What harm does the default do to the rest of the world?

Hi!
I did a search on this topic, I found some topics discussing what the (possible) upcoming US-default will do to the USA. But I really wonder what the effects will be to Europe, to Australia, to Asia. Does this have any effect on the Middle East?
I know that most trading in the world still goes via the US Dollar, so I can see a problem there. In case the Dollar gets hit.
Is the US able to 'show it's power' in the Middle East?

I am living in The Netherlands. 'We' depend heavily on trading...

Do I have to be scared for this default? As a non-US citizen?

What is your thought on this?


NB, this is NOT a topic about the effect on the US, just for the rest of the world.

Well, it is rather complicated and long winded, but here it is in a summary form.

The USD (US Dollar) is the Defacto Standard of all international currency. All financial transactions between countries are based on USD. The US is the most stable currency with a AAA rating. The bonds that other countries buy to fund the US debt are considered rock solid, means the interest will always be paid in full, on time, not matter what the cost is. China and Japan are the two biggest treasure bond holders, but many other countries also hold large amounts as well including Russia and the EU members (Germany in the biggest holder in the EU).

If the US defaults on it's obligations (not enough money to pay the interest payment on those bonds), the USD will lose it's AAA rating. The USD will drop in value dramatically putting many large banks, corporations and countries in bankruptcy over night. Many European banks and countries are very weak and will fully collapse. Inflation will jump worldwide, gold and silver will skyrocket and oil (which is paid for is USD) will skyrocket being too expensive for most countries and OPEC will only accept payment in gold.

Massive employment will follow all the company bankruptcies. The world will be in a depression that will tear the US apart and it will take a long time to sort out. The new dark ages will be upon us. The world is still fragile due to the 2008 recession and has not recovered. We are in a state where a jolt like this, which has never happened before, will big too big to ignore for any country.

Follow up since you live in Europe. If this happens, I expect Spain, France and UK to collapse since they and their major banks are so heavily vested in the USD and are really weak right now.

Let's hope our Marxist President can negotiation some agreement before all hell breaks lose.

eagledriver
Follow up since you live in Europe. If this happens, I expect Spain, France and UK to collapse since they and their major banks are so heavily vested in the USD and are really weak right now.

Let's hope our Marxist President can negotiation some agreement before all hell breaks lose.

edit on 14-10-2013 by eagledriver because: (no reason given)

You know as much about European economics as you do about Marxism.

reply to post by eagledriver


Nope, the dollar would just be immediately replaced by the euro. It would almost be seamless. Business as usual.

eagledriver
Well, it is rather complicated and long winded, but here it is in a summary form.

The USD (US Dollar) is the Defacto Standard of all international currency. All financial transactions between countries are based on USD. The US is the most stable currency with a AAA rating. The bonds that other countries buy to fund the US debt are considered rock solid, means the interest will always be paid in full, on time, not matter what the cost is. China and Japan are the two biggest treasure bond holders, but many other countries also hold large amounts as well including Russia and the EU members (Germany in the biggest holder in the EU).

If the US defaults on it's obligations (not enough money to pay the interest payment on those bonds), the USD will lose it's AAA rating. The USD will drop in value dramatically putting many large banks, corporations and countries in bankruptcy over night. Many European banks and countries are very weak and will fully collapse. Inflation will jump worldwide, gold and silver will skyrocket and oil (which is paid for is USD) will skyrocket being too expensive for most countries and OPEC will only accept payment in gold.

Massive employment will follow all the company bankruptcies. The world will be in a depression that will tear the US apart and it will take a long time to sort out. The new dark ages will be upon us. The world is still fragile due to the 2008 recession and has not recovered. We are in a state where a jolt like this, which has never happened before, will big too big to ignore for any country.

edit on 14-10-2013 by eagledriver because: (no reason given)

In simpler terms, most of the world borrows and repays in dolllars. If the US defaults, confidence in the dollar slips dramatically and pretty much every loan everywhere, large and small, will be a lot shakier. A lot of very large markers will be called as everyone tries to limit their exposure. As in 2007/8, many won't have the money to pay up and the global economy will once again largely slow down.

In the longer term, the drift away from the dollar will continue and, as the US can't afford to attack every country that changes its reserve currency, there is nothing the US can do to stop it.

Of course, your government could grow up and face the 21st century in all its global glory.

potentially it could have a bigger effect on the global economy than the great depression.

If we wan to talk worst case:

America though won't technically default as it can pay the interest on its debt purely through tax but it doesn't have enough for much else. So first rather than a default America will be unable to make important payments, the really big ones are due November 1st such as medicare, military pay and a bunch of other stuff so if the debt ceiling is not raised (think of it like a government overdraft) then it cant pay the bills.

This will cause a huge change on the markets internationally but also on interest rates the yield on US treasury bonds will go up so they will own more money to their investors (china and japan 2.4 trillion combined) and if this becomes to high they will be forced to default. There will be riots on the streets, federal workers out of work Washington will look like Athens.

