Is A Default On The National Debt Coming?
Republicans in Congress have spoken the unspeakable. They've used the 'D' word; default. They're submitting a House bill to prepare America for a partial default on our national debt. (https://archive.ph/lgeLM) The bill would prioritize which creditors, mainly holders of U.S. Treasury bonds, get paid when the next interest payments come due. And which don't.
I think this is more of a political tool to pressure Dems in the budget battle. I don't think Repubs are planning to go all the way to default. It would be far too harmful to their election chances in 2024.
That doesn't mean a default on our national debt is impossible. A default is likely the only way out as our national debt can never actually be paid. It's just too big. As it gets bigger the interest payments become unsustainable. As the political warfare between our two major political parties gets more heated and bitter the compromise to prevent a default becomes less likely.
A default might cause a global depression, or at the very least one of the worst depressions we’ve ever seen. Even if not, the economic turmoil would be severe. Widespread unemployment would be very likely. The U.S. dollar may lose its place as the world's reserve currency, which would greatly reduce America's economic clout. And the U.S. would be a pariah nation for crashing the world economy.
In the long term a default on our debt could be very beneficial. It could lead to a huge reduction or even elimination of our national debt. That would mean no longer having to pay the huge amount of interest on the debt. The interest will be eating up half our national budget in a decade. (https://is.gd/malLBP) Out of control federal spending is making the debt larger and the resulting inflation is making the interest rates & payment higher every day.
The other big benefit is that it would make it far harder for our federal government to borrow money. We'd have great difficulty in selling Treasury bonds, our primary borrowing instrument. That would force our federal government to severe limit or altogether halt deficit spending. Imagine our fedgov being forced to live within its means. Republican plans to eliminate entire government departments and reform our welfare state would become a necessity. Also our corrupt and inefficient defense procurement system, which has resisted all attempts at reform for decades, would finally be addressed. We'd also have to slash our overseas commitments and force our allies to take on their share of their own defense burden for the first time since WWII.
On the downside a big tax increase would be very likely. That could also have a positive effect in the end. It would create a strong impetuous for tax reform. Or perhaps an outright nationwide tax revolt. A comprehensive restructuring of our federal tax codes would be possible, maybe even eliminating the IRS.
A default would the biggest, most painful change to America's economic system in its history. I think that's inevitable, one way or another. Our system has become so bloated, wasteful, corrupt and bureaucratic that it must eventually collapse of its own weight. This might be how that happens.
For us as individuals, the most important thing is to be prepared for this disaster. Uncle Sugar won't be capable of saving us. We'll be on our own. This could be as bad as or worse than the Great Depression. That's what we need to be ready for. Nobody's coming to help. The survival of ourselves and our loved ones will be up to us. Just us.