Could the American government default?

[rockerrockstar]

"US default 1971, Supply Vs Demand

After WWII, the world was under the Bretton Woods System. All currencies were tied to the USD, and the USD in turn was redeemable in gold. Back then, the US possessed about 22,000 tons of gold, or about 75% of the world's monetary gold!

By 1971, the US had only 7200 tons of gold left, and owed other nations close to 40,000 tons. Alarmed at how fast gold was leaving the US, President Nixon conveniently announced that the USD will no longer be convertible to gold, therefore closing the gold window. The world currencies started 'floating' against each other, without any tie to a physical stuff whatsoever.

In my view, this is equivalent to a default by the US. The US now has unrestrained power to print money to repay its debt. The world quite foolishly agreed to what the US did, because they thought that the USD was as good as gold. "- http://silvernjin.blogspot.com/2010/...ault-1971.html


"The End of the Gold Standard:

The strong dollar led to inflation and a large balance of payments deficit in the U.S. which in turn helped to create stagflation. The U.S. started to deflate the dollar in terms of its value in gold to curb double digit inflation.

In 1971, gold was repriced to $38 per ounce, then again to $42 per ounce in 1973. As the dollar devalued, it motivated people to sell their greenbacks for gold. Finally, in late 1973, the U.S. government decoupled the value of the dollar from gold altogether. The price of gold quickly shot up to $120 per ounce in the free market. (Source: Time, Fuss Over Dollar Devaluation, October 4, 1971)

Once the gold standard was dropped, countries began printing more of their own currency. Inflation usually resulted, but for the most part abandoning the gold standard created more economic growth.

However, gold has never lost its appeal as a currency of real value. Whenever recessions or inflation looms, investors return to gold. By 2011, the price of gold was over $1,600 an ounce. It reached its record high of $1,895 on September 5, 2011.(Article updated December 16, 2011)"-
http://useconomy.about.com/od/moneta...ld_history.htm

I looked at today it is at $1,740.90 according to
http://www.dailyfinance.com/quote/co...ld-futures/~gc

[MooCowzRock]

Greece is limited to the Euro, the US is not, it has control of its own currency. It is more likely that we would hyper-inflate than default. Inflation bleeds us slower and stagnates us, default causes crisis. When the Federal Reserve buys up bonds/debt that banks and private investors and other countries own, they are basically going under the assumption that the government is not going to pay them back, and the money they used to pay for that debt was typed up on a computer.

This is essentially how we are going to avoid an all out "default." The problem is that the money that we created was given to the banks already, or wasted on wars already, or given to corporations that wanted bail-outs, or given as foreign aid, or promised as future money to social security and medicare and medicaid, etc, etc.

I'm interested in seeing how and where we get hurt from all this.

[rockerrockstar]

I guess the Fed can print more money and secretly bail out Social Security and the rest of the debt. Not sure how but I just think if your printing money why does it matter who you pay and what you pay with made up money. The issue is making it look to others that the dollar is worth something so we can keep trading and workers work for the fiat money. We keep public record of the supposed money we have to pay back but really we probably just print as much as we want via the fed and do what ever we want in closed doors. The question is when will people wise up to this.

We pay taxes to make people think the fiat money is worth something. Even though the government could just print money and does not need our money. Just a thought. Since they could just ask the Fed to print the cash or electronically send it to what ever they want to spend it on. Just think about it. It is all a smoke screen to keep worthless paper to mean something to others.

We pay interest to the federal reserve on our own money they print for us. Funny huh.... Another thing to make it seem the paper money is really worth something.

They would not have done FDIC insurance if we still had the gold standard. They switched to paper fiat money inorder to stop the run on the banks and ended the gold standard. Since people know gold is worth something. When the stock market crashes people invest in gold.

Problem is the government can still take your gold from you if things get bad enough for the value of the fiat money.

I think our default with be mass inflation where the dollar will become worthless. It is just a matter of when.

Here is one thought if your debt becomes too big all our government needs to do is start issuing its own fiat money and pay off all its debt with a electronic printing press or real printing press of worthless fiat money. Then we no longer own debt to any country and the dollar is worthless. Of course before that happens the government will try to hoard all gold and silver. It will later try to start a new currency after they are debt free.

Or even more likely


If the inflation gets high enough the Fed will raise rates. Once that happens the economy could get worse. Once that happens the Federal Government will have a major shortage of taxes coming in they will need to borrow even more money. Sooner or later the creditors will say no. Then we will not be able to service our creditors because the amount we owe is more then the gdp. Thus, we default on our debts.

[rockerrockstar]

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.

I think you may be right.

[bultza]

shhhhhh The Big Brother/FBI/CIA is watching ...and that comment makes you a terrorist suspect

[rockerrockstar]

Greece is limited to the Euro, the US is not, it has control of its own currency. It is more likely that we would hyper-inflate than default. Inflation bleeds us slower and stagnates us, default causes crisis. When the Federal Reserve buys up bonds/debt that banks and private investors and other countries own, they are basically going under the assumption that the government is not going to pay them back, and the money they used to pay for that debt was typed up on a computer.

This is essentially how we are going to avoid an all out "default." The problem is that the money that we created was given to the banks already, or wasted on wars already, or given to corporations that wanted bail-outs, or given as foreign aid, or promised as future money to social security and medicare and medicaid, etc, etc.

I'm interested in seeing how and where we get hurt from all this.

So maybe we can get another country to bailout our debt the same way by printing out (typing useless electronic money) to pay off our debt. Then have the fed pay them back with our worthless fake money too. Ha....

[thoughtomator]

We have a new partial default of a fraction of a percent of the value of our outstanding debt every single day thanks to the planned devaluation of the currency by the Federal Reserve. Take the yield on a 30-year bond (~3%) and compare it to the planned 50% devaluation over the next 30 years, and ask yourself why any sane person would own US debt.

[rockerrockstar]

shhhhhh The Big Brother/FBI/CIA is watching ...and that comment makes you a terrorist suspect

Yeah we probably should quit talking about this since who knows they could send us to guantanamo bay. Any discussion of super inflation cause by fiat money and the need for gold is possible reasons for suspects. Ha.. The sad part is I actually read something like that a while back. Ron was right about the Patriot act or governement possible locking up us citizens that they see as a possible threat. Really talking about the gold standard is threat to the Federal Reserve and if they are our masters we should watch out.

So what are the smart investments if we do have this hyper inflation that could someday come to us? Even the 2% a year that the Fed seems to want for what I read somewhere adds up in 30 years. Pretty hard to save money for retirement with inflation.

[rockerrockstar]

"The Federal Reserve Open Market Committee (FOMC) has made it official: After its latest two day meeting, it announced its goal to devalue the dollar by 33% over the next 20 years. The debauch of the dollar will be even greater if the Fed exceeds its goal of a 2 percent per year increase in the price level."-

http://www.forbes.com/sites/charlesk...the-dollar-33/

[rockerrockstar]

"The Federal Reserve Open Market Committee (FOMC) has made it official: After its latest two day meeting, it announced its goal to devalue the dollar by 33% over the next 20 years. The debauch of the dollar will be even greater if the Fed exceeds its goal of a 2 percent per year increase in the price level."-

http://www.forbes.com/sites/charlesk...the-dollar-33/