Reality check on the likelihood of a US default – John Gelmini

U.S. debt from 1940 to 2010. Red lines indicat...

U.S. debt from 1940 to 2010. Red lines indicate the Debt Held by the Public (net public debt) and black lines indicate the Total Public Debt Outstanding (gross public debt), the difference being that the gross debt includes that held by the federal government itself. The second panel shows the two debt figures as a percentage of U.S. GDP (dollar value of U.S. economic production for that year). The top panel is deflated so every year is in 2010 dollars. (Photo credit: Wikipedia)

I thank Dr Alf for reblogging Gavyn Davies excellent blog in the FT entitled US default by any other name . | Gavyn Davies – FT. Dr Alf concluded with thr following open question:

After the economic damage that the US unloaded on the global economy following the sub-prime crisis in 2008, is it really possible that the US would force the World back into recession by defaulting on US Government debt?

Dr Alf raises an important hypothetical question but the answer is that unless President Obama has gone mad, a grubby deal will be done and a watered down version of Obamacare will be the price of another raised debt ceiling, along with cuts to military spending following drawdown from Afghanistan.

Under Ronald Reagan the debt ceiling was raised 18 times and when I lived in that country. it was an annual pantomime, with the Government threatening shutdown and Armageddon economically only for the politicians to emerge from a darkened smoke filled room to announce a new deal.

There are too many powerful people with a vested interest in printing more money so Armageddon will not happen this time.

John Gelmini

Enhanced by Zemanta