Will the US default next month?


This is a topic that may surprise many here in Vietnam, Vietnamese and Expats alike.  In the last week, much of the world news has focused on Greece potentially defaulting with Portugal right on it’s tail.  Greece averted a default with the passage of unpopular austerity measures but with the US be able to do so next month.  It will need to raise it’s $14.3 trillion USD debt ceiling if it wants to pay off it’s loans on time.

Until last week, I never heard the word default used alongside the US government before on live TV.  President Obama did so though he stated that the US could avert defaulting if the Republicans would agree to raise the debt ceiling.  Unfortunately the Teabaggers along with the Republicans refuse to raise the debt ceiling if taxes are raised to increase revenue for the government.  Warren Buffett stated on CNBC a couple hours ago that it would be “silly” for Congress not to raise it’s debt ceiling.

Bloomberg just posted an article about the consequences and decisions the Obama administration will have to make if the debt ceiling is not raised.  As a Vet, I could lose my benefits which will not make me and many Vets unhappy.  The US could also lose it’s AAA rating which would be lowered to a D.  This definitely will have some impact on the world economy.

I am not surprised though, my professors back at Indiana University in the early 2000s mentioned that something like this would happen in the future.  One of my professors that I TA’d for told the class that she only had to pay a small portion of her student loans since the US experienced high inflation in the late 1970s.  She expected it to happen again in the future even alluding to the fact that it may be orchestrated (inflation is one way to lower your debt obligations to other countries).

In Vietnam, for many of us, we have to decide whether to keep our money in US dollars, Vietnamese dong, or with another currency.  Right now the Chinese currency is considered a safe bet but since they own over $1 trillion USD in government bonds from the US, a US default could affect their currency as well.

I hate to say it but in the short term, raising the debt ceiling may be the only viable solution for the US and World.

I am curious to see what many other people think about the potential of the US defaulting.  No conspiracy theories mumble jumble please…