Overnight the Dollar will crash, stalk markets will panic because they wont have daddy (American gov) to bail them out the value of US bonds will drop and cause a devastating effect on just about everything. Eventually the already fragile EU (America's biggest trading partner) probably wont be able to cope and it could destroy the euro zone. Then we are talking about a total change in the global geopolitical landscape, America would probably lose its reputation as a global super-power and the BRICK states would rise as they have more liquidity in their banking systems to cope with the stress.

With such huge change's we could (and i am talking absolute worst case) see World War 3, nothing causes a good war like economic catastrophe and a new geopolitical landscape.

Honestly the whole thing is screwed up, the debt ceiling was 5.64tn in 2001, now its three times that 16.7tn and they need about 1.1tn just to survive the year. the problem is that they cant just keep adding up more debt and will have to cut the debt ceiling sooner or later. IT would be favorable to wait until the global financial crisis passes but really when it got to 10tn they should have done something.

whole thing is a mess.

I think America will be a third world country in the next century.

What are the consequences of a US default?

www.bbc.co.uk...

No one really knows exactly what would happen, but the likelihood is that markets around the world would plunge and global interest rates would rise.

The above sentence alone speaks volumes to me, simple as it may sound. You can add to the authours two part list if you wish, if the markets around the world plunge (crash) then expect the worst.

I can't see any country coming out of a US default with a smile on their faces, how hard a particular country is hit would be dependant on their economic position at that particular point in time.

You did request that you are interested in what will happen world wide if it happens, that is hard to find on google, The US has to be mentioned because they are the subject matter.

anyway I hope the link helps a bit, keep digging, or wait a couple of months to see if it in fact happens.
I have just read this article

President Obama sounded his own warning as he toured a soup kitchen for the poor in Washington DC earlier on Monday.

"This week if we don't start making some real progress, both the House and the Senate - and if Republicans aren't willing to set aside their partisan concerns in order to do what's right for the country - we stand a good chance of defaulting," he said.

"And defaulting would have a potentially devastating effect on our economy."

The US treasury department has been using what are called "extraordinary measures" to pay the nation's bills since the nation reached its current debt limit in May.

Those extraordinary measures will be exhausted by 17 October, US Treasury Secretary Jack Lew has said.

He has said that letting debt ceiling negotiations run too close to the deadline "could be very dangerous", while financial sector leaders have warned a default would ripple through the world economy

www.bbc.co.uk...

reply to post by Goedhardt

Some of you give a pretty grim future.. Looking at those as a worst case, i can go with that..
What about the standard trading currency switching to the yen or the euro? Would that be hard to do?
I remember Saddam Hussain did this and also Khadaffi.. Yes, they did get killed for this, but maybe it shows it is possible.
I can see a problem in trade to/from the us, but at the other hand, the companys will probably still ship their goods to europe: When the dollar drops, american goods get cheaper for europeans.

The war comments: it kind of depends on how China will react, and what their demands will be. Will they push the US to the limits? I don't see china starting this war, i think the us will do the first stike, if there will be one...

I read in the before mentioned BBC article, that the US can deside on what it will pay with the tax income. Since it is not enough to pay all the bills, just an estimate 68%, I guess that much of the above depends on what this discicion will be.. Also for the rest of the world..

It's almost unfair that just the americans can vote for the most importent government in the world
All non-US citizens just have to hope, that the Americans make a good desiscion at the elections...
Which is a whole different debate

Who is crying the loudest? Banks. They are scared , they scream we will be much worse off. Maybe, but when have they ever been concerned about us? They worry about themselves. Period.
All countries hold huge amounts of USD in order to trade. Which they buy/trade from the US. If the USD is devalued as a result of default, all USD outside the US will also lose value. Meaning your countries holdings has just taken a loss. Here in Canada our dollar is backed by the USD so we have a lot of them on hand. However, after the loss is dealt with ,re-the crying over spilled milk has stopped it will be business as usual. We have plenty of natural resources to use as trade like other countries. (maybe we have more than some). Your country will use other means to trade on the world market. Also, these events are well planned. Another currency will replace the USD as reserve. I've heard there may even be two USD's. One for domestic US use and another for the rest of the world to use so that there is no devaluation for international USD's. For sure no-one will be hurt worse than the US. But I think when the banks are telling us to worry its not about our welfare it's theirs.
This is just some of my observation. No-one really knows or expects the US not to raise the debt ceiling.

reply to post by Goedhardt


If the U.S. would have defaulted in 2011, shortly after they started the GFC in 07/08, then maybe the doomsayers would have been right...

The good thing about this ongoing crisis is that it unwinds somewhat inertly, and by now most of the more serious countries (which include the Netherlands IMO) have made adequate preparations for a multi-currency reserve system to replace the USD/petro-dollar.

