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by happytiger
876 days ago
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This really is one of the most interesting questions. Obviously, a loss of global prestige and reserve currency abandonment could be the result, but if there’s no other country to step in that has that prestige or offers a replacement… What aee the requirements of debt to suppory a global order? Is it the rise of debt thats the issue or the loss of faith in the global order that that debt represents? People who understand that national debts are a necessary component of reserve currencies get the depth of this question. Great comment. |
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I don't think the role of the US dolar as a reserve currency is put into question with a hypothetical default.
The typical impact of a default is that lenders are stiffed out of the money they lended. Some might go bankrupt as a result, but the only consequence to the US government is a hypothetical inability to get further loans at lower rates. This might be problematic for the US if the US federal government still runs a deficit.
Now, there is the question of what would this "inability" mean.
When Greece defaulted on its sovereign debt, their credit rating tanked and the global financial market hiked interest rates for Greek debt to the point they reached double digits. That lead the Greek government to beg the EU and IMF for emergency loans, which were accompanied by fiscal policy changes. I doubt the US would follow a similar pattern, mainly because the IMF does not have funds of this hypothetical magnitude.