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It's not likely to happen (sorry for bypassing the answer).

Simply because the international impact would be too big. Too many international trades rely on the US dollar. Until the Yuan takes over (speculative(!), if it would, in the next 50 years) the US is pretty much safe from defaulting.

If it really did, it'd be the end of the global keynesian economies and throw us back in pre-globalization.

Most economy would pull back from global exposure (that's non-realistic). Although we're seeing this on a small scale (when France refuses to adopt more EU policies for example, or when all EU goes pissed at Greece (particularly Germany)), it just won't happen.

What's going to happen, is massive sweeping under the carpets, "deal with it later", and a whole bunch of plans to lower debt-creep and keep face publicly.

Think of it as, bumping a massive bug to "next version" in the understanding that everyone already knows about it, and it's can of worms that would require too many structural changes, to the point that it would change the nature of the software itself.




If it weren't for the fact that there is a simple straightforward known solution to the problem: fixing the revenue side of the equation.

If we reset tax rates to what they were under Bill Clinton the deficit would be falling, not rising...

http://en.wikipedia.org/wiki/National_debt_by_U.S._president...

Notice when the the numbers start climbing...

Undoing GWB's shenanigans would have us back on the right track tomorrow. But that is apparently an unthinkable concept in the current political climate.


Both Clinton and Bush barely touched the revenue side of the equation. Revenue was 18.6% during the Clinton era and 18.0% during the Bush era.

Under Clinton, spending was reduced. Bush reversed most of the Clinton era budged decrease.

http://www.deptofnumbers.com/misc/debt-revenue-and-expenditu...


Correlation does not mean causation.

What we need to do is go back to the Clinton level of spending. The revenue side isn't the problem. If you look at when the rates were changed, revenues on the upper income individuals actually increased. That's how it's always worked. Harding cuts, Kennedy cuts, Reagan cuts, Clinton cuts all increased revenue in relation to the rates changed.

People need to realize increasing tax rates does not mean increased government revenue, decreasing rates does not mean less revenue. Economies don't work like that due to how capital is deployed.


What's going to happen, is massive sweeping under the carpets, "deal with it later", and a whole bunch of plans to lower debt-creep and keep face publicly.

In other words, we'll inflate our way out of this.


Don't forget the borrowing cost of EVERYONE will go up. Since the triple-A U.S debt notes are used as a benchmark for all other debt.


That's not exactly true. We benchmark debt off of a theoretical "risk free" rate of return, not US bonds.

We tend to use US debt as a proxy for the risk free rate, which doesn't exist in real life. If US debt were no longer perceived as approximately risk free, we'd just stop using it as a proxy, and come up with some better (say, US treasuries minus half a point).




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