The countries of the world are in dire financial straits. They have been for years, but it’s finally coming to a head because they’re reaching the end of their credit. Everyone who watches the least bit of news knows about Greece, but that’s just the first; Portugal and Spain have also had their credit ratings cut recently and are likely to go the same way. Pretty much everyone in the know says that their debts are unpayable.
The US has about the same debt-per-person that Greece does.
Maybe this will prompt things to get better, but I doubt it. There’s no political will to do anything about the problem. The rich (both human and corporate) and their bought politicians are doing their damnedest to ensure that that doesn’t change, and they’re strong enough to keep the countries of the world on a course toward financial doom.
The next few years should be very interesting, in a Chinese-curse sort of way.
If the US defaults, which if the dems and reps don’t have a deal it will, it’s Great-Depression time. People predict that if the US bond rating plumets, which it will if that happens, China will be forced to take their money out of financing our debt in dollars (as it has the last few decades) in order to curb their runaway inflation; pretty much triggering an inevitable worldwide depression (not recession) at that point. Let’s hope they make a deal, almost any deal, rather than default here.
Oh, they’ll make a deal, and that’ll stave off catastrophe for a while, but it’s not a permanent solution.
I talked to my money guy this afternoon, and he says that the consensus is that China will do everything in their power to prop up the US, because the US is their best customer — without the US, their economy is screwed. So probably not much to worry about in the short term, though the long term outlook is still pretty grim.
Even if China does cooperate with what bad US bonds (post-default) would do to their economy, it would be a big shock to the world economy for the US to default anyway. Hopefully cooler heads will prevail.
The US isn’t going to up and declare that it’s broke and nobody’s getting their money back. What’s likely to happen is that they’ll discount previous debts, so that people who’ve bought US bonds will get a portion (80% maybe) of their money back. Bad for anyone foolish or unlucky enough to be holding such bonds, but not as disastrous as it would be otherwise.
However, as I said before, that’s not going to happen in the near future. In another five or ten years, maybe.
A bad bond rating for the US debt financing affects a lot more than just investors in US bonds.