I’m curious if they defaulted how would the creditors get their cash? USA has the largest army, is the largest economy (?) and USD is the trade currency so I’m wondering what would happen in a default. Would things continue business as usual?
When a country defaults nothing violent happens internationally.. Their payments or lack of payments deteriorate their currency from hard to soft and they have trade that's mostly limited to hard currency they get from exports.
I think this would be particularly brutal if unrelated international trade were still in dollars and everyone wanted to cash out.
It is revolving system. Old debt is paid with new debt and then even more debt is taken for consumption. If this stops, it means no one would loan again. They would trade in alternative ways. Or then the rates must go up to match the risk premium of not getting principal back.
End result is probably starting to print money. Which then will just lead to even higher rates to get the return.
This is a mistake that people often make, and politicians usually encourage when they want to score points and raise scares about the other team's polices. Take note of if they change their tune when in power; or just stop scaring people, while running up more debts via different expenditures or other tax breaks.
But it's not the same kind of thing at all. It's not "like that, only on a larger scale", it is fundamentally unlike that. And the faulty assumption will lead you to faulty conclusions.
NB with the other commenter said: "most of the debt is held within the US borders". How would household debt look if most of the debt is owed to other members of the household and not to banks? How would it look if the household could control the money supply, like a bank.
Of course it's possible to get public debt wrong, but don't assume that getting it wrong looks anything like getting personal debt wrong. With personal debt "smaller is better, larger is worse, simple". But e.g. Eliminating public debt entirely would itself be a mistake, given that it is debt to people or companies in the same country, often in exchange for services. It can fuel growth if used with intent.
The debt clock [0] shows each citizen is owed $100,000 (each tax payer $260,000), so a few years of work owed. The treasury [1] confirms this and is not where we want to be.
Still, the economy is not dead and an average US citizen works 42 years, so a few years of wages lost is not the end of the world. Also, most of the debt is held within the US borders, so foreign debt is big but only 30% [2]
> The debt clock [0] shows each citizen is owed $100,000
Nitpick: “owes” (not owed)
> so a few years of wages lost is not the end of the world.
How would anyone pay off a few years wages, while using their wages to live, and paying interest on the balance until it is zero?
Essentially, every tax payer has a small mortgage on the past to pay off.
And the debt is growing!
Sooner or later, the debt will have to be paid down with printed money. Which both reduces the balance, and devalues the balance (due to the increased money supply).
The ability to do that at any time is the primary reason a government can run otherwise unsustainable debt without going bankrupt.
> a quadrupling in public debt since the financial crisis of 2008
It’s up less than double, relative to the economy. Given there is public and political attention on the issue, it’s not critical. (Your figure doesn’t account for intergovernmental holdings, which are closer to an accounting manoeuvre than actual debt.)
TL; DR America’s public debt is sustainable. It’s trending in a dangerous direction and will require minor (as in single-digit percentage ppint) course corrections to remain so.
If we do nothing, “the deficit amounts to 5.3 percent of gross domestic product (GDP) in 2023, swells to 6.1 percent of GDP in 2024 and 2025, and then declines in the two years that follow. After 2027, deficits increase again, reaching 6.9 percent of GDP in 2033.” It becomes problematic around 2050, when net interest starts approaching 8% of GDP, but that is again if we do nothing (or blow the purse).
I'm often told we can afford all this debt and war but then I take note of homeless veterans and I am told we can't afford to house them.
We have different priorities.
It's Christmas, instead of consuming 5 plus percent of a single mothers efforts over the year that instead couldve went under the tree, did we ask her what she could afford?
We had an active “conservative” president refer to wounded veterans as losers and it hasn’t really mattered. So it’s clearly not on top of the political mindset of either side.
The debt that is incurring interest was an enormous factor in growing americas wealth in the past, and continues to be going forward. Your anecdote about a single mom conveniently ignores that.
> The debt that is incurring interest was an enormous factor in growing americas wealth in the past
Most of the debt is very recent. Nothing to do with decades of growth.
Paying interest on 5% of gross product is very anti-growth.
Borrowing to grow is legitimate. But the idea that spending decisions by the US government over the last couple decades were sober financial bets on returns is fantastical.
If that were the case the debt would be getting paid down, with a trajectory to surpluses being the return, not growing.
There is no reason to assert the debt should be getting paid down if it’s still more logical to borrow and grow.
Especially when it’s USD denominated debts and the dollar is the most desired currency.
The US is in a ridiculously privileged position. We’re riding the gravy train of natural resources and no bad neighbors for the foreseeable future. Quibbling about our debt is dumb.
There just isn't a pattern of the US carefully spending its money in a virtuous borrow and grow cycle. Recently, anyway.
But you are right, the US is like a partner in a common enterprise (the global economy demarcated in dollars), which has the special right to keep giving itself more shares (dollars).
If they were also spending frugally, and wisely, they could flip to a government funds surplus "problem" pretty quickly.
https://fred.stlouisfed.org/series/GFDEBTN/
No other first world country adds debt as quickly as the US and the interest payments of servicing this debt grew to $1tn this year.