It's even worse than it appears..
Sunday May 7, 2023; 8:16 AM EDT
  • Here's the story.#
    • The US government is a bank, among other things. #
    • That means you can deposit money with the government, and it will pay you interest.#
    • A lot of people put their money in the government bank, even though it doesn't pay the highest interest, because unlike all other banks, it's thought to be the safest place to put money. When you want it back, to spend, or give to a relative or friend, or invest in stocks, the odds are nearly 100% that you will get the money.#
    • Why do people feel that way about the US government bank? Because it's one of the core values of the US. The first treasury secretary, Alexander Hamilton, set it up this way. In all the years since 1776, through a civil war, depressions, two world wars, the United States has always met its obligation to return money to lenders. #
    • Now sometimes terrible things happen, and a bank can't give money back to depositors. What happens then is: 1. There's a run on the bank by depositors and the bank fails. Depositors lose their money, or 2. Some larger institution steps in and guarantees the deposit, and the run stops, because confidence returns among creditors. #
    • The "larger institution" often is the United States government, because it is the most solvent bank in the world for the simple reason that we are the only entity that can print money that will be accepted everywhere in the world. It's an incredible privilege to have. Imagine if you could buy anything you want just by writing a check. It wouldn't matter if you "had" the money, because you can print the money. It's as if the check itself were worth money. It's why all the comparisons to smaller countries like Greece are ridiculous. Greece can print money if they want to, but people will only accept dollars not drachmas. We can have anything we want and as much of it as we want and all we have to do is invent the money to pay for it! (Obviously if we abused this privilege in a way that seriously hurt the world economy there would be a problem, so we don't do that.)#
    • Okay, now suppose one day, just for the hell of it, the government decides to try defaulting, for some reason that's hard to fathom. Remember, we have the ability to pay the bills. It's as if you told Visa or MasterCard that you weren't paying your bill, but please don't ruin my credit rating because I could pay, it's just that I don't want to. By defaulting I mean, a depositor goes to the bank and ask for their money, and the teller hands them a card that says "Sorry no money for you." Like the Soup Nazi in Seinfeld. As a depositor you would be very angry and you'd tweet about it to tell everyone what happened, and they'd all go to the bank and demand their money, and voila, you have a run on the bank. That would probably be the first thing that happened after a default. Everyone who had money on deposit with the US government would demand it back so they could put it somewhere that wasn't managed by lunatics. But because we're defaulting we give everyone the "No money for you" card instead of their money. #
    • What normally happens in a bank run, a larger institution steps in and guarantees the deposits, can't happen here because there is no institution larger than the US government. So what happens? No one knows. But it won't be good, that's for sure. We got a small taste of it in 2008 when a relatively small bank, Lehman Brothers, was over-extended, and a run resulted, and as a result other banks who had money in Lehman, couldn't get it, they started defaulting, and the economy of