Immediate impact of a default?
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Move this to the
if need be but my question is at least starting as apolitical. If the US were to default or declare bankruptcy, what happens to dollars in your wallet or a bank account? Do they turn into Monopoly money? Or is it just that no new dollars get printed for a while?Along those lines, my understanding is something like a savings bond or Treasury bill is more like an actual debt/loan. Yeah, I know, but I have to turn a bond into cash to do anything with the money so it’s different. Do those suddenly turn into toilet paper overnight?
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@Zenith if we (the USA) were to have to default it would be a global catastrophe. Our currency is the default trading currency for most global transactions across nation borders. The impact of this happening would be something that is currently only theoretical. We could not know the impact until if/when it happened. In short, if it happens:
To the point that we are probably well into 'Mutually Assured Destruction' territory. I doubt that any other country other than Russia or China would ever push it that far and I doubt the rest of the world would allow it to occur. If it did it would be the worst parts of every apocalyptic film you've ever seen.
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@Polygeekery said in Immediate impact of a default?:
if we (the USA) were to have to default it would be a global catastrophe. Our currency is the default trading currency for most global transactions across nation borders.
Beyond that, there are an absolute shitton of countries that use our currency as their reserve currency. The knock-on effects of such an occurrence would be absolutely incomprehensible at this point. We could theorize but I doubt we could ever come close to truly understanding the implications of a US default.
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@Zenith said in Immediate impact of a default?:
Move this to the
if need be but my question is at least starting as apolitical. If the US were to default or declare bankruptcy, what happens to dollars in your wallet or a bank account?"Default" is a wide spectrum, of which "declaring bankruptcy" is one very tiny worst-case end.
At least to start with, nothing happens to the dollars in your wallet or bank account. Some people the Federal government owes money to won't get paid on time. The consequences for that will depend on who doesn't get paid on time. (e.g. stiffing Social Security recipients, federal employees, or federal contractors will be less impactful than stiffing federal bondholders.)
If bondholders still get their money on time, not much happens on the worldwide financial market. If they're first on the chopping block, though, expect your money to be completely worthless outside the US pretty much immediately.
For the reasons Polygeekery said, I would expect other domestic targets to be selected for not getting paid over the bondholders.
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Having saved up a decent amount of money for the first time in many years, I thought it would be ridiculously unfair if it disappeared but my mortgage obligations didn’t. Unemployment is stressful enough. Food/energy shortages and other societal breakdowns would be worse enough without homelessness on top.
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Plus, (and this gets intentionally obfuscated in the press and the political mudslinging over the issue), hitting the debt ceiling and exhausting the games the Treasury typically plays when at the ceiling wouldn’t cause a default unless the Treasury specifically chose to default. The more likely case would be a government shutdown more akin to when the budget isn’t passed and the latest Continuing Resolution is still held up in brinksmanship.
Which actually is what happened the last time this went into overtime too. The
sabresbond markets were rattled, the government furloughed non-critical staff, and Sequestration was eventually passed (and then later ignored & neutered anyway).
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From my outside understanding: nothing at all will happen other than the markets panicking.
They’ll just stop printing new money to pay outstanding obligations, which means people who are owed money by the US will have to wait longer to get theirs. Your money won’t be affected by this at all.“All dollars are now worthless and instead we’ll print New Coke Dollars” really isn’t a realistic scenario, and neither is “all outstanding obligations are void and won’t get paid.”
Those would be… interesting times.
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@Zenith said in Immediate impact of a default?:
dollars in your wallet or a bank account? Do they turn into Monopoly money?
They already look like Monopoly money. Though Monopoly money still has the advantage that you can at least tell the different values apart by the colours.
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@Zenith said in Immediate impact of a default?:
Having saved up a decent amount of money for the first time in many years, I thought it would be ridiculously unfair if it disappeared but my mortgage obligations didn’t. Unemployment is stressful enough. Food/energy shortages and other societal breakdowns would be worse enough without homelessness on top.
