"Non rhetorical question: are there any scenarios where the US defaults on their debts?"
1) Technically they have defaulted in '79, though it was more of a delay.
2) See how divided politics has become. What happens if the US hits the debt ceiling and the other party decide enough is enough and wont approve appropriate borrowing capacity and all budget. Given divisive politics of recent does this seem that far fetched?
3) US debt is getting to 110% of GDP and growing fast. If this isn't controlled it will hit a point where it becomes to a point where people lose confide3nce. And sure the US govt can print money given own currency as is often touted, but currency need confidence. If people feel they are just a printing machine and decide to head for lower risk waters, they can print all they want but money will become increasingly worthless and they may beed to 'reset' which means possible default .
4) Interest rates. What if these go up? The government can influence but ultimately the market has to want to take on that risk too. If economic times get rocky its not unforeseeable the fed cant set interest rates as easily as they do today. This could flow into serious payment/cost issues on the budget.
5) Not to fear monger, but China hold a bunch of debt. What if they decide to drop a trillion onto the market while US has other crisis compounding value issues and currency runs?
6) On the flip side of foreign debt holders like china, what if some rouge president said "we are not paying you because you stole our IP" or whatever rationale. Unlikely but recent politics shows us extreme statements/positions like this can happen. Even to threaten this in an unthought statement could have serious consequence and flow-on.
7) What if we have another pandemic or natural disaster and the economy drops 30% and stays there... good luck serving the debt on a drastically shrunk economy without serious consequence.
8) What if the next generation decides they are sick of previous generations debt limiting their countries future and a movement starts 'not my debt' and some hard left/right politions take power on disgruntled citizens
Etc
And yes the US can always print money, but money can lose worth too if people dont want it because they feel too much is being printed.
And to be clear, Im not saying the US will default, but there are many reasons that could trigger it to. Personally I think short term risk (sub 20 years?) is negligible, but if they stay on the current path we either need to find MMT works (whole other discussion), or there doesn't seem to be a positive end.
> What if they decide to drop a trillion onto the market while US has other crisis compounding value issues and currency runs?
And sell it to whom? What happens to every other currency in the world when that happens? Including all those countries who relying upon exports to the USA.
If China dropped a trillion onto the market, then they would probably get Mexican Pesos in return as the Mexicans hoovered then up to stop their currency getting into nosebleed territory.
The currency system is like a waterbed. You can't just jump on one end and not expect a systemic response and feedback that will throw you off just as hard.
Well in the cases of number 3, 5, 6 and 7 in these cases the Feds will just print the money - technically it is just a flip in their computer system and also in practice the difference is not that big - it changes a fixed term debt to a on-demand debt. The only thing stopping it can be a political will - but I think the stigma of not paying debts is higher than the stigma of inflation - so most probably it will be done every time.
> I think the stigma of not paying debts is higher than the stigma of inflation
This would depend on the level of inflation. Higher than normal, probably. Extremely high, like ~30%+ its reset time I would suspect.
With the printing money, there has to be a limit. Were in the middle of something far beyond normal at any other time. Maybe we'll get through it cleanly but I also suspect todays debt fuelled can kicking events will get taught to students in ~50 years time and they'll sit there going 'what were they thinking'.
"With the printing money, there has to be a limit."
Banks do it every time they lend, so that can't be the limiting factor can it.
You're looking at the system incorrectly. Try it this way.
To spend you have to have two things - liquidity to complete the purchase and something available to buy.
Which gives you the obvious limit - spending stops when you run out of things to buy available for sale in the denomination at a price worth paying.
So it stops automatically - largely because the pejorative "printing money" line has nothing to do with the control mechanism in the system. Money is a dynamic thing. Systemically it pops into being and disappears as required.
"printing money" is just the accounting counterparty of "saving money". If you want to stop it or reduce it, simply delete everybody's monetary savings. That will cause all national debt to disappear by accounting identity.
1) Technically they have defaulted in '79, though it was more of a delay.
2) See how divided politics has become. What happens if the US hits the debt ceiling and the other party decide enough is enough and wont approve appropriate borrowing capacity and all budget. Given divisive politics of recent does this seem that far fetched?
3) US debt is getting to 110% of GDP and growing fast. If this isn't controlled it will hit a point where it becomes to a point where people lose confide3nce. And sure the US govt can print money given own currency as is often touted, but currency need confidence. If people feel they are just a printing machine and decide to head for lower risk waters, they can print all they want but money will become increasingly worthless and they may beed to 'reset' which means possible default .
4) Interest rates. What if these go up? The government can influence but ultimately the market has to want to take on that risk too. If economic times get rocky its not unforeseeable the fed cant set interest rates as easily as they do today. This could flow into serious payment/cost issues on the budget.
5) Not to fear monger, but China hold a bunch of debt. What if they decide to drop a trillion onto the market while US has other crisis compounding value issues and currency runs?
6) On the flip side of foreign debt holders like china, what if some rouge president said "we are not paying you because you stole our IP" or whatever rationale. Unlikely but recent politics shows us extreme statements/positions like this can happen. Even to threaten this in an unthought statement could have serious consequence and flow-on.
7) What if we have another pandemic or natural disaster and the economy drops 30% and stays there... good luck serving the debt on a drastically shrunk economy without serious consequence.
8) What if the next generation decides they are sick of previous generations debt limiting their countries future and a movement starts 'not my debt' and some hard left/right politions take power on disgruntled citizens
Etc
And yes the US can always print money, but money can lose worth too if people dont want it because they feel too much is being printed.
And to be clear, Im not saying the US will default, but there are many reasons that could trigger it to. Personally I think short term risk (sub 20 years?) is negligible, but if they stay on the current path we either need to find MMT works (whole other discussion), or there doesn't seem to be a positive end.