Investors view default by U.S. Treasury as more likely than Coca-Cola

online.wsj.com

7 points·cwan··3 comments

Except this whole concept of a developed economy defaulting on it's debt is to all extents and purposes irrelevant.

The US government has the ability to raise taxes and has organisations which can enforce these tax rises and an army to defend itself. It also has vast assets that it can sell off. Whilst the market might think that the Treasury is more likely to default than Coca-Cola, the markets don't represent reality in this instance.

You'd be surprised. Russia, which was still a pretty decent sized world power, defaulted on its debt in the 90s.

I'm not an expert on what occurred, but I believe the Russian government thought process was something along the lines of: -We could either sell off all the country's assets OR -Default on debt now, have a bad reputation with future foreign investors, but not shrink our country further.

They went with option B.

Not saying this would or will happen to the USA, but theoretically it could.

New York City defaulted on its debts 25 years ago, despite having a huge tax base and some very desirable assets.

California has been teetering on the edge of default -- not always making payments on time -- despite having the ability to raise taxes. CA also owns vast assets it too can sell off.

Admittedly we'll probably see places like Greece, Italy, Spain and Portugal default first, but it can happen here too.

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