Don't lose any sleep about that. Some doomsday peddlers who usually want to sell you gold, crypto or similar shit have been moaning on youtube about a Fed default these weeks, when all that happened is that the balance went negative due to falling value of a whole bunch of longer-term low-yield bonds, a direct consequence of the interest rate hike. For a normal bank (like it happened with SVB and a couple others) that would mean a default, it's just the Fed isn't a normal bank so they can just shrug and wait. If say the Chinese decided all of a sudden to dump a couple trillion $$$ in bonds, there'd be trouble. As it is, the trouble you're facing is just the interest rate hike, not any kind of state default risk.
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The USA defaulted on it's debt before and it didn't end the world, the nation, or the use of the dollar as a world trading currency. These days, there are also other currencies that could take over as the main currency for trading, in fact, some trades are done in the Yuan, and some in the Euro already. And then we have the BRICS thing that keeps failing or never happening.
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@Gurth said in Immediate impact of a default?:
@Zenith said in Immediate impact of a default?:
dollars in your wallet or a bank account? Do they turn into Monopoly money?
They already look like Monopoly money. Though Monopoly money still has the advantage that you can at least tell the different values apart by the colours.
Monopoly money was based on US currency which is why all the notes are the same size and at least at one time, the colours were the same between the notes, not sure if still true.
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@Arantor said in Immediate impact of a default?:
Monopoly money was based on US currency
Of course, given that the game comes from the USA. The odd thing is that it doesn’t seem to have been localised very much, other than the name of the currency — why not adapt the design of the notes to what the local audience expects too?
which is why all the notes are the same size
That could also just be because it makes the game cheaper to print, though.
and at least at one time, the colours were the same between the notes, not sure if still true.
The Monopoly we had at my house was my father’s that dated from the 1950s, and that already had a separate colour for each denomination. This was a Dutch set, of course, so maybe foreign ones didn’t (all?) have this innovation yet?
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@Gurth said in Immediate impact of a default?:
why not adapt the design of the notes to what the local audience expects too?
You're not thinking
fourth-dimensionallycapitalistically - doing new designs would cost money when they can just change the currency symbol and be done with it. In newer editions they don't even do that, and the currency symbol is an M with two bars across it for Monopoly money.That could also just be because it makes the game cheaper to print, though.
What's the US treasury's excuse though?
The Monopoly we had at my house was my father’s that dated from the 1950s, and that already had a separate colour for each denomination.
Sorry, was on mobile, I meant that the Monopoly colours were the same as the US denomination colours, at least as far as I understood it.
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@Arantor said in Immediate impact of a default?:
Sorry, was on mobile, I meant that the Monopoly colours were the same as the US denomination colours, at least as far as I understood it.
US denominations didn’t get colors until, what, the early 2000s? Before that it was all black front, green back.
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@Unperverted-Vixen They aren't still black front, green back? Shows how much I use cash these days.
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All I know is, I had a Monopoly set when I was little, the notes were in different colours and the colours didn't match UK bank notes.
When I went to the US, the colours from the set I had as a kid mostly matched the colours of notes as they were in 2012. Beyond that... dunno.
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@HardwareGeek $1 bills still are, thanks to vending machines. Other denominations, while predominantly black/green, do have some other colors (though not nearly to the same extent as most other countries).
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@Unperverted-Vixen And the $2 bill!
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@Arantor said in Immediate impact of a default?:
You're not thinking
fourth-dimensionallycapitalistically - doing new designs would cost money when they can just change the currency symbol and be done with it. In newer editions they don't even do that, and the currency symbol is an M with two bars across it for Monopoly money.They do localize the properties though. Including an oddity in the Dutch version where the eight colours map to 7 distinct cities and a fictional village.
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@PleegWat indeed they do, and they went further, it’s possible to get an edition for the city I’m in, at this point in time.
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@PleegWat said in Immediate impact of a default?:
They do localize the properties though. Including an oddity in the Dutch version where the eight colours map to 7 distinct cities and a fictional village.
There is a good explanation for the Dutch locations, but it’s not one you’ll probably come up with on your own easily. The first Dutch Monopoly game was published by a company that had offices in a number of cities, and they picked streets in each of those, including the street their office was on. This is why there are some odd choices of streets that most people outside of those cities have/had never heard of, except in the context of Monopoly. The eighth location is Ons Dorp (“Our Village”) — at least in my father’s 1950s set — to kind of represent wherever the players live.
