Re:Ask HN: What other low-probability high-impact events are...
by btilly on Tuesday June 15, 2010 @06:51PM
(#1434097)
The USA may have never defaulted on debt, but twice we altered repayment terms. The lesser example was in 1970 when the USA decided to delay paying interest by 10 years.
The nastier example was in 1933 when the USA devalued the US dollar against gold by 40% and unilaterally rendered null and void all contract terms where the USA had agreed to pay back debt in the borrower's choice of dollars or gold. Technically not quite a default, but it was a pretty subtle distinction for lenders who got paid back what was effectively 60 cents on the promised dollar.
The last time that the government came close to failing to pay as promised was in 1995. Under Newt Gingrich, Congress refused to do any business, it brought government to a standstill and the government was unable to make payments. Luckily the deadlock was resolved just before the government would have been forced to not make bond payments.
When it comes to the current debt, I would again not expect an outright default. But I'd expect another fudge where some owed debt does not get repaid. And the prime candidate for how that will be done is that the US government will restructure Social Security so that the government won't have to pay back bonds owed to Social Security. (Bush tried to do this, but didn't manage to push it through.)
Here is that story. In past years Social Security has brought in more money than it has paid out, and the difference was invested in government bonds. Now that the government is facing Social Security paying out more that it takes in, the government is supposed to pay those bonds back but doesn't want to. Structurally, on paper, Social Security is fine for decades to come. However that depends on the US government paying back a lot of this owed debt, which nobody in government wants to do. Hence all of the talk about Social Security being broken. And the one feature that any "fix" is guaranteed to have is that the US government won't be paying back all of the money that was "lent" to the government from Social Security funds.
The nastier example was in 1933 when the USA devalued the US dollar against gold by 40% and unilaterally rendered null and void all contract terms where the USA had agreed to pay back debt in the borrower's choice of dollars or gold. Technically not quite a default, but it was a pretty subtle distinction for lenders who got paid back what was effectively 60 cents on the promised dollar.
The last time that the government came close to failing to pay as promised was in 1995. Under Newt Gingrich, Congress refused to do any business, it brought government to a standstill and the government was unable to make payments. Luckily the deadlock was resolved just before the government would have been forced to not make bond payments.
When it comes to the current debt, I would again not expect an outright default. But I'd expect another fudge where some owed debt does not get repaid. And the prime candidate for how that will be done is that the US government will restructure Social Security so that the government won't have to pay back bonds owed to Social Security. (Bush tried to do this, but didn't manage to push it through.)
Here is that story. In past years Social Security has brought in more money than it has paid out, and the difference was invested in government bonds. Now that the government is facing Social Security paying out more that it takes in, the government is supposed to pay those bonds back but doesn't want to. Structurally, on paper, Social Security is fine for decades to come. However that depends on the US government paying back a lot of this owed debt, which nobody in government wants to do. Hence all of the talk about Social Security being broken. And the one feature that any "fix" is guaranteed to have is that the US government won't be paying back all of the money that was "lent" to the government from Social Security funds.