Sunday, May 31, 2009

US debt default = no big deal?

What if not only GM goes bankrupt, but the United States decides to default on its debt? According to taxpayer supported PBS, defaulting on the national debt would be no big deal, don't worry, be happy:
"Increasingly some are worried about the potential for a downgrade of the U.S. government's triple A credit rating. Why does it matter? Because a downgrade would increase our borrowing costs and reflect an increased risk for sovereign default [...]But let's consider a little history. Sovereign defaults have been occurring for centuries [...] A U.S. debt default isn't the problem; its the solution."

The US has never defaulted on its national debt, unless you wish to quibble and characterize leaving the gold standard as a technical debt default. This ignores the fact that the US was a creditor nation after WWI & that the countries that owed us money, Britain & France, both left the gold standard. It would have made no sense for the US to pay out gold bullion for our transactions whilst we were being paid in other countries' monopoly paper bills. Even when the US was a war torn former colony, it managed to pay back its Revolutionary War debt, plus interest, in gold bullion.

2 comments:

  1. Assuming gold could make a run up to $3000 or $5000, don't you think the gov would just revalue their gold reserves up from $35 which is where it's booked in at now?

    Mark
    editor@dgcmagazine.com

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  2. I'm not an expert, but a cursory google led me to this article which alleges:

    "other assets (such as direct investment and U.S. gold reserves) were being valued at the historical costs at which they were purchased."

    which seems stupid even by US government standards. Why wouldn't you automatically use the current market value of a commodity?

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