The US to "Politely Default"?

[Mega]

http://www.zerohedge.com/article/big...fault-its-debt

I think this would already of happened (Its our currancy but your problem)..but China would NOT be "happy".

Mike

[c1ue]

Re: The US to "Politely Default"?

Not a bad line of thinking, but Gundlach completely fails to mention anything about the US trade deficit.

A default - polite or otherwise - and/or a bout of money printing will directly impact the flow of goods in/out of the US, generally for the worse.

Secondly he didn't mention the possibility that housing will have another leg down. This also causes his MBS examples to look potentially very bad.

[sunskyfan]

Re: The US to "Politely Default"?

I know I know ... I am supposed to be worried about inflation but this analysis sounds about right to be .... I am sure FRED lightening will hit my profile anytime now .....

[ThePythonicCow]

Re: The US to "Politely Default"?

I am sure FRED lightening will hit my profile anytime now .....

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You're safe -- your attachment didn't get uploaded for some reason. I can't see it.

[c1ue]

Re: The US to "Politely Default"?

The other point which Gundlach fails to address is:

Is not a polite default merely a different way of accomplishing instant inflation? Or put another way: how do you default only on the debt, when the debt in turn is a credit on the other side of the ledger?

[ThePythonicCow]

Re: The US to "Politely Default"?

The other point which Gundlach fails to address is:

Is not a polite default merely a different way of accomplishing instant inflation? Or put another way: how do you default only on the debt, when the debt in turn is a credit on the other side of the ledger?

A debt default is not necessarily the same as "free money" to the borrower.

If someone who is comfortably solvent defaults on or has forgiven one of their debts, then yes they have more money to spend elsewhere.

But the situation is different for someone (or nation or corporation) who is under the overhang of too much debt and facing the possible consequences of monetary collapse, loss of an election, foreclosure, debt prison, bankruptcy, property repossession or garnishment of wages. In that case, forgiving some of their debts may just reduce their risks. They're still not out of the hole, just less deep into it.

[c1ue]

Re: The US to "Politely Default"?

A debt default is not necessarily the same as "free money" to the borrower.

If someone who is comfortably solvent defaults on or has forgiven one of their debts, then yes they have more money to spend elsewhere.

But the situation is different for someone (or nation or corporation) who is under the overhang of too much debt and facing the possible consequences of monetary collapse, loss of an election, foreclosure, debt prison, bankruptcy, property repossession or garnishment of wages. In that case, forgiving some of their debts may just reduce their risks. They're still not out of the hole, just less deep into it.

All true, but not the point I was getting at.

A debt default by the US will pretty much guarantee a reduction, if not cessation, in future extensions of credit by other nations.

The result will be high interest rates as well as likely an initial big kick in prices as the ability to pay for imports drops.

How then is this different than a high inflation for several years for the average American?

And if the US instead chooses to default then spend within its means, this itself means either a deflationary depression (unlikely) or a massive QE - i.e. inflation.

[ThePythonicCow]

Re: The US to "Politely Default"?

All true, but not the point I was getting at.

A debt default by the US will pretty much guarantee a reduction, if not cessation, in future extensions of credit by other nations.

OK - that makes sense. My crystal ball is getting clouded over again ...