We all know what happens if we don't pay our bills. At best you wind up with late fees, possibly even a higher interest rate as dictated by the angry creditor you have eluded. At worst, you experience bankruptcy and carry a marred credit score limiting purchases and personal leveragability for years to come.
Here at The Cosmopolitan Charlestonian, we've been squawking for some time about default. But we're not too worried about our own balance sheets. We're talking about the default of Uncle Sam. A national default.
Although a national default is not imminent, there's no reason to avoid the facts - that it's looking a lot like that's where the U.S. is headed. Simply being open to the idea that the current bailout mania chops away at the US' triple A sovereign credit rating with each billion added can begin to leave the average citizen feeling jumpy. It's starting to seem like at any moment a burly guy named Lou, is going to jump out from behind the bushes, crowbar in hand, to repossess the car. Only in the case of a US default, Lou is China.
More and more experts are beginning to openly discuss a US default. This alone can be perceived as good and bad. On the one hand, open discussion is what we need to find solutions to our economic woes (it's the derivatives, stupid!). On the other hand, the rising cacophony of default whistle blowers means more are seeing a US default as a possibility.
NEW YORK (Reuters) - The economy faces a slump deeper than the Great Depression and a growing deficit threatens the credit of the United States itself, former Goldman Sachs chairman John Whitehead, said at the Reuters Global Finance Summit on Wednesday.Hat tip to Financial Armageddon blog for pointing to Reuters and offering their own excellent commentary in, Not as Bad as Before, Worse.
As if confirmation from an old player at Goldman Sachs isn't enough (Goldman is so in the know with Whitehead still well connected), Satyajit Das, an expert on derivative financial products, also deduces default is an option in, We Interrupt Regular Programming to Announce that the United States of America has Defaulted. Thanks to Nouriel Roubini's blog for putting that one out there. It is true that Mr. Das correctly predicted to fall of the financial system over the last several years as we've followed his work closely. The author of Traders, Guns and Money, he is an accurate, relevant and entertaining writer. Das is also known for writing some of the key reference works in the Swaps/Financial Derivatives Library. Das was, after all, a creator of some of the derivatives himself.
The US' ability to maintain its sovereign credit rating of AAA will surely be a topic discussed in G20, which begins tomorrow. It is yet to be known if our creditors have structured a payback plan for us. One thing is guaranteed - the US will have little wiggle room.
It's evident at this point that our creditors have been gracious enough to continue extending credit (as long as things were going well). The problem now is that things aren't going so well and it's time to pay the bill. At this point, the US is pretty much broke, so do we need to revisit what happens when we don't pay our bills?