A U.S. Default Seen as Catastrophe Dwarfing Lehman’s Fall

Also, if you factor in the high cost of living, which is a side effect of the UK system, being a poor person in the UK is a pretty shitty situation to be in, certainly not something to smugly celebrate.

Agreed that getting out of the USD hegemony is inevitable. As to whether it will be an orderly transition, I'd say that is far from assured, especially in the UK.

[0] http://en.wikipedia.org/wiki/List_of_countries_by_external_d...

Which must be true otherwise why would governments be able to borrow more? Clearly they can devalue the currency and by extension the debt, however the money lenders will just factor that into their interest rates.

I like a country to be in debt, that way it will always be looking for efficiencies. The question is how much debt is acceptable?

Unfortunately I never know how to answer that question convincingly enough to put my money where my mouth is. Does anybody know if there's a place where people discuss these sorts of things, e.g. a "Hacker News for Financial Markets"? Any interesting ideas for coming out of this on top?

EDIT: Two answers have pointed to gold. Yup, I have already played with investing in gold ETFs, which generated a 20% return over the past 2 years, even after fees. However I was wondering if there were any more ideas specific to the present circumstances, and where, if anywhere, people discuss this sort of thing?

Comparing them against current assets is equally misleading. Say you plan to spend $2k on rent for the indefinite future. That's $24k per year, $240k per decade, etc. Are you insolvent if you don't have all that in the bank now? No, of course not. Those are ongoing expenses paid out of ongoing income.

The Medicare trustee estimates the unfunded liability of Medicare at $40 trillion over 75 years (the $123 trillion figure includes a Medicare estimate of twice that). Projected GDP over that period is $907 trillion.

Finally, there is nothing wrong with quantitative easing. The people that'll be hurt by inflation are by and large the same ones whose fault the current financial mess is (older people own most u.s. assets). The government will probably encourage inflation at some point to reduce the value of these expenditures as a percentage of GDP without making nominal cuts. I don't see a problem with that readjustment.

An example of this is how last year India (a developing country, although with a rather large GDP) donated money to the European Union in the form of an economic stimulus, basically to prevent a default. The reason was simple, an unstable european market hurts growth prospects worldwide. There's a saying in India "When Wall Street sneezes the Indian markets catch a cold". An increasingly linked global economy puts economic stability at #1 on everyone's agenda. Of course, this is great for the US because they can wage wars, etc. etc. while taking on unlimited debt and no one wants to lift a finger (militarily, they can't - economically, they can't either because of the repercussions). Of course the bubble will pop at some point. We don't know when, though.

1) social security

2) medicare

3) Obamacare (because it will merge with 2)

I don't think Obamacare is a bad idea, BTW, coming from Europe. I just want to point out that cutting the military, which arguably helps more people than social security, is not the solution.

Europe has the same problem. Social security simply can't be maintained, yet people won't give it up.

It might happen. It's highly unlikely, but not impossible.

If you're so certain, you should be shorting the whole market and laughing your way to the bank.

EDIT: Not to get too partisan, but the justification for not negotiating on the debt ceiling is to put a stop to the use of the debt ceiling as a form of political hostage taking.

To let this sort of thing go on gives Congress a de facto veto power over the executive branch that was never laid out in the constitution. Once you let Congress know that a majority (in a single chamber!) can get whatever they want simply by threatening to tank the whole economy, there's no going back.

That's why it's the rational policy to refuse to negotiate when a single house of a single branch of Congress starts threatening that sort of thing.

However, when it does happen it will happen very suddenly and will be completely unexpected (when the US fails to find enough buyers in a round of debt sales) so the timing is hard to predict.

Of course threatening to default is also likely to make interest payments spiral out of control. But if the country pays its debts in a timely manner and keeps total interest under control, it can keep this up forever.

As world reserve they have had to spend into existence a metric craptonne more currency than their economy requires in order to lubricate world trade (google Triffins dilemma).

ie: For Turkey (say) to buy oil off Saudi, they need to sell something to the US in order to obtain USD first. When world reserve status is lost, suddenly Turkey doesn't need USD in order to acquire oil. The rest of the world is holding USD for trading purposes and those USD currently never go home in order to claim something from the US economy.

Now lets turn the lights off on USD as world reserve: Those now useless trade dollars will try and find their way home to the US and start chasing things milk, eggs, cars...anything in the real world that has value as the currency devalues. Meanwhile, the USGovt is having trouble acquiring its goods and services with its rapidly inflating USD and doubles down on printing under Executive Order 13603.

When this one blows, one doesn't want to be caught holding assets denominated in USD.