I decided to ask AI what would happen if we default. Going into next summer things are going to be a larger mess than now.
A US debt default would likely trigger a financial crisis, causing a sharp increase in interest rates, a decline in investments, and a potential recession with job losses. The government might halt payments for programs like Social Security and veteran benefits, and the value of the dollar could fall as global confidence in US financial markets erodes.
Immediate and severe consequences
Higher interest rates: Default would likely lead to a credit downgrade, making it more expensive for the government to borrow money. This would cause a domino effect, leading to higher interest rates on mortgages, credit cards, and car loans for everyone.
Stock market crash: Investments would likely drop significantly, and the stock market could experience a major downturn.
Unemployment surge: A severe recession could develop, with a significant rise in unemployment.
Suspension of government payments: The government might be forced to stop payments for programs like Social Security, Medicare, and military/federal salaries.
Long-term economic and global impacts
Global economic instability: A default would create massive uncertainty and spillovers, particularly affecting developing countries that rely on US financial markets.
Loss of confidence: The US dollar’s status as a global reserve currency could be permanently damaged, and global investors might lose confidence in US financial stability.
Reduced government capacity: The government would struggle to respond to the economic downturn with necessary stimulus measures, which could make the recession deeper and longer-lasting.
What could go wrong? We have a guy at the helm who has been bankrupted multiple times. Who has added an addition $1T in, what, 7 months? (probably less). Who has talked before about possibly not repaying certain Treasury bills.
I think the odds are, well, much higher than they should be that you are correct. And in that scenario, I see no safe harbors for my IRA. Oh well.
I would caution you to see the circularity in that oped. The authors use of Tricolor and first brands cascades to the ecosystem that was created and fed upon their fraudulent use of the same collateral in multiple different securities.
This is doom cycling for the sake of eyeballs - and advertising.
The financial health is good. Industry trends in auto are not significantly off from normal - and much lower than peak apocalypse.
Have a read. I’ve posted it before. Wolf does a great job breaking this down. He used to be in Auto financing and has a great point of view - and DATA!
As I said last week to friends at coffee, if he says, “We are defaulting on the bonds”, are you going to say, “We need to pay them”? Mind you we are talking $40 trillion and all the damage of defaulting done already, no way to pay it back.