What would happen if the US just officially went bankrupt?

[Skip Intro]

Is that an option?

What would happen?

Would life here or anywhere else really change that much?

[TheWraith]

1. If by "go bankrupt" you mean decide we're not going to pay off our debt...

And declare that debt null and void...

Well, for starters, it would be the end of Social Security. Not years down the road, but pretty much instantly. The Social Security Trust Fund consists almost entirely of US government bonds as it's investments, $2.6 trillion worth, because they're considered the ultimate stable investment.

Second, it would put Japan into a depression-level economic catastrophe that they might take decades to even remotely crawl out of.

The international financial markets would tank. So would Wall Street. Say goodbye to anyone's remaining 401Ks.

Then you would have week two.

[Lint Head]

2. Donald Trump always does well when he goes bankrupt.

IT'S HUGE!

[FarCenter]

7. It's going to be ABSOLUTELY FABULOUS!

[grantcart]

3. If the US were to disavow all of its debts then the currency would become

worthless and the world would revert to a barter/trade economy.

Money has no intrinsic worth, it is only paper. The only thing that makes currency work is that there is shared perception that it has value.

Once that is taken away then there would no longer be a perception that it has value. It would be just another piece of paper, ala Confederate Dollars.

[DainBramaged]

9. No it wouldn't, gold would become the ONLY currency, no gold, no goods

nice dream scenario though.

[grantcart]

10. There isn't enough gold to satisfy even 2% of the currency needs

Gold, and other precious metals would become part of the barter system.

[DainBramaged]

16. Yup, you are right, crash the world so you can barter chickens to survive, great....

:eyes:

[grantcart]

11. hiccup

[girl gone mad]

14. Nonsense.

Taxes drive money. As long as taxes must be paid in the national currency, demand for that currency will exist and all private entities will accept the money in exchange for goods and services.

[grantcart]

31. Multiple historical occurences of currency collapse and hyper inflation

have repeatedly proved that to be not true.

[girl gone mad]

32. Only when large foreign currency debt obligations exist..

typically, also accompanied by a sudden loss of productive capacity.

A sovereign currency regime with debts based in its own currency and a stable tax collecting authority is not in danger of hyperinflation or currency collapse barring something on the lines of a major catastrophic war.

ETA: you can also get to excessive inflation if the government goes crazy and outspends productive capacity, but in this scenario the excess currency could be soaked over time up via tax hikes.

[Earth_First]

4. I wouldn't be going into work on Monday, that's for sure...

I'd be out stocking up.

[banned from Kos]

5. Instant austerity - Greek style. We borrow 40% of what we spend

so 40% cuts would be immediate (save for tapping out the SSA Trust Fund -- assuming someone would buy the Treasuries which is highly unlikely). After millions more were laid off and GDP dropped 10% real misery would ensue.

[Urban Prairie]

6. Hold a nationwide bake sale, or

[girl gone mad]

8. We can't go bankrupt.

It's literally impossible.

[banned from Kos]

17. You're right - because no one is big enough to force us into b/r court

We could still become non-credit worthy though.

[girl gone mad]

21. No, because our currency is sovereign.

Our credit worthiness is irrelevant.

[banned from Kos]

22. You're assuming the Fed would monetize the debt.

There is plenty of reason to believe they would not.

Its unchartered territory at the least. If the Fed began paying just the interest that would trigger technical defaults in all Treasuries.

We're screwed either way.

[girl gone mad]

26. An asset swap is not monetization.

[banned from Kos]

30. True, but the Fed is not needed for asset sales - granted, they

should be more amenable.

Ok - that was a lot just to clarify what sovereign insolvency means. Its bad.

[RagAss]

12. Waves of homeless people breaking down doors.

[nadinbrzezinski]

13. Oh can you say depression?

This is fire, pure and simple...NUCLEAR FIRE to be exact.

[dixiegrrrrl]

15. Hyperinflation, increased cost of what goods you could find.

What would happen to YOUR house if YOU had no money and no credit, right now?
And if money were not worth the paper it was printed on?

What would happen to your neighbor who has NO money and very bad credit?
would you loan the neighbor 1,000 ?
If so, at what interest rate?
Would you trust that you could get it back in a week?

That is how other nations and businesses would look at us.

Simplistic explanation, but accurate.

