What happens if the US defaults?

US businesses, from Wall Street banks to major industrial
corporations, are preparing for the unthinkable – a US sovereign
default and the loss of its gold-plated AAA credit rating. With August
2 looming, when the US has warned it will run out of money, the
unimaginable prospect of the world’s biggest economy failing to pay
its debts has become all too possible. So what happens next?

The US government hit the $14.3 trillion legal limit, or debt ceiling,
on its borrowing on May 16 and since then has been dipping into
federal pension funds to give it room to pay its bills.
By Philip Aldrick, and Emma Rowley
That is the date the US runs out of money, according to its Treasury.
The government hit the $14.3 trillion legal limit, or debt ceiling, on
its borrowing on May 16 and since then has been dipping into federal
pension funds to give it room to pay its bills. The Treasury says
these measures to buy time „will be exhausted by about August 2”. The
White House has also said that to put in place the legislation
necessary to raise the debt ceiling, politicians’ deadline for
reaching an agreement was Friday – just passed.

What do people outside Capitol Hill see as the deadline?

Analysts at Barclays Capital last month worked out that August 2 would
indeed be the day the Treasury would run out of cash to pay its
obligations. Their analysis showed that the Treasury was set to have
to pay out about $32bn on August 3, most of that made up of a massive
social security payment. That implied that on the morning of August 3
the Treasury would have only $30bn in cash and so would not be able to
honour its obligations.

However, they now think that higher inflows might have removed that
likely $2bn shortfall – giving the Treasury slightly more breathing
space and making August 10 a „more realistic” deadline for it to run
out of cash. On August 4, $60bn of Treasury bills are due to be repaid
but analysts expect them to be successfully rolled over.

August 15 would then loom as a key date, as the Treasury faces a hefty
$25bn bill in interest payments to holders of its debt. However,
BarCap’s analysts caution: „There are no definites in this case. The
closer we get to August 15, the date of the next big coupon payment,
the greater the risk of a missed coupon payment since it leaves fewer
days to collect revenues to make that payment if the debt ceiling is
not extended.”

Will the US really default that soon?

Stephen Lewis at Monument Securities reckons August 2 was earmarked as
a deadline as much to persuade Congress to speed up agreement on a new
package as anything. The US may be able to raise funds from elsewhere,
such as delaying payments to defence contractors or even deferring
salaries for public sector employees. As Henderson’s Simon Ward said:
„The Treasury will stop other elements of government spending before
stopping coupon payments.”

The strategy is not without risk, though. Standard & Poor’s this month
said any missed payments, such as social security payments, would
trigger a rating downgrade.

If the US can’t skip spending plan payments, then what?

One other idea floated by both Mr Ward and Mr Lewis is that the US
Federal Reserve could lend money to the Treasury. The Treasury has
reserves at the Fed, which may be released back to the government.
Alternatively, Mr Ward suggested, the Fed could create a loan to the
Treasury by printing money – a form of inflationary quantitative
easing. Both proposals would reek of desperation, though, and are
unlikely to sit well with bond markets. All the US would be doing
would be buying more time.

So, the US has exhausted its options and run out of time. What happens then?

The US fails to meet an interest payment on its debts, typically paid
on 15th of the month, or can not repay debts that are due for
redemption. At that point there is a technical default. If the rating
agencies haven’t already, they will slash the US’s prized AAA rating
and credit default swaps (CDSs) will be triggered. The world’s safe
haven will have just become high risk. Panic would grip the markets.

Panic? What kind of panic?

The kind that would make the financial market seizure in the wake of
Lehman Brothers’ collapse look like a mild irritation. Credit markets
would freeze across the world as US treasuries are used as collateral
in most transactions, and they would no longer be accepted. CDSs would
begin to pay out with the same unknowable exposures. Inter-bank
lending lines would close. Without even treasuries to store funds,
investors would do the market equivalent of stuffing cash under the
mattress. „It would be like Lehmans but without any government safety
net,” says Mr Ward. Or in the more apocalyptic words of Mr Lewis: „The
global financial system collapses. You get political and economic
meltdown. It would be the end of the world as we know it.”

End of the world? Come on.

Global credit flows underpin global capitalism. Without them,
countries would re-erect protectionist barriers and globalisation
would come to a crashing halt. Asset prices would tumble, prices for
core goods would rise and the world would become a lot smaller. Almost
without exception, for the average person it would mean a massive
destruction of wealth and a severe reduction in living standards.

Ko nije pametno ulozio svoj novac u superannuation, pisi propalo!
:(

Ne valja nigde,ovaj svet se menja samo na gore.

pa imaju para do 2 avgusta , posle nemaju ni za penzije, pa će nastampati nešto para. Glavna reč se vodi između naravno USrA i zemalja brika. ( brazil rusija kina indija).Americi neće svanuti sve dok ne obuzdaju kineze...A jedini lek za kinu je JAPAN.

Mladenov pa nije Rimsko carstvo propalo za jedan dan tako će biti isto i za Amerikom samo će biti malo brze od Rimskog carstva. Isti scenario, drugo vreme „teknologija”

Pozdrav

http://www.youtube.com/watch?v=C4p1kD8CZX8&feature=related

http://www.youtube.com/watch?v=7Ytkl5KAO_0&feature=related

http://www.youtube.com/watch?v=cgJjr-kX7KI&feature=related