Toro
Diamond Member
The entire monetary and financial system is based in Treasuries. The financial system would - literally - stop working and collapse because Treasuries are the collateral used in the repo markets to fund cash needs amongst financial institutions.
It would collapse currencies all around the world, including the dollar, because Treasury holdings are used to backstop central bank assets.
There would be a capital strike as foreigners would not get paid and our capital account that foreigners finance would collapse.
Interest rates would soar, causing borrowing costs to skyrocket and bankruptcies would go through the roof.
Stock markets would crash because all financial markets are priced off Treasuries.
The Treasury market is $13 trillion. $2.5 trillion is held by central banks. $6.2T is held by foreigners. The rest - $4.3T, or a quarter of GDP - are held as savings in the US, either by banks, insurance companies, individuals or mutual funds. That would all be gone.
It is absolute insanity to think that repudiating Treasuries in any way is a good idea. It's not a serious comment.The entire monetary and financial system is based in Treasuries. The financial system would - literally - stop working and collapse because Treasuries are the collateral used in the repo markets to fund cash needs amongst financial institutions.
It would collapse currencies all around the world, including the dollar, because Treasury holdings are used to backstop central bank assets.
There would be a capital strike as foreigners would not get paid and our capital account that foreigners finance would collapse.
Interest rates would soar, causing borrowing costs to skyrocket and bankruptcies would go through the roof.
Stock markets would crash because all financial markets are priced off Treasuries.
The Treasury market is $13 trillion. $2.5 trillion is held by central banks. $6.2T is held by foreigners. The rest - $4.3T, or a quarter of GDP - are held as savings in the US, either by banks, insurance companies, individuals or mutual funds. That would all be gone.
It is absolute insanity to think that repudiating Treasuries in any way is a good idea. It's not a serious comment.
Racking up the debt in the first place was insanity. Sooner or later the debt will be repudiated, but not by choice, but rather by circumstances because it is unsustainable. It's a global problem, but it makes far more sense to do it now (even though it should have done long before it reached such insane levels) rather than wait for it to implode.
Financial Markets, Banks, and Pension Funds are all a house of cards to begin with, a house of cards WE built with absurd policy. Anyone doubting that need not look any further than the MBS implosion of '08.
There WOULD BE FALLOUT, there is no denying that, but continuously kicking the can down the road only makes the end game worse. Markets would recover and God forbid the government has to sell off some of it's assets. Given the circumstances $4.7T in domestic holdings isn't the end of the world. Waiting until the entire global debt bomb goes off is far worse. Let the chips fall where they may, which is what should have been done in '08.
Repudiation is a sound principle:
Mises Daily Mises Institute
I sympathize with your concern about the build-up of debt, but we CAN continue to roll the debt forever. As long as the United States exists, the country never has to pay off our debt. There is no inevitability of debt "repudiation." For most of the 239-year history of this nation, we have had debt of one sort or another.
Companies are no different. General Electric has been around for 125 years, and for most of its existence, it has had debt. General Electric never has to pay off all its debt either. And the United States government, which makes the laws of which GE and all companies operate, has the ability to tax, a far greater power than GE's asset base or earnings power.
What has differed over time is the level of debt. And what matters, as any student of Finance 101 knows, isn't the level of debt - its the level of debt to income. That's true of any individual or entity. If an individual or entity borrows faster than nominal income, eventually, that becomes a problem of one sort or another. That would be true of the United States as it is for you and me. But that doesn't mean that the debt all has to be paid off. The nominal amount of debt can continue to grow as long as it doesn't exceed the nominal growth of GDP indefinitely. That's simple math.
Even such, the consequences doesn't mean that the US would have to repudiate its debt since the US borrows in its own currency. It could merely reflate its debt away. That's a bad thing, for certain, but it isn't inevitable either.
BTW, in financial markets, repudiation generally means cancel outright, i.e. you get $0 back. The United States stating that $13 trillion of debt was now worth $0 would be insane lunacy. You - or your parents - would see your/their savings decimated, if not wiped out. Financial institutions would collapse, financial markets would collapse, and the global economy would collapse. It would be far, far worse than the Great Depression. No one serious says this.
Oh, and financial markets, banks and pension funds aren't house of cards by definition. Such a belief fundamentally misunderstands the nature of economics.