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Was looking up the streets of Stockholm (in Monopoly) and they are doing an, uh, half-district half-mix-mess thing. Also, the old cheap properties are no longer cheap and instead expensive as fuck as everything else in central Stockholm.
Although in Sweden we have a superior Monopoly clone-ish in Finans (Finance), which instead of being about houses is about industries. So you buy properties, build factories/commercial buildings, buy stocks and bonds. And the industries are grouped by type (electronics, petroleum, etc.). And to win you need 1 million money and complete ownership of two groups (all properties and stocks) to be the supreme mogul.
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@Atazhaia said in Immediate impact of a default?:
Although in Sweden we have a superior Monopoly clone-ish in Finans (Finance)
Not a great feat, since Monopoly is one of the worst board games ever published.
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@Zenith said in Immediate impact of a default?:
Having saved up a decent amount of money for the first time in many years, I thought it would be ridiculously unfair if it disappeared but my mortgage obligations didn’t. Unemployment is stressful enough. Food/energy shortages and other societal breakdowns would be worse enough without homelessness on top.
Your mortgage is valued in USD so devaluing one devalues the other. The value of the mortgage and the value of the real estate are two entirely separate things in spite of them seeming to be equivalent and the same. Whether you would have any worthless money to pay that mortgage with in this theoretical financial apocalypse would be another matter altogether.
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@topspin said in Immediate impact of a default?:
From my outside understanding: nothing at all will happen other than the markets panicking.
That depends. Are we talking about a short term standoff regarding the debt ceiling, or actual US default? For a short term standoff, you are correct. But for an actual default akin to the one in Zimbabwe or a US version of the Weimar Republic?
@topspin said in Immediate impact of a default?:
They’ll just stop printing new money to pay outstanding obligations, which means people who are owed money by the US will have to wait longer to get theirs. Your money won’t be affected by this at all.
Once again, we need to characterize what we are actually discussing here. If it were an actual default then in all likelihood they would just print a shitload of money to kick the can further down the road in the hopes of buying time to right the ship. I cannot think of a time in history where this worked out favorably. What we would realistically be looking at would be a global Zimbabwe. There are too many other currencies tied to ours. The impact would be global in nature.
@topspin said in Immediate impact of a default?:
Those would be… interesting times.
No one could even begin to fathom just how "interesting" it would be. It would be the financial equivalent of a Chicxulub impact.
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@Carnage said in Immediate impact of a default?:
The USA defaulted on it's debt before and it didn't end the world, the nation, or the use of the dollar as a world trading currency.
When?
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@Polygeekery said in Immediate impact of a default?:
@Carnage said in Immediate impact of a default?:
The USA defaulted on it's debt before and it didn't end the world, the nation, or the use of the dollar as a world trading currency.
When?
1979 was the latest time the US defaulted on debts afaik.
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@LaoC said in Immediate impact of a default?:
If say the Chinese decided all of a sudden to dump a couple trillion $$$ in bonds, there'd be trouble.
How do you think they would or could do such a thing? This is not the worry that people think that it is. It is essentially nonpoint.
Now, if they stopped purchasing them and those bonds sat there unsold, that could cause some problems. But for them to "dump them" they would need a buyer, of which there is not one. Bonds have maturity dates and before that date they cannot be cashed out with the issuer, only traded or sold on the bond markets to other entities.
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@MrL said in Immediate impact of a default?:
@Atazhaia said in Immediate impact of a default?:
Although in Sweden we have a superior Monopoly clone-ish in Finans (Finance)
Not a great feat, since Monopoly is one of the worst board games ever published.
My kids always want to play that game and they think that I am horrible at it. Which I might be, but the greater truth is that I always try to speedrun being the first one out so that I can do something that doesn't suck.
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@Zenith said in Immediate impact of a default?:
Having saved up a decent amount of money for the first time in many years, I thought it would be ridiculously unfair if it disappeared but my mortgage obligations didn’t.
It probably won't be so bad. If this particular apocalypse happens, it might look something like Zimbabwe or pre-war Germany, where massive devaluation of the currency leads to hyperinflation. In this case, you can pay off your entire mortgage with the proceeds of selling a home-baked loaf of bread. Fun things like this will start to exist:
Al financial instruments valued in US currency, both liability and asset, will be practically worthless. Physical things and labor will continue to be valuable - which is why the doom-sayers suggest you buy gold.