How long would the power company stay afloat if most of its customers could not pay for the power?
What about the local service station?
Grocery store?

[pnwmom]

18. The 14th Amendment prevents that.

And logically, there would never be a need, since the government prints its own money. We could have hyperinflation as a result, but there would be nothing to force us into bankruptcy.

[unkachuck]

19. "What would happen if the US just officially went bankrupt?"

....nothing....shock and awe would come to wall street and the world markets....they would learn there is something in the world greater than their slimy capitalism, People Power!

....instead of blackmail and governmental extortion, instead of begging for jobs and economic investment, we would simply tax these rich pricks for the necessary resources....

....life would go on, bills would be paid, and we would prioritize....

[Motown_Johnny]

20. the economic system for the entire world would collapse

suddenly the world currency would be worthless

[sarcasmo]

25. +1

[Skink]

23. It's not that bad really. first thing I noticed after the bankrupcy is that the volume of Junk mail

plumets. Then you start to realize India just took a major haircut. Then after a few months the offers start rolling in again for more ez credit, but now being out of debt you start thinking you don't need 15 to 20 credit cards.

[sarcasmo]

24. 56 million in social security checks don't go out and hundreds of thousands become homeless.

Let alone all the other checks that rely on the government. All that money missing from the economy would be catastrophic.

[jtuck004]

27. That would be like asking what if gravity suddenly reversed itself and

we were all shot off the earth. In the realm of near completely silly.

We have a constitution that says we will not allow our debt to be questioned, and the Congress charged with using legislation to insure that. 14.

On top of that we have a sovereign currency, created only by the U.S., and that with numbers on a computer. We don't really borrow to have money; we have evolved from that system, which one can read about in Wiki. (That idea is from those old 1930's economic textbooks, and probably those used in Virginia, Texas, and Kansas. Look, right there, next to Creationism and before Home Economics for Girls). We create our currency as necessary and pay it out to people who then settle lots of transactions with it, chief among them taxes back to the U.S. We can't go "bankrupt" in that sense, because we can always create a debit in an account with the stroke of a button.

That's not to say the value isn't dependent on what people think of the currency, our tax policy, etc. We do have the power to make it go up and down based on our actions, but it is created by law, not borrowed, like what's in momma's cookie jar.

We could, I suppose, create an artificial limit and decide to just quit paying for bills we have already incurred - the dumbass discussion we are now having - or just suddenly go batshit crazy and start crediting every Federal Reserve account with trillions of zeroes. Any answer to what might happen then is probably acceptable, and incomplete because of the myriad connecting issues.

But who would want that? Perhaps those who want to destroy the country on the thought that they can take it back to that imaginary place they desire. Kinder, gentler, more neo-feudalistic, none of those homosexual people around, with themselves in charge of the great Church of the United States.

But such a discussion takes time away from figuring out how to grow wealth-creating jobs. A much more productive discussion, one that we deserve to be having.

[Selatius]

28. Extremely high inflation, and the economic disruption that would be caused by it.

All of a sudden, a loaf of bread would cost $10. Because as the Dollar's value weakens against other currencies, all of a sudden it's going to take a lot more dollars to buy the same amount of crude oil or the same amount of labor needed to make products in China for US consumption.

It's high inflation across the board we're talking about here. While there is no such thing as bankruptcy court for entire nation-states, there exists the currency exchange markets to do something similar whenever a nation does, in laymen's terms, go "bankrupt." Just ask Argentina.

[OmahaBlueDog]

29. Just like in personal and business finance, there are several types of bankruptcy

Obviously, nobody really knows. Most likely, US Bankruptcy would look most like Chapter 11. We would reorganize.

The economy still is functional, albeit at a lower level than we prefer. The government is still collecting taxes, but does not have sufficient funds to meet all of its obligations without borrowing. About 2/3 -3/4 of that debt is owed to ourselves (The Fed, THe Social Security Trust Fund, states, etc.) and the balance is owed to foreign central banks. So what we'd really have is a monumental cash flow problem.

Th IMF would step in and (as best it could) organize some kind of debt repayment plan. We'd probably have to produce an austerity plan that everyone could live with, and there would be sound and fury over pension cuts, wage cuts, and tax hikes. Lots of "non-essential" areas would be privatized or eliminated.