US first ever default ... impact on Aust?

[Sove18a]

I've been following the news re the US government shutdown and I wondered what the impact would be on Australia if the US cannot resolve this and default on their loans.

Would the stock market go into a meltdown? Will this have a negative impact on property prices?

 

[wategos]

Credit would freeze, property especially and oother debt dependent markets would drop heavily. But they won't default yet, just continue to borrow and inflate (a delayed consequence of printing) while there are still buyers.

 

[MarkB]

Credit would freeze, property especially and oother debt dependent markets would drop heavily. But they won't default yet, just continue to borrow and inflate (a delayed consequence of printing) while there are still buyers.

Agree with all of that.

Including that they wont default... ...yet.

Imo the Republicans have Obama by the short and curlys at the moment. If he does know it, he isn't yet prepared to admit it publicly. If he doesn't know it, then....

As a cartoon on Charles Colson's wall (a senior adviser to Nixon) said...

"When you've got them by the balls, their hearts and minds will follow."

Waiting...

waiting...

 

[redwing]

Aren't they minting a couple of trillion dollar coins

 

[see_change]

I don't know the machinations of the international credit market but does it automatic mean that credit freezes everywhere .? Mark can you explain ?

Why does it impact the residential property market here ? Not saying it doesn't , just not familiar with the mechanism .

Given the immediate volatility I would have thought share market would be hit nastily , purely because is can react quickly.

In technical analysis terms there is currently an increasing possibility to a short term down turn in the share market which has been raised in the last week and is increasing in probability

If there is a impasse , followed by a quick reversal , what impact would that have ?

Given an immediate impact in shares could property be seen as a safe haven ?

I can recall share reversals which have triggered a boost in property prices as a result of this occurring .

Cliff

 

[Strannik]

didn't they already default in 1979? so it wouldn't be the first one

 

[MsAli]

What will be the impact on commodities (PM) markets?

 

[Intrinsic_Value]

US cannot resolve this and default on their loans.

US wont default:
(a) they can print money if they have to. Yes unlike many countries US can print, since they are the 'reserve' currency and loans are in US$
(b) more importantly, tax revenue is greater than interest expense. So US can still pay interest on its loans.

However this DOESN NOT MEAN that things cant get tough if they don't increase the debt ceiling.
It does also not mean that equity markets cant drop significantly if it actually happens (especially as equity markets have risen so much over the last couple of years)

 

[Strannik]

so if US can't default, why did they default in 79? what changed now to stop the repeat of that?

 

[MarkB]

so if US can't default, why did they default in 79? what changed now to stop the repeat of that?

But that was an accident.

Congress had approved the higher debt ceiling (at the 11th hour of course), but:

The Treasury accidentally defaulted on about $122 million worth of Treasury bills thanks to a combination of unexpectedly high demand and a computer glitch. The screw up was in part the result of a back office on the fritz in the wake of a debt limit showdown...

See: We Accidentally Breached The Debt Ceiling In 1979. It Wasn't Pretty

It is possible that an accident (history) could repeat itself...

/me places a call to Bill Gates and says:

"Bill, since you own the internet... could you please make sure it is working in the lead up to October 17... Cheers dude, M"

There... all sorted!

But would the US willingly cross that line?

This is rapidly becoming the economic equivalent of the Kennedy embargo of Cuba back in October 1962, where Russian ships raced towards the US Navy blockade and brang the world to the brink of Nuclear War...

...only this time you have two different sides of party politics in the US bickering while the October 17 deadline and the inevitable financial catastrophe gets closer and closer...

 

[Aaron Sice]

amendment 14, section 4 of the US constitution says that treasury has the right to print money independent of any bank to pay its dues as needed.

they physically cant default if they tresury has the guts to print independent of the Federal Reserve.

 

[HiEquity]

amendment 14, section 4 of the US constitution says that treasury has the right to print money independent of any bank to pay its dues as needed.

they physically cant default if they tresury has the guts to print independent of the Federal Reserve.

http://en.wikipedia.org/wiki/Fourteenth_Amendment_to_the_United_States_Constitution

The debt-ceiling crisis in 2011 raised the question of what powers Section 4 gives to the President, an issue that remains unsettled.[154] Some, such as legal scholar Garrett Epps, fiscal expert Bruce Bartlett and Treasury Secretary Timothy Geithner, have argued that a debt ceiling may be unconstitutional and therefore void as long as it interferes with the duty of the government to pay interest on outstanding bonds and to make payments owed to pensioners (that is, Social Security recipients).[155][156] Legal analyst Jeffrey Rosen has argued that Section 4 gives the President unilateral authority to raise or ignore the national debt ceiling, and that if challenged the Supreme Court would likely rule in favor of expanded executive power or dismiss the case altogether for lack of standing.[157] Erwin Chemerinsky, professor and dean at University of California, Irvine School of Law, has argued that not even in a "dire financial emergency" could the President raise the debt ceiling as "there is no reasonable way to interpret the Constitution that [allows him to do so]".[158]

 

[rodimus]

0% chance that USA will default. Which American politician wants to be the scapegoat to make his country default and have his name and family's name be cursed for the next 100 years?

At the 11th hour, Obama or the Speaker will give in, reopen the government to buy more time - for the moment. They become they 'hero' for saving the country from default. America has only 1 card to play, that is TIME DELAY AGAIN AND AGAIN to push their debt troubles into the future. Seriously nobody knows how to solve America's debt. They keep printing more money to worsen the debt.

 

[OKFFW]

A good read on the subject can be found here.......

http://www.joshuakennon.com/the-debt-ceiling-101-an-explanation-for-the-average-person/

Also gives some very good reasons as to why the chance of default is pretty much 0%. Mainly because as it is in the Constitution that the debt must be paid it is within the power of the Treasury to simply print enough money and pay it regardless of whether Congress increases the Debt Ceiling.

 

[kathryn d]

Seriously nobody knows how to solve America's debt. They keep printing more money to worsen the debt.

They didn't get into this mess overnight, so they should be looking for a gradual way out.

As with most governments, they could start with streamlining their own depts.
They waste so much in welfare. People are not going to wean themselves off, unless they are forced.

Maybe then start putting taxes on things like cigs, liquor and fuel.

 

[Strannik]

it is a good read, but i think people are misinterpreting that constitution article.

a default can still happen. which means US won't pay the interest right now. but they may resume paying in a month time, so still following the constitution.

 

[MTR]

What a mess.

This was the big news today, media really worked it.

Go to war, come back in a box and no compensation/benefits due to shut down, that's got to stir emotions.

http://usnews.nbcnews.com/_news/201...n-soldiers-to-receive-bodies-no-benefits?lite