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@Carnage said in Immediate impact of a default?:
@Polygeekery said in Immediate impact of a default?:
@Carnage said in Immediate impact of a default?:
The USA defaulted on it's debt before and it didn't end the world, the nation, or the use of the dollar as a world trading currency.
When?
1979 was the latest time the US defaulted on debts afaik.
You're going to need a source for that. With the exception of some pedantic rules lawyering examples the US has never actually defaulted on its debt.
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@Polygeekery said in Immediate impact of a default?:
@Carnage said in Immediate impact of a default?:
@Polygeekery said in Immediate impact of a default?:
@Carnage said in Immediate impact of a default?:
The USA defaulted on it's debt before and it didn't end the world, the nation, or the use of the dollar as a world trading currency.
When?
1979 was the latest time the US defaulted on debts afaik.
You're going to need a source for that. With the exception of some pedantic rules lawyering examples the US has never actually defaulted on its debt.
Rules lawyeriung maybe, but the US has defaulted.
Actually, the United States Has Defaulted Before
Since the day of Alexander Hamilton, the United States has never defaulted on the federal debt. That’s what we budget-watchers always say. It’s a great talking point. One that helps bolster the argument that default should not be an option in Washington’s latest debt limit showdown. There’s just...
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@Jaime said in Immediate impact of a default?:
Physical things and labor will continue to be valuable
Yes. Generally speaking markets revert to barter.
@Jaime said in Immediate impact of a default?:
which is why the doom-sayers suggest you buy gold.
They're idiots. Sort of. I've heard the argument that you should buy gold because it is the only thing that would retain its value in times of.......whatever. This is technically true but effectively meaningless. In times of unrest and collapse gold won't buy shit because it has no utility. You would be better served to stockpile bottled water, packaged food, medications, tools, guns, etc. Things that have utility and value if currency becomes useless. At least you could use those things or trade them for things that you need.
The only good that gold would do would be at the other end of the issue after the world started to get back on course. Gold is an almost perfect inflation proof store of wealth. Over recorded history gold has always purchased nearly the same amount of "stuff". A gram of gold in medieval times would purchase a certain amount of eggs or milk or whatever and would purchase the same amount today. On long timelines the price of gold almost perfectly tracks the rate of inflation. It has always bought essentially the same amount of goods. But this does you fuckall good in times of societal collapse like the doomdayers claim it would. To borrow from their vernacular, in "shit hits the fan" scenarios gold would actually be worthless for that time period and bottled water and food would be the best investment one could ever make.
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@Polygeekery I agree with your disagreement that gold is the answer. I simply brought it up as an example that any paper-based instrument will suffer, so they go with a well-known alternative. However, applying the simplest logic tells you that selling gold for real things is going to be difficult if the financial institutions are undergoing a period of unrest.
Your local grocer is much more likely to accept barter or trade than gold.
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@Carnage said in Immediate impact of a default?:
@Polygeekery said in Immediate impact of a default?:
@Carnage said in Immediate impact of a default?:
@Polygeekery said in Immediate impact of a default?:
@Carnage said in Immediate impact of a default?:
The USA defaulted on it's debt before and it didn't end the world, the nation, or the use of the dollar as a world trading currency.
When?
1979 was the latest time the US defaulted on debts afaik.
You're going to need a source for that. With the exception of some pedantic rules lawyering examples the US has never actually defaulted on its debt.
Rules lawyeriung maybe, but the US has defaulted.
Actually, the United States Has Defaulted Before
Since the day of Alexander Hamilton, the United States has never defaulted on the federal debt. That’s what we budget-watchers always say. It’s a great talking point. One that helps bolster the argument that default should not be an option in Washington’s latest debt limit showdown. There’s just...
