The US debt and how defaulting will change the world

The obvious answer is…Everything will change and the USA will never have the same image again

A default would have some “pretty serious ramifications” for the US economy and, because the US is still 20 per cent of world GDP, it would be terrible for a  lot of other countries as well. With Europe in the middle of a huge crisis the knock on effect could be disastrous. The UK is struggling along with many other nations but the biggest economy in the world hitting the wall again….Disaster or just longer pain?

We will see higher interest rates and potential destabilization in financial markets, higher taxes, lower incomes, less money in the economy, market crashes, job losses, families suffering and much much more.

The question is what will happen to the relationships with the creditors that the US government owes so much to. China, Saudi Arabia and others are owed trillions of dollars by the American government.

What will happen if the debts and interest are not paid?

What happens if a country like the USA defaults on the bills and payments they owe to others?

We all know the consequences for  the individual. For more information on this view the previous article I wrote.

How much is the debt?

$16,000,000,000,000 and growing!

Who does the USA owe money to?

A default will change the way the world looks at the once safe US economy. It will make Treasury bills more expensive over time and interest rates higher.

Many US  businesses would  face downgrades and that would lead to higher costs of capital. This would lead to less job creation and less investments in American companies and the economy as a whole.

The Federal reserve will serve notice on the government that the account they have is in overdraft and this is a violation of the Federal Reserve Act.

With  Congress not allowing the government  to borrow more,  usual payments like social security could not be made. Social meltdown is on the way.

Even if the  issue is resolved, most government services, programs and benefits will take a devastating  hit.

Potentially the first assets to be affected after a default would be money-market funds that hold government securities.

Banks that buy bonds directly from the Reserve and resell them to consumers, including pension and mutual funds.

Foreign investors, which holds nearly half of all Treasury securities(China hold 50%of all US Treasury securities) could start dumping them.

The US dollar would be hit and the currency regarded by most as the reserve currency of the world, would  no longer be the safe investment it once was. If other central banks start selling off the green backs , the value keeps dropping but what is the alternative some ask…The Euro? Will gold go higher?

If the dollar is worth less it will mean the cost of buying American goods becomes cheaper. The reverse side is it will cost an awful lot more for Americans to buy goods. Commodity prices are sure to take a hit.

China could become the real world leader and other currencies will become the new reserve currency of the world.

China and other countries will have an even stronger hold on the US government and even today they could cause a crash by dumping treasuries. Russia is also a player in this game and the Us government needs to be very careful as certain scenarios are too horrific to think about.

The answer to the question is difficult to know. What is known the image of America will change forever more. The greatest economy in the world is run on debt and the people will be the ones that suffer the most.

Creditors will negotiate new deals and will take haircuts in order to gain anything. If you owe a bank money and cannot pay, they will take what they can get and then kick you to the curb…will the United States of America be thrown away…No, but it will take the hit and in time ( along time) through a lot of pain rise again. The reason I believe this is simple…The citizens of the US have fought all of time and were formed through revolution. This is a new chapter, a new revolution is about to start but this we hope will end up with a positive outcome.

Apocalyptic ideas are not even worth talking about as these will affect every person on the planet. Many economists will always tell you that wars are  a great diversion and a means to solve many economic problems. From war comes rebuilding and the chance to eradicate certain issues…this is a doomsday scenario but history shows huge growth after terrible events. Now I am not an expert on any of these fiscal issues and no single person can really answer what will happen if debts are not paid but we all know it will not be good for anyone. The world is global and every country is interlinked in some way. A hiccup in a small country these days can affect many other countries. Therefore the thought of this hiccup being in the USA paints a terrible picture in most people’s minds. Raising the debt ceiling does not fix the problem but it blocks that terrible outcomes that might happen worldwide.

As we near the New Year we can only hope for a positive outcome even though this affects every American. Business will continue and life will go on. We will keep building our business and hope to launch a company that can create jobs and help other businesses worldwide.

 

Did you know China owes America?

 

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