Could the American government default?

[xFiFtyOnE]

If the Fed ever stops buying U.S. debt and tries to sell off their reserves to reign in inflation then the U.S. will absolutely default because the interest rates on U.S. debt would be sky high. If they don't stop buying then they will destroy the dollar. That is their choice, save the dollar or save the federal government.

This may sound epicly stupid as I'm a noob at economics and such but if that happend wouldn't that be like the Fed (or the banks behind it) putting a gun to their own head? I mean who else are they going to lend money to? The whole banking system is based on perpetual growth, consumption, loans/debt and no one is better than all of that than the good ole U.S. of A.

[Acala]

This may sound epicly stupid as I'm a noob at economics and such but if that happend wouldn't that be like the Fed (or the banks behind it) putting a gun to their own head? I mean who else are they going to lend money to? The whole banking system is based on perpetual growth,consumption, loans/debt and no one is as good at that as the good ole U.S. of A.

Ultimately, the existing system will fail no matter what the Fed and the banks do. They are scrambling to restart the bubble machine but failing. If the DO manage to get it going again, it will just postpone the inevitable. The only questions are when will it fail, and will you be ready?

[Travlyr]

I base my prediction on the "avaricious coward" model. Politicians are avaricious cowards and will follow the path that allows them to keep their wealth and power as long as possible while also avoiding facing the inevitable hard realities and hostile electorate. That path will be to expand the money supply at whatever rate is necessary to keep the machine turning until it won't turn anymore. The result is inevitable: massive inflation. The only question is when.

Yep. The only question is when. It is human behavior to act in self interest.

[xFiFtyOnE]

Ultimately, the existing system will fail no matter what the Fed and the banks do. They are scrambling to restart the bubble machine but failing. If the DO manage to get it going again, it will just postpone the inevitable. The only questions are when will it fail, and will you be ready?

I was just saying I wouldn't expect the Fed to cut its credit line to the U.S., as it is hopelessly connected to the well being of the U.S. economy. The FED is a parasite that is unknowingly killing its host. The current system WILL fail, no doubt. But I wouldn't expect it to happen that way. I personally think the Fed will keep lending an printing until the very last person accepts a useless FRN. The default will happen when the world rejects the dollar as the reserve currency.

[Steven Douglas]

I was just saying I wouldn't expect the Fed to cut its credit line to the U.S., as it is hopelessly connected to the well being of the U.S. economy.

It's existence is now tied to the well being of nearly every economy that feeds its members' and allies' Ponzi schemes, actually. But that's not why it wouldn't cut its credit line to the US. Its real existence is tied to that little thing called the Federal Reserve Act -- the magic lamp that Congress created and rubbed (by the genie's own design) a hundred years ago that unleashed the Fed. If the Fed cut Congress off, with lightning speed Congress would turn right around and cut off the Fed, which would be sucked instantly back into the lamp, bringing the Fed finally under Treasury control (for all that entails, still not a pretty picture).

The Fed knows who the Godfather is, and what respects must be paid along the way. What the Fed facilitates on the US warfare/welfare borrowing/deficit spending side really is a tiny drop in the bucket, and a relatively small price to pay in exchange for the genie's power to manipulate entire global economies to its members' and allies' advantage.