I covered that under:
@Polygeekery said in Immediate impact of a default?:
pedantic rules lawyering examples
But sure. It should however be pointed out that this was extremely short term and was unintentional. Basically the office that was supposed to pay them ended up in a shitstorm because of a situation like we are in now and couldn't process the payments. This is what that article quotes:
Investors in T-bills maturing April 26, 1979 were told that the U.S. Treasury could not make its payments on maturing securities to individual investors. The Treasury was also late in redeeming T-bills which become due on May 3 and May 10, 1979. The Treasury blamed this delay on an unprecedented volume of participation by small investors, on failure of Congress to act in a timely fashion on the debt ceiling legislation in April, and on an unanticipated failure of word processing equipment used to prepare check schedules.
And:
The United States thus defaulted because Treasury’s back office was on the fritz in the wake of a debt limit showdown.
This default was temporary. Treasury did pay these T-bills after a short delay. But it balked at paying additional interest to cover the period of delay. According to Zivney and Marcus, it required both legal arm twisting and new legislation before Treasury made all investors whole for that additional interest.
The United States thus did default once. It was small. It was unintentional. But it was indeed a default.This is completely different from what I would consider to be a "real" default where we told investors to kick rocks and did so permanently.
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Well, as long as my creditors are forced to accept dollars, that’s a relief. I wasn’t looking forward to having to shoot banker repo men like farmers did during the Depression. Mostly because burying the bodies would be even more work than mowing the lawn.
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@Polygeekery said in Immediate impact of a default?:
@topspin said in Immediate impact of a default?:
From my outside understanding: nothing at all will happen other than the markets panicking.
That depends. Are we talking about a short term standoff regarding the debt ceiling, or actual US default? For a short term standoff, you are correct. But for an actual default akin to the one in Zimbabwe or a US version of the Weimar Republic?
The former. Because you're
that the question deals with the latter, but the OP sounded actually worried about something that might happen.
I'm not exactly known to be an optimist, but the latter is just not something that will realistically happen. No matter how much you may think the whole financial system is a scam built on a scam, the US economy isn't the Weimar republic.
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@Zenith said in Immediate impact of a default?:
Well, as long as my creditors are forced to accept dollars, that’s a relief. I wasn’t looking forward to having to shoot banker repo men like farmers did during the Depression. Mostly because burying the bodies would be even more work than mowing the lawn.
Being in debt would actually be perfect for such a situation. You keep all the real value like your house, and the debt basically disappears.
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@Polygeekery said in Immediate impact of a default?:
You would be better served to stockpile ... tools, guns, etc.
Well, you're set to be king of the hill (at least the local one).
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@topspin said in Immediate impact of a default?:
the US economy isn't the Weimar republic.
Give us time. We will get there.
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@Zenith said in Immediate impact of a default?:
because burying the bodies would be even more work than mowing the lawn.
It'd be quite good fertiliser, so the lawn would grow more...
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@Polygeekery said in Immediate impact of a default?:
@LaoC said in Immediate impact of a default?:
If say the Chinese decided all of a sudden to dump a couple trillion $$$ in bonds, there'd be trouble.
How do you think they would or could do such a thing?
I didn't say they would. Of course they could. Any commodity owner can sell their stuff, why couldn't they? It's not likely as they would hurt themselves a lot, but it's possible.
This is not the worry that people think that it is. It is essentially nonpoint.
Now, if they stopped purchasing them and those bonds sat there unsold, that could cause some problems. But for them to "dump them" they would need a buyer, of which there is not one. Bonds have maturity dates and before that date they cannot be cashed out with the issuer, only traded or sold on the bond markets to other entities.
This argument contradicts both itself and reality. They have stopped buying, at least the bulk they used to buy over the last 20 years, so they're holding just under a T$ at the moment. It hasn't caused much trouble.
But obviously you can make sales offers on the market without waiting for a buyer. If there are large offers and no buyer, you can tank the price. What makes this scenario less threatening is the chance that there would probably be buyers at a price not so much lower than the current ones.
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@LaoC said in Immediate impact of a default?:
@Polygeekery said in Immediate impact of a default?:
@LaoC said in Immediate impact of a default?:
If say the Chinese decided all of a sudden to dump a couple trillion $$$ in bonds, there'd be trouble.
How do you think they would or could do such a thing?
I didn't say they would. Of course they could. Any commodity owner can sell their stuff, why couldn't they? It's not likely as they'd would hurt themselves a lot, but it's possible.
