can you explain to me how the us defaulting on its debt will effect the value of the dollar? I'm curious if there are more quantifiable relationships. I can see that the interest rate on bonds would go up as people would see them as having higher risk, but I'm unsure how to go from there to inflation/deflation of the dollar.
Someone who knows economics
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first_rodeo
Active member
428 days since we lost AAA rating......
"Failure to raise the federal debt ceiling in a timely manner will prompt a formal review of
the U.S. sovereign ratings and likely lead to a downgrade," Fitch said in JUNE
This trend is going to continue for the next twenty years or until baby boomers cease to exisit
"Failure to raise the federal debt ceiling in a timely manner will prompt a formal review of
the U.S. sovereign ratings and likely lead to a downgrade," Fitch said in JUNE
This trend is going to continue for the next twenty years or until baby boomers cease to exisit
do.a.rodeo
Member
All of this is completely uncharted territory. But it's likely that the value would drop significantly in the case of a default because investor sentiment towards the US would take a crushing blow, whereas currently US bonds are seen as a safe haven.
However, in a way, the US has already defaulted resorting to 85 billion a month in Fed QE/money printing/bond buying of its own assets. This is because taxes and borrowing from actual people are not covering the cost of running the US' gigantic government, so the Fed has to step in and keep the party going.
On a related note, the stock market could be in for a big 'correction' in the next year or two, as this bull market has gone on since early 09 and the news lately is that big players like Buffett are quietly backing out.
However, in a way, the US has already defaulted resorting to 85 billion a month in Fed QE/money printing/bond buying of its own assets. This is because taxes and borrowing from actual people are not covering the cost of running the US' gigantic government, so the Fed has to step in and keep the party going.
On a related note, the stock market could be in for a big 'correction' in the next year or two, as this bull market has gone on since early 09 and the news lately is that big players like Buffett are quietly backing out.
Once we default on tresuries the prices will drop due to a rise in interest rates. The US has always been one of the safest places in the world to store money. As the other posted said, this is totally new territory considering we have never defaulted on debt or has it even been considered.
Shredsterr
Active member
Well in GTA you invest in rival companies and then hurt one of the companies so their stock goes down and the one you invested in goes up. I assume real life is the exact same. Question is, who's Lester setting you up with?
.MASSHOLE.
Active member
You hit the nail on the head. The increase in riskiness will lead to an increase in the interest rates and a decrease in price, assuming that people actually want to invest in the US Gov't bonds. This is ruling out the Fed Monetary Policies to try to jump start our economy and lead to an increase in Net Exports. Its a slippery slope, so as of right now its all theoretical because we have never been here.
My Professor is a banking specialist and has been talking to colleagues who work with the Fed and she said even they arent sure about the correct way to approach this
My Professor is a banking specialist and has been talking to colleagues who work with the Fed and she said even they arent sure about the correct way to approach this
