A US "debt default" would result in a higher dollar. Any thoughts?

cohodk

I keep hearing how a default would be "disastrous", but is it possible that disaster would be due to a much stronger dollar and deflationary trends?

Maybe a "default" would show the USA is serious about getting its house in order?

I'm just throwing out non-mainstream ideas. Any thoughts?


If possible I would like to keep the discussion free of populist rhetoric and focus more on economic and monetary policies.

guitarwes

Who the heck knows besides the companies that own the government....

ricko

Interesting idea, however, I fail to see how a default could increase the dollar value?? Admittedly, I am not a finance guru....perhaps you could elaborate?? Intuitively, a default would crash the dollar.... ICBW.... Cheers, RickO

derryb

dollars are made "strong" by international demand for them (in the form of US bonds) when compared to competing currencies. The demand for dollars is based on its world reserve currency status. A debt default would seriously threaten the dollar's reserve status and at the same time create a stampede to get out of investing in US debt (its bonds). A debt default would result in a blow to the US bond market and drive price up on the ultimate anti-dollar: gold.

bluelobster

"A debt default would result in a blow to the US bond market and drive price up on the ultimate anti-dollar: gold"

There is no would or will, unless you're Morgan Freeman.

There is only might ...........and it might not.

mariner67

Debt default could lead to another worldwide financial meltdown.
All assets crash again as in 2008 or worse.
People stop spending as a result of all their "holdings" being worth substantially less and everyone feeling poorer.
All non essential discretionary spending comes to a halt.
No demand for goods and services = falling prices for everything.
Deflation sets in!
Yeah, I think it is possible.
Anything is possible.
JMHO as always.

57loaded

Quite possibly the canary may not be default but a domino disaster that is already in motion in Eurozone countries. They have debt that no one there has any intention of repaying.

Kinda like what is happening here ....but they would collapse first??

This would cause U$D to be stronger, yes?

derryb is right about USD as world reserve currency status.

Even with default and threat's from our folks in China. For now USA = Okay. (as far as WRC)

IMO default won't happen now because of partisan reasons alone (that's my rhetoric)

VanHalen

Hey mister, can you spare a yuan?

Overdate

<< <i>dollars are made "strong" by international demand for them (in the form of US bonds) when compared to competing currencies. >>


I could envision a scenario where government bonds go down and the dollar goes up. Bonds are not exactly the same thing as dollars - they are promises to pay in dollars. This is true whether the bonds are issued by public corporations or the U.S. government itself.

If the bonds go into partial or temporary default, they will become less attractive to buyers, demand will decline, and their price (in dollars) will therefore decline also. But the demand for actual dollars (currency, coins, bank deposits etc.) will likely rise, as these dollars will be perceived as a "safe haven" with less risk of repudiation or default. Such "real dollars" will also continue to be needed for everyday transactions and for settlement of contracts.

So it's entirely possible that the dollar will soar as the bond market craters.

secondrepublic

Government brings in ~ $200 billion a month in tax revenue, and pays out ~ $25 billion in interest on the debt, so there should be no default unless Obama chooses it.

To answer your question, a diminished supply of new dollars - i.e., what would happen when the government stopped issuing new debt - could result in a higher dollar.

meluaufeet

The dollar will remain a safe haven until its not. If they sell instruments it will create a demand for dollars. I have no idea how long that would last.

FED action/inaction would also have an influence. SOS Kerry is probably looking around for more drone targets.

jmski52

Factor in the electronic nature of this mess and you don't know what you'll get. Frankly, I don't know that anyone knows what's really going on right now - including the government or the banks.

derryb

Another concern is the affect of a debt default on the multi-trillion dollar derivatives market, the real canary in the gold mine.

derryb

<< <i>"A debt default would result in a blow to the US bond market and drive price up on the ultimate anti-dollar: gold"

There is no would or will, unless you're Morgan Freeman.

There is only might ...........and it might not. >>


The sun will come up tomorrow.

Baley

<< <i>

<< <i>"A debt default would result in a blow to the US bond market and drive price up on the ultimate anti-dollar: gold"

There is no would or will, unless you're Morgan Freeman.

There is only might ...........and it might not. >>


The sun will come up tomorrow. >>



Actually, no, the sun doesn't "come up", what's really happening is that the Earth is rotating with respect to the sun, which makes the "sunrise" an illusion. So no, the sun will not "come up" tomorrow, it will just look like it has, I'm surprised that you didn't know this

derryb

<< <i>

<< <i>

<< <i>"A debt default would result in a blow to the US bond market and drive price up on the ultimate anti-dollar: gold"

There is no would or will, unless you're Morgan Freeman.

There is only might ...........and it might not. >>


The sun will come up tomorrow. >>



Actually, no, the sun doesn't "come up", what's really happening is that the Earth is rotating with respect to the sun, which makes the "sunrise" an illusion. So no, the sun will not "come up" tomorrow, it will just look like it has, I'm surprised that you didn't know this >>


Guess that means there is no such thing as a sunrise. Another conspiracy proven false by Baley.

cohodk

Good discussion so far.

To me the word "default" means willfully not paying debt and without intention to ever do so. I do not believe the US will default. However I do welcome the discussion of deficit and entitlement spending. I do wish the media would play a greater role in educating the masses rather than trying to scare them, but scared people are easily manipulated, and our politicians know this.

If the US Govt were to spend less, would this be detrimental to the economy and what would be the impact on the dollar? Would the economy slow? Would interest rates rise or fall? Would this promote private investment and spending?

wayneme

ya we'll see how this works guess that why I bought coins but what ever

wayneme

sometimes you need to look at the world view not the usa's view we
have never done that before but I think we will shortly
we have had our way now I think we'll have to deal with how it's going to be

derryb

<< <i>If the US Govt were to spend less, would this be detrimental to the economy and what would be the impact on the dollar? Would the economy slow? Would interest rates rise or fall? Would this promote private investment and spending? >>


If the US spent less it would hopefully be able to tax less. The dollars not spent in taxes would be spent by wiser spenders, particularly businesses, on the captial investment side. Dollars spent by investing in one's business are usually healther for the economy than malinvestment by government. Businesses tend to invest where there is a healthy return on the investment. This would be great stimulus for a terrible money velocity that is currently choking the economy. Interest rates would rise to a healthy level that would be controlled by a demand for money and not by an academic group of "experts."

secondrepublic

<< <i>
If the US spent less it would hopefully be able to tax less. The dollars not spent in taxes would be spent by wiser spenders, particularly businesses, on the captial investment side. Dollars spent by investing in one's business are usually healther for the economy than malinvestment by government. Businesses tend to invest where there is a healthy return on the investment. This would be great stimulus for a terrible money velocity that is currently choking the economy. Interest rates would rise to a healthy level that would be controlled by a demand for money and not by an academic group of "experts." >>



+1. Succinct and well-said. Too bad 51%+ of the voters have no clue (or don't care).

wayneme

my guess they won't have a choice soon

LowBudget

I'm just glad the new bill has Lautenbergs widow getting her $173K bereavement gift, even though shes worth 51 million, shes gotta eat too!!!!