This is not the worry that people think that it is. It is essentially nonpoint.
Now, if they stopped purchasing them and those bonds sat there unsold, that could cause some problems. But for them to "dump them" they would need a buyer, of which there is not one. Bonds have maturity dates and before that date they cannot be cashed out with the issuer, only traded or sold on the bond markets to other entities.
This argument contradicts both itself and reality. They have stopped buying, at least the bulk they used to buy over the last 20 years, so they're holding just under a T$ at the moment. It hasn't caused much trouble.
But obviously you can make sales offers on the market without waiting for a buyer. If there are large offers and no buyer, you can tank the price. What makes this scenario less threatening is the chance that there would probably be buyers at a price not so much lower than the current ones.If they crash the market, they wouldn't be able to sell, and the value of their holding would vanish, and the Chinese economy is in worse shape than the US one so nuking a trillion seems like a bad move there.
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@Carnage said in Immediate impact of a default?:
@LaoC said in Immediate impact of a default?:
@Polygeekery said in Immediate impact of a default?:
@LaoC said in Immediate impact of a default?:
If say the Chinese decided all of a sudden to dump a couple trillion $$$ in bonds, there'd be trouble.
How do you think they would or could do such a thing?
I didn't say they would. Of course they could. Any commodity owner can sell their stuff, why couldn't they? It's not likely as they'd would hurt themselves a lot, but it's possible.
This is not the worry that people think that it is. It is essentially nonpoint.
Now, if they stopped purchasing them and those bonds sat there unsold, that could cause some problems. But for them to "dump them" they would need a buyer, of which there is not one. Bonds have maturity dates and before that date they cannot be cashed out with the issuer, only traded or sold on the bond markets to other entities.
This argument contradicts both itself and reality. They have stopped buying, at least the bulk they used to buy over the last 20 years, so they're holding just under a T$ at the moment. It hasn't caused much trouble.
But obviously you can make sales offers on the market without waiting for a buyer. If there are large offers and no buyer, you can tank the price. What makes this scenario less threatening is the chance that there would probably be buyers at a price not so much lower than the current ones.If they crash the market, they wouldn't be able to sell, and the value of their holding would vanish, and the Chinese economy is in worse shape than the US one so nuking a trillion seems like a bad move there.
So what I said in the first paragraph.
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@Polygeekery said in Immediate impact of a default?:
To borrow from their vernacular, in "shit hits the fan" scenarios gold would actually be worthless for that time period and bottled water and food would be the best investment one could ever make.
Don't forget firearms, ammo, and the training and willingness to use them.
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@Benjamin-Hall said in Immediate impact of a default?:
@Polygeekery said in Immediate impact of a default?:
To borrow from their vernacular, in "shit hits the fan" scenarios gold would actually be worthless for that time period and bottled water and food would be the best investment one could ever make.
Don't forget firearms, ammo, and the training and willingness to use them.
Or raping and pillaging.
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@topspin said in Immediate impact of a default?:
@Benjamin-Hall said in Immediate impact of a default?:
@Polygeekery said in Immediate impact of a default?:
To borrow from their vernacular, in "shit hits the fan" scenarios gold would actually be worthless for that time period and bottled water and food would be the best investment one could ever make.
Don't forget firearms, ammo, and the training and willingness to use them.
Or raping and pillaging.
Oi! that would be cultural appropriation of European culture!
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@Jaime said in Immediate impact of a default?:
Al financial instruments valued in US currency, both liability and asset, will be practically worthless. Physical things and labor will continue to be valuable - which is why the doom-sayers suggest you buy gold.
Which makes no sense even if the doom is real; how exactly do you expect anyone to buy a loaf of bread with gold even if they had it? They don't exactly make gold coins that small...
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@Mason_Wheeler said in Immediate impact of a default?:
@Jaime said in Immediate impact of a default?:
Al financial instruments valued in US currency, both liability and asset, will be practically worthless. Physical things and labor will continue to be valuable - which is why the doom-sayers suggest you buy gold.
Which makes no sense even if the doom is real; how exactly do you expect anyone to buy a loaf of bread with gold even if they had it? They don't exactly make gold coins that small...
"I'll take a pound of gold for this loaf of bread."
