Will America Default?

It is scary out there with the economic crisis being comparable to the 1930s with debt as opposed to crashing stocks being the major problem. Thankfully we are not in the Euro which has enabled us to devalue and take some of the strain as our annual deficit was comparable to Greece for a time, thanks mainly to running a 3% deficit at the height of a boom. I agree that there is no way that the USA will default.

Gold has massively increased in value as money has poured into this safe haven so the big winnners here are those that bought in a while ago. Can't see many on here, putting their spare cash into gold, more like trying to pay down debts and putting money aside for a season ticket or picking and choosing which matches to go to.

There is still a chance that the Euro may go, but I now think it more likely that this will accelerate a move to a fully federal EU with the PIIGS now having to dance to a different tune.

The pound has actually strengthened against the dollar and the Euro in the past two years, so I wouldn't use it's conversion rate against an obscure currency as any indication of impending financial doom. As for America, they'll pull the iron out of the fire at the last possible moment when the Republicans realise they can't get anymore concessions. Exactly the same thing happened in the Clinton administration back in the mid 90s. It's one of the stupid things in American politics dating back from around WW1 when they arbitrarily announced a debt limit that was thought fantastically high back then but has been surpassed many times since thanks to inflation and greater spending. Generally the debt level gets raised easily but this time around the Republicans have just decided to be pains in the ass about it. I can't actually name another country off the top of my head that has a defined debt limit, it's a bit of a silly law really. America's national debt level to GDP is actually fairly low and easily managable, it's certainly no Italy or Japan.

...and two years ago the £ and € were at parity and the £ was buying about 1.4 dollars. Now it buys nearly $1.7 (I've just come back from a month in America) and is again worth more than the €. Ergo the markets have responded to our reaction to the recession and have viewed it as prudent as thus the £ has gained strength from it's nadir in the middle of the original credit crunch. The baht is an obscure currency whichever way you put it, no one cares about it. The Yen is the only important Asian currency on an international basis and increasingly the Renminbi/Yuan.

Hence the market views that the UK economy is on it's way to recovery and is making the right decisions, even if we've still got a few hard years ahead of us as the economy only grows slowly. Randomly picking a four year spread doesn't give any indication of whats happened in recent years. I could easily pick a ten year spread and see that the £/$ conversion rate is pretty close to what it was in 2001 and suggest nothing has happened. Exchange rates are a shaky thing to base economic analysis on, especially when deliberately tanking your currency's value can be economically beneficial to the country.

I'm aware that the USA has debt problems, however it has the financial strength to get through them unlike places like Greece. None of the American states will default because worse comes to worse the federal government will bail them out. Americans can be infuriatingly idiotic when it comes to government but a Democratic administration will not willingly shoot itself in the foot by allowing a state to collapse. Furthermore many of the states in a horrible state are in those states because of politics not because of an inability to pay their debts (look at Californian politics for one).

As for the CPI thing, there's two types, non core CPI and core CPI, non core CPI is usually the one that's quoted and does include food and energy. Random example would be May this year, core CPI = 3.7% and non core CPI = 4.5%. So no the government isn't really hiding much, as the 4% figure is the one usually quoted. You need to stop reading the Daily Mail and all it's doom and gloom. Things are bad but they're not catastrophic at the moment. If the EU doesn't sort things out wisely and/or the United States does something catastrophically idiotic (always a possibility) then your worst case scenario may occur but as things stand they're bad but not omg put all your money into commodities, stuff everything else under the bed!!! bad.

The Euro`s doomed, always was, you can`t carry as many looser countries as it tried to carry and it`s going to drag the pound down with it if the U.K. keep piling loads of our hard earned cash into it! Countries like Greece, once they were firmly in the Euro Zone, took the piss and saw the Euro as a cash cow, a bit like some chancer on a council estate that earns minimun wage and loans more than he can ever pay back. I don`t think it`s quite the same with the States, they have the ability to build their economy back up and recover, I believe it`s all about potential and America have that, matey on the council estate could work all the hours God sends but at his wage level still can`t meet his bills as well as pay back what was borrowed, he has Sky telly, a 50 inch flat screen, a Subaru Impretza and a bling wardrobe all on hock. Reminds me of a joke- what do you call the little square box on a sattelite dish- a council house! Waits for people in council houses to go nuts! If you live in a council house then you will probably know the blinged up Subaru driver I`m refering to, covered in tatts, gold soveriegns and usually has a scouse accent, not to mention the Staffy cross Pitbull!

the92ndfish

I was going to echo the 'are you on drugs Mr.Fish? ' question, but it seems there are still those who don't realise what a basket case the U.S economy is.

My gold stocks have provided handsome returns over the two & a half years I've had them & I fully expect the gradual collapse of the dollar to see them continue heading in the same direction.

With regard to Japan we should remember that a bigger proportion of America's gigantic debt was owed to the Japanese than anyone else until the Chinese took over than dubious title in either 2008 or 2009. If Japan hit's difficulties it can still flood the market with dollars reducing them to the value of confetti. Friday of last week saw the U.S dollar hit an all time low against the yen & that's not because Japan is doing anything right, more a reflection on the U.S.

Japan has suffered for decades from it's stubborn adherence to Keynesian economic principles. Even in the wake of the tsunami & nuclear catastrophe it devalued it's currency thereby making it's imports substantially more expensive at the very time it would be importing in huge quantities in an attempt to rebuild it's infrastructure.

America's debt is so massive it hasn't a hope of paying it back. The individual states are up to their necks in debt also. The American citizens have maxed out on their credit cards & can't make their mortgage repayments...just wait till we get some realistic interest rates.

By contrast it's the Japanese themselves who have bought Japanese Government bonds. The money is owed to their own citizens so the currency isn't going to be dumped. Another big contrast is that the Japanese citizens save, they are nothing like the Americans who are drowning in a sea of debt.

Get out of the dollar, get out of America & watch Obama's shambolic states collapse from a safe distance.

The US economy has a lower GDP/Debt ratio than the UK economy and most of Europe. It has huge problems with employment and returning the economy to healthy growth but it's not in any danger of defaulting any time soon, unless politics comes into the equation. The biggest threat facing the USA is the crippling costs of Medicare in the coming decades, because it costs twice the amount to treat someone in the USA than it does in most other developed countries it's aging population is going to give it a real kick in the balls in a couple decades, Obamacare didn't do anything to change this. However as it stands the USA is fine in terms to debt, it just needs to get it's economy growing again.

As we've brought up Japan, Japan has a 220% GDP/Debt ratio and hasn't default yet. The USA's is at 60%. Even Germany that supposed powerhouse of Europe and always stable country has a higher debt level than the USA.



It could do it but it never would. Nations aren't in the business of tanking each others economies on purpose. Just think it through, if Japan tanks the US economy then it'd be shooting itself in the foot and putting itself into recession considering how much it exports to the USA.

Seriously the USA is not to be worried about, it's robust just going through a horrible period of readjustment just like the 1970s after the oil crisis. Whereas large swathes of Europe are indebted to the extent they simply can't pay it off, that's much more worrying.



Because the West imports a lot of rice? Most of the countries that consume large amounts of rice are in rude health, the current recession has been very much a Western orientated issue, although Australia continues to grow thanks to it's mineral wealth. A strong baht is largely irrelevant to the Western World and most of Asia (aside from Japan) is booming thanks to the Chinese and Indian explosion.