No doubt it will still effect our local economies to a degree, but not nearly as grim as some are predicting.

just a few questions I'd like to ask;

-should i stock up on gold?
-should i get rid of all the American currency i have in hand?
-some of you mentioned banks / currency would crash "overnight". If this event was to take place, would the crash take place in the next month, year, decade or century?

I personally think a lot of the current news i see on TV is being heavily edited, filtered and even deleted. I mean, if the current situation is so severe and serious, why isn't anyone talking about it outside America?





edited for spelling

reply to post by yeaok

yeaok
-should i stock up on gold?
-should i get rid of all the American currency i have in hand?

It is always advisable to diversify your assets into various valuta and metals (except for USD).

yeaok
-some of you mentioned banks / currency would crash "overnight". If this event was to take place, would the crash take place in the next month, year, decade or century?

Depends on how the Americans handle their situation.
I don't believe a U.S. default is iminent. My guess is within this decade.

yeaok
I personally think a lot of the current news i see on TV is being heavily edited, filtered and even deleted. I mean, if the current situation is so severe and serious, why isn't anyone talking about it outside America?

There is media coverage about it outside the U.S. MSM.
You're right it is edited though, depending on what media you consult.

reply to post by Goedhardt


The only reason that there might be any effect on the rest of the planet, is because some singularly witless morons, whose job is to move money around the planet, will immediately feel their gonads retract into their abdomens, run home to their mothers house, and curl up in their mothers laps, crying and sucking their thumbs. By that I mean, that the only reason this sort of nonsense is allowed to affect anything outside the nation in which it occurs, is that markets are run by sissies, traitors and cowards at best, and at worst megalomaniacs, which usually amounts to the same thing.

Essentially what happens is this...

The US defaults, and an awful lot of people cannot get what is owed to them by any bond or share which relies on the dollar to underwrite its value, which is all of them pretty much. Rather than actually doing some real work for a change, city suits will instead allow those bonds and shares to become valueless, rather than trying to scramble together an alternative, a bolster. Personally, I think that the best idea would be to swap immediately to a system based on the next most solid and valuable currency, but because that requires effort, and the agreement of whichever nations currency is next largest and most powerful, this would likely take some forethought, some finesse, some skill and above all, massive balls, to pull off. And that is why it is not going to happen.

Instead of actually acting now, the markets will doggedly allow themselves to spin apart like a helicopter suffering a terminal rotor failure, and they will all throw up their hands and declare to anyone who will listen, that there is nothing they could have done that would not have required everyone on the planet to start paying forty percent more for everything for the next ten years, or some similar idiocy. Bloody convenient if you ask me, since of course, the only people who will be able to save any of their money in these times, will be those who have a modicum of insider knowledge, and since there will be absolute CHAOS in banking and finance in general, its unlikely that the small trades will be all that closely monitored, because everyone involved in money moving will essentially have their head between their knees so that when the crap storm hits, they can later be identified by their dental records.

You can also bet that the governments of the world powers will be doing largely the same thing, shouting from balconies to the raging mobs in the street "I did not loose your money, and you aren't getting any of it back, so go back to work on your empty bellies, oh, and vote incumbent in the next election!".

No one will act to prevent this once it is in motion, no one will offer the common man any help to cope with the crippling price hikes of every little thing, and no one will allow themselves to be held responsible.

What is above is a rough outline of what I think will happen. Below is my opinion.

The US government, all of it, not JUST Obama, or JUST the Republicans who refused to accept nationalised healthcare planning, despite it being fairer largely speaking than leaving the poor to die, need to be dragged into a public place, and summarily slaughtered if this goes down badly. Not just because they are traitors to their own people, each and every one of them (which they surely are), but because they will have allowed their petty differences to ruin entire CONTINENTS!

reply to post by TrueBrit


Your opening is brilliant!
Also, i think you are right on that moneytransfering. Those companys dodging the taxes like bank of america, ge, google and so on.. What will they do next? How easy is it to put your money in a different currency when it is those big amounts?

reply to post by Goedhardt


Starbucks are another example. That company behaves like a mafia outfit in terms of its accounting and tax status.

To be honest, the only concern I have is for the common man in all this.

reply to post by Goedhardt


When you are paying one credit card with another......you are already in default.


The question should be....how long will the US last as the worlds credit whore?

So, i guess there is no need to be scared what so ever.. It's just a part of a stupid partizan political game.. Do the parties really hate America that much? Do they hate the people around the world that much??? I think the answer is yes..

reply to post by keenasbro

And that is all because of globalization. Globalization should never have taken place. The economies of the world should have never be daisy chained together like this.

fixer1967
reply to post by keenasbro

 

And that is all because of globalization. Globalization should never have taken place. The economies of the world should have never be daisy chained together like this.

But this is the comparative advantage trap, and the source of all Imperialism, it is a natural inevitability because people either don't know it exists or willfully ignore it for personal gain.