION of a default would cause the markets to tank, and interest rates to rise, and that CAN'T be quickly repaired.

[plumbob]

4. It's a nice three step plan. First, the ratings agencies (those geniuses

who turned shit mortgages into AAA investment securities) will drop the ratings on the government; second, this will cause interest rates paid on Treasuries to double, perhaps more, making the banks and other bondholders more than a TRILLION dollars a year in interest, rather than the 600 billion we pay now; third, because bonds will returning more, all other interest rates will rise to match the competitiveness.

This is why hedge funds are going to snap up the suckers who jump out at stage one for huge discounts. When rates double, they'll make their usual killing, and the whole financial "industry" will get a generational opportunity to gouge the rest of us, much like the early Reagan years, when home mortgages were 13-17% for those with GOOD credit.

Of course, these high interest rates will kill off what's left of consumer demand, so I'd look for a double of the unemployment rate within a year, among other side effects. But if you have cash to play with, it's a great play.

[alc]

5. there won't be a default

Revenue will be about 55% of what is needed to fully fund the federal. The president gets to decide what does/doesn't get funded and he will fully fund our debt. He can also fund SS, medicare, "necessary" military and not military government functions with the 55%. Other services will be suspended. He may choose to delay SS payments or other "visible" services to force progress on increasing the debt ceiling but I expect him to make it as painless as he can.