The American notion of debt (and theories on what it might mean)

Ok, so money doesn't really have a specific value, it's a promise of value based on the total value of the country. That being said, although most countries have significant value, through intellectual property and such, you can't exactly liquidate intellectual property, so the countries need actual money to spend. So they issue dated IOU's to anyone who will buy them. There is a theoretical limit to how much they can issue, but the US and Denmark are the only countries with official limits.

So every country's economy exists in a sense of the value of their current currency and the debt that the owe. In the US the debt is largely held by social security (because social security operates at a surplus) but other parts are held by corporations, private individuals, and even other countries.

Now here is where things get more complicated:
These debts are on a timer, so at regular intervals they come due and must be paid in full. And we usually don't have the money on hand to pay them, so we create new debts to pay for the debts we have now.

Does your head hurt yet?


Continuing on,
The Tea Party Republicans and specifically the Congressional majority leader and his people are currently pushing us towards debt default.
The major problem with this is it doesn't all come from the same source and there is no precedent or even rules for what happens when a country defaults on a debt. The only historical example I can think of is post WW1 German where they became over-run with debt and we know where that went.

Certain debt holders may be willing to simply erase the debt. Social Security will likely just swallow the debt as they currently still have the finances to do so. Countries whom we hold debts against might be willing to let our debts cancel eachother out.

The major concern is corporations and private investors. These are people who could theoretically hold significant leverage over our government and might try to use this moment of weakness to profit off of us.


And here is where the other shoe drops.

There is no way for these private investors and corporations to force us to pay back the money. Normally if someone defaults on a debt, the government forces them to pay it. They re-possess their belongings and sell them off to settle the debt. But there is no higher court to force our government to pay back the money. It was loaned in good faith, but with absolutely no leverage or ability to force a collection. It's not like they can re-possess Florida and sell it to Cuba to settle our debt.

So depending on how the creditors behave, this could become a very economically volatile situation. If America defaults on it's own debt and doesn't pay it back, it sets a precedent for other countries to do the same. Because it's not just us, most countries follow this same business model. Nobody has tried to force a default because no-one knows how it will change the world's economy.

But now we have some idiots in the Congress who are hell-bent on causing a default, they claim so that the US can get out from under it's $16 trillion debt. But we have no idea how it would play out. Currently all major investors are throwing their money off-shores to try to shield it from any sort of collapse.

But we don't know if that would be enough, with a big enough crash, the dollar could be de-valued so vastly that their off-shore fortunes could become pocket change.

Ideally, this won't happen. Cooler heads will prevail, and the country won't default, but if the default does happen, there is potential for massive upheaval.

Keep your fingers crossed, and as always, everyone try to stay safe out there.