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Comment by motbus3 | Hacker News Reader

I am ignorant. If they don't pay, who will charge it if the default?

If you are American, then it is you, for the most part.

Most of the US government debt is owed to institution and people in the US. All these retirement funds, social security, health insurance, etc... that own part of the government debt... well, you won't get what you paid for.

This is a simplistic and partial view, but I think that's the most personal way of thinking about it.

That’s about it. You’re paying for roads and education and war with your retirement savings. There’s not really anyone else there to pick up the bill. There’d better be some kind of return on that investment so you can actually retire.

Printing more money devalues the currency your retirement is priced in, so that’s not an escape either.

I'm sorry my question is not clear. I meant if the US government went for a default (deciding not to pay). That was my question.

The US citizens hold the majority of the debt so if the government default the people's savings and pension funds evaporate.

It's literally impossible to default as you can simply emit new money and buy back the debt or pay the interest with the minted money.

Of course this comes with its own set of gigantic issues, likely triple digit inflation and hardship to raise money for generations.

But US can't default really.

> But US can't default really.

It could. We'd just reorganize and call the old debts part of "Old US". This is all "New US".

And that New US Dollar as a global currency? Not likely.

You’re the only one in the thread that gets any of this right. But: Monetizing the debt is replacing one asset (treasuries eg) that pays interest with a nominally equal asset that doesn’t (US dollar). How does that spur inflation? It’s a reduction in income over time. How does paying back our debt IN FULL hurt our credit worthiness?

Money is special because it’s the only asset that can be used to purchase goods and services. If I have a pile of 10 year Treasury bonds worth $500, and I want to buy a TV, I have to first convince someone with $500 in cash that they’d rather have my bonds than buy their own TV.

No thats not true.

It operates under expectations - the more liquid the asset, the more likely you'll be OK with accepting it in the context of a trade. The discount is for illiquidity.

> No thats not true.

I'd love to see someone buy a TV with those bonds.

Ofc the US can default and it will most likely in the event.

Debasement is far more painful - the treasury will simply choose not to come good on the obligations.

Nonsense.

Credit worthiness is a must and you're talking about the savings and liquidity of all the world, us citizens, banks and institutions included.

There's a reason Germany and Italy can borrow lots of money at relatively low costs despite everything: no matter the economic crisis, no matter the inflation, no matter if the countries were in rubbles post not one, but two world wars, they always paid their debts.

I'm not sure how can you imagine that defaulting can be anywhere better than increasing inflation.

And the US in particular has the huge advantage of being able to mint the money to back it.

Some countries would make their debts in USD as a form of guaranteeing that it will not just print more money.

Some use gold or minerals. I wonder if this is what US does. Also this makes me think why every European countries are taking their gold reserves out of the us.

A country that controls its currency can always bail itself out of all debt by printing all that money. Now they would destroy their whole economy in the process because of inflation and countries being mad about a country doing that. If they don't pay and default they kind of also piss everyone off and that makes the curency rates fall as well. In that case they would repay as much as they want really, the price for not doing that is economy strengt. The dollar could lose the global currency status either way, fun!

Inflation doesn't really capture what would happen.

Debasement is the appropriate term.

But wouldn't it make sense to believe those debts are in gold or other sort of exchange coin?

I heard many Asian countries as selling US and buying Yen and Wuan as countermeasures for the possible devaluation of the USD and to guarantee trade. I understood that the threat of doing so slowed down things but it seems inevitable at this point that it accelerates.

I am not sure on what I am talking about. This is what I understood from the news. I would like to be corrected if I'm wrong though

Regardless of what the debt is in you have to get that resource somehow, so if your debt is in euro, you'd have to print dollars to buy euro if all your economy provides is dollars. I don't know what US' debts are in, but dollar being the lingua franca of finance, it is probably their home currency. But if you have a debt in a currency that you don't own, then your acquisition of said currency with your home currency is kind of limited, because the market will react with fx rate so dollar yields less and less euro per unit the more dollars you print. In that case, the country would probably just not pay which annihilates trade relationships ergo economy. I don't know if I understand your first sentence correctly though, maybe that's not an answer you were searching for lmk :)

As for selling dollar for other currencies, I am sure it makes sense to dump some of it because it seems to be a bit more volatile, holding another country's currency is exposing you more to their economy after all. I am not sure what that has to do with guaranteeing trade, maybe someone smarter can answer that, my understanding is that you hold a currency buffer so that if you need to trade in some currency you already have some of it so it flows nicely, but I can be completely wrong.

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