• toki
    7·
    2 years ago

    I’m not American and I’ve never seen a dollar in my life, I probably don’t need to do anything in case the U.S.A. defaults on its debt?

    • tardigrada@beehaw.org
      5·
      2 years ago

      No one knows what exactly would happen as it would be the first-ever default on federal debt, but the consequences would likely be severe and it’s almost irrelevant where you live and what you do for a living. Asset managers around the globe -e.g., your pension fund, your insurance- would suffer heavy losses. Especially countries like China and Japan would suffer given as they are the two largest foreign investors in US debt (together they hold more than 20% of all US credit held by foreigners, around 2 trillion dollars).

      Interest rates -for public and private debt such as your mortgage or commercial loans- would likely rise across the globe as asset managers focus on risk, and if a nation like the US defaults on its public debt, this must certainly be seen as a very strong risk event.

      World trade would suffer. China’s exports, which contribute a fifth to its GDP, depend on a strong US market (China’s largest trading partner is the US) for their own growth and job creation. And so do other countries.

      Some countries especially in the global South would or could no longer use the dollar as a replacement for their own weak currencies, which would further accelerate a chain reaction.

      If the US government doesn’t agree on the matter soon, the Secretary of the Treasury could principally decide to continue paying bond holders and thus avoiding a technical default for a certain period (I’m not sure how long this is and can’t find it quickly). But even this would harm the US and global trade irreversibly in the long term imho.

      I could continue endlessly on this, but in a nutshell: We need a lot of change in global economics and politics, including a new currency regime, but we’ll certainly never need something like a debt default, so let’s hope the change comes without such a chaos. And I’m very convinced it will. I don’t think the US will default on its debt. It’s a safe bet that everyone knows that there would be only loosers and no winners.