By John Paul Valdez
No. Absolutely not! There is no possibility of a default. It cannot happen. Essentially, you would be adding risk to a financial instrument that is defined as being free of risk, hence negating the existence of all the economies of the entire world. That is a tall order. An immediate international financial collapse would ensue, including a total depression here in the US. I can explain it in a few other perhaps more easily understood ways.
Each of these explanations is still the same thing. Essentially, if in theory (because you can’t in real life) a default were to occur, we would fail in our own promises as a nation. We would put into question the “full faith and credit of the United States.” In other words, we would be telling the world that the promise of America to pay its debts is a lie, and that any currency they hold in dollars is worthless. That’s a problem.
With this last credit issue at hand, one should understand that the specific financial instrument at hand is the Treasury Bond which is how the US issues its debt. If, as a country, we cannot honor our debt then no country would be willing to use the US dollar as a reserve. As it stands the US Dollar and the Euro are largely the only two major reserve currencies. Some people might include the British Pound Sterling, but that economy is miniscule by comparison.
Lastly, you will hear irresponsible news people say things like, “we can’t just keep printing money in the basement!” While it may be counter intuitive, we can and we will continue to do exactly that. You see ALL nations “print money in the basement.” Nixon ended the gold standard many years ago, and a government’s promise to pay is the only thing backing ANY currency in the modern day world.
If you wish to purchase gold or other commodities to avoid such basement printings, it can be done, but such investment strategies will be the subject of a future column on commodities, and the proper way to invest in them as a hedge against currency fluctuations or inflation or as a diversified portfolio is beyond the discussion here.
In short, just go to sleep knowing that no one, no US government, will ever “default” on the US debt ever. Even the THREAT of default moved our bond ratings into poorer and riskier territory, making our taxes and prices higher for us folks here in the US, and an actual default is simply not possible until the bitcoin takes over as the world’s currency. Oops, that’s another column too.