Bloomberg News is out with an "article" under this headline:
U.S. May Join Germany of 1933 in Pantheon of Defaults
Do you get it? America is about to default and become the equivalent of the Nazi regime in Germany. At least that is what the headline says. The truth, of course, is something completely different.
First of all, there is little likelihood of default even if the debt ceiling is not raised. The United States has ample income with which to pay the interest on its debts. Principal of the debt is covered because it can simply be rolled over. In short, there is no need for a default. Indeed, any default would require the active decision of president Obama to ignore the Constitution (which requires the payment of the debts) and to cause a default.
Second, since the German default, the US itself has actually defaulted twice. One time it was due to computer problems and was temporary. More important, however, the USA refused to pay its debts in gold as required by the Treasury bonds it had issued. Bloomberg cutely points out that "some would argue" that this was a default, but Bloomberg chooses to ignore it because it breaks the tie to the Nazis. The truth is that a default is a breach of the bond contract and the failure to pay in gold was a major breach of the terms of the indenture.
Third, there have been a great number of defaults across the world since 1933. Argentina and Greece are probably the champions when it comes to numbers of defaults, but major powers like Russia have defaulted in just the last 15 years. Indeed, for what it is worth, the Germans also have defaulted since 1933. Just ask those people who held German war bonds.
So, the truth is that the US won't default, and even if it did, it would not be the first since 1933 (indeed, not even the first American default since then). Bloomberg is completely wrong.
U.S. May Join Germany of 1933 in Pantheon of Defaults
Do you get it? America is about to default and become the equivalent of the Nazi regime in Germany. At least that is what the headline says. The truth, of course, is something completely different.
First of all, there is little likelihood of default even if the debt ceiling is not raised. The United States has ample income with which to pay the interest on its debts. Principal of the debt is covered because it can simply be rolled over. In short, there is no need for a default. Indeed, any default would require the active decision of president Obama to ignore the Constitution (which requires the payment of the debts) and to cause a default.
Second, since the German default, the US itself has actually defaulted twice. One time it was due to computer problems and was temporary. More important, however, the USA refused to pay its debts in gold as required by the Treasury bonds it had issued. Bloomberg cutely points out that "some would argue" that this was a default, but Bloomberg chooses to ignore it because it breaks the tie to the Nazis. The truth is that a default is a breach of the bond contract and the failure to pay in gold was a major breach of the terms of the indenture.
Third, there have been a great number of defaults across the world since 1933. Argentina and Greece are probably the champions when it comes to numbers of defaults, but major powers like Russia have defaulted in just the last 15 years. Indeed, for what it is worth, the Germans also have defaulted since 1933. Just ask those people who held German war bonds.
So, the truth is that the US won't default, and even if it did, it would not be the first since 1933 (indeed, not even the first American default since then). Bloomberg is completely wrong.
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