The seventeen percent solution

House of pain

The prospect of a default by the United States might be grisly to contemplate but, with Treasury figures suggesting such an outcome is just two weeks away, it can’t be avoided.

If the United States suddenly found itself unable to borrow any more money it would have to slash spending. It would no longer be able to roll over its current debt or borrow to pay off old debt and so confidence in the debt would fall and the value of that old debt and the dollars it is denominated in would crash. Interest rates, on the other hand, would go sky high. Some of the trillions of dollars shipped abroad in recent years to pay the Chinese for consumer goods would probably emerge from underneath the mattress of the Chinese central bank and come back home to be cashed in for American assets before they lose too much value. This flood of money would send inflation surging. The American economy might crash and take the rest of the world down with it except for a few isolated tribesmen in the Amazon who have never heard of a debt ceiling

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