The four times the United States government defaulted on its debt (2021)

It HAS defaulted when transitioning off the gold/silver standard, when the world moved off Breton Woods, and during the Civil War.

I’d note that each of those defaults were related to the total collapse of the existing rules for national/global finance.

So ultimately, these defaults do bolster the case for the “never defaulted” folks: a default could literally bring an end to the current global financial system.

Edit: corrected 75->50 year old system

The numbers are obvious - someone isn't going to be getting much in the way of real repayments. It isn't quite clear who yet where the hammer will hit (my guess is #1 pensioners, #2 foreigners). What do the foreigners think is going to happen? Did they actually buy the outrageous line that the path to prosperity was feeding goods into the US consumer for paper? It seems a tough sell that anyone in a foreign government believed that.

Bretton Woods is a fascinating topic on its own. Accidental Superpower is a good read that dives in a little, but isn't focused specifically on it. I can't resist bringing up that book because in one of the later chapters, it predicted the invasion of Ukraine, IIRC, down to the month.

* Politicians play chicken, waiting until the last possible moment

* The markets get upset in the meantime and this impacts US Treasury bond prices

* Eventually the limit is raised, right before the deadline

The estimated deadline is approximately mid August, though could be somewhere between June and early September.

In the long term, either we need something that provides massive growth (increased tax revenues, reduced welfare spending), or we'll default.

A default in 2023 is not impossible, though is definitely unlikely.

My wife was working in transportation consultancy and there was a sudden drop in the amount of work.

The national parks were free to go in an out, so we decided to go to the death valley. I saw the biggest pile of trash ever inside a park.

"Nixon hoped in this way to solve some short-term American economic problems by re-creating the sort of financial disorder in which the largest power would be best placed to benefit. It could be said that this was the single most evil act undertaken by an elected leader in the postwar period. Other leaders should not be discouraged, however. The opportunity to do worse is perpetual."

    --- John Ralston-Saul, The Doubter's Companion, 1994

Treasury bonds/bills are just “future dollars”, while physical cash and electronic deposits are just “today dollars”. The idea that a sovereign government can somehow default on obligations denominated in the currency it creates and controls is absurd. It can no more default on treasury bills than it can default on dollars, or accounts at Fed - either can be created at will, physically via printing press/mint OR electronically via crediting an account at the fed.

The “debt outstanding” is just the number of dollars the government has created. But the way we calculate this number doesn’t include ”today dollars” the government has printed, only “future dollars”, so it seems quite meaningless to fixate on it.

And it is not per se irresponsible for this number to be high. It only becomes irresponsible if there are negative effects on the broader economy, primarily via inflation but also other effects like crowding out private investment and reducing growth.

Right now we are in an overly inflationary environment right now, and the government should be printing fewer dollars (“austerity”) via lower spending, higher taxes. It would be reasonable to insist on changes to spending/taxation policy.

It is irresponsible to take money (today or future-dated) and imply the government may no longer honor it as money. You are destroying the public’s faith in money, and losing the ability to buy goods and services with it. This is why many countries can’t get others to accept their money as payment, and have to issue bonds in a currency they DON’T control. This is not a good situation to be in.

People take the intuition that it is irresponsible for a household to have too much debt because it might not be able to repay it, and apply that to the government which can create those dollars. It is not the same.

It is like saying Starbucks can default on “Starbucks points” that it owes to people. So long as Starbucks exists, it can hand out however many Starbucks Points it likes, because it decides what a Starbucks point is and maintains the records of who has how many points. There might be Starbucks Points inflation if they hand out too many, but it is always possible for them to meet Starbucks Point obligations.

Note that the debt ceiling does not limit deficits. Those come from the budget. So Congress and the President can approve a budget that will cause debt to go above the debt ceiling, the government can then contract for goods and services authorized under that budget, and then when later presented with the bills for those goods and services run into the debt ceiling.

There's no perfect analogy between government finance and person finance, but reasonably close is this. You and 5 friends buy a vacation house together. You have a contract you have all agreed to covering how to run this thing. One of your group is designated as the treasurer, and this rotates yearly among you.

You have a planning meeting every year where you vote on major upgrades and improvements for the next year. These are put on a credit card that is jointly owned by you and your friends. Also on that credit card are utility bills, taxes, mortgage payments, and anything else that can be classified as a vacation house expense.

When the credit card bill comes each month, there is a meeting where it is presented. If it is under a certain amount the group contract authorizes the treasurer to pay it from the group's joint bank account, which you all pay a fixed monthly amount into.

If the bill is over that fixed amount, which it will be the month after a major upgrade or improvement is done, the treasurer can only pay it if the group votes to do so.

One year at the annual planning meeting the group voted unanimously to reroof the house. It votes 5-1 against proposals to install a hot tub, remodel a bathroom, and build a new deck. Those proposals were from 3 different people.

After the reroofing is done and appears on the credit card bill the 3 people whose proposals were voted down at the planning meeting vote "no" on paying the credit card bill. They say they are going to vote "no" unless the group agrees to their upgrade proposals. They are all adamant about this (even though each of them is against the other two's upgrades), and so the treasurer cannot get a group vote in favor of paying the credit card bill.

The sane way to do this is that when the spending is authorized at the planning meeting for that to also authorize paying the bill when it comes do.