Buddha Buck, studied at University at Buffalo answered
Let’s rephrase that: If Trump were to default on 4% of the US debt, would every investor in the world think twice about buying US bonds in the future?
Yes, yes they would. And for good reason. It would mean that the trustworthiness of the US government to pay back the debt — like it has been doing continuously since 1789 — is gone. The US would be a dead-beat nation, unable to raise money via debt it needs to finance its operations.
The US economy would collapse. Of the $22T GDP, a good $5T of that comes directly from government spending. Except the government can’t spend anything because they don’t have the money.
Taxes would go up sharply, and government spending would fall. Neither of which is particularly good for the economy.
Investors would flee US Bonds, driving the price of those bonds down and the yields up, reflecting the suddenly increased risk of owning the bonds. Prices of other bonds and of stocks, etc, would go up as literally tens of trillions of dollars flood the market from former US Bond-holders who now want something else, anything else, than US Bonds.
The main “country” that owns US bonds is the US. Not the US Government (although it owns quite a lot of US bonds), but the US public. Retirement funds, banks, wealthy individuals, companies, hedge funds, etc. The same is true for other “countries” that own US bonds — it isn’t just the governments, it’s other institutions as well. The reason it gets lumped all together is that the US Treasury reports only on the aggregate nationality of the bondholders. When you hear $1.268T of the US debt in February was owned by Japan, compared to $1.092T owned by China, that means that $1.268T of US debt was owned by entities based in Japan, not the Japanese government or the Japanese central bank.
It would also likely lead to Trump’s impeachment and removal from office. There is a very strong argument to be made that defaulting on the debt is unconstitutional. Certainly the completely foreseeable outcome of the debt is bad enough that even the Senate Republicans can’t cover for it.
Let’s rephrase that: If Trump were to default on 4% of the US debt, would every investor in the world think twice about buying US bonds in the future?
Yes, yes they would. And for good reason. It would mean that the trustworthiness of the US government to pay back the debt — like it has been doing continuously since 1789 — is gone. The US would be a dead-beat nation, unable to raise money via debt it needs to finance its operations.
The US economy would collapse. Of the $22T GDP, a good $5T of that comes directly from government spending. Except the government can’t spend anything because they don’t have the money.
Taxes would go up sharply, and government spending would fall. Neither of which is particularly good for the economy.
Investors would flee US Bonds, driving the price of those bonds down and the yields up, reflecting the suddenly increased risk of owning the bonds. Prices of other bonds and of stocks, etc, would go up as literally tens of trillions of dollars flood the market from former US Bond-holders who now want something else, anything else, than US Bonds.
The main “country” that owns US bonds is the US. Not the US Government (although it owns quite a lot of US bonds), but the US public. Retirement funds, banks, wealthy individuals, companies, hedge funds, etc. The same is true for other “countries” that own US bonds — it isn’t just the governments, it’s other institutions as well. The reason it gets lumped all together is that the US Treasury reports only on the aggregate nationality of the bondholders. When you hear $1.268T of the US debt in February was owned by Japan, compared to $1.092T owned by China, that means that $1.268T of US debt was owned by entities based in Japan, not the Japanese government or the Japanese central bank.
It would also likely lead to Trump’s impeachment and removal from office. There is a very strong argument to be made that defaulting on the debt is unconstitutional. Certainly the completely foreseeable outcome of the debt is bad enough that even the Senate Republicans can’t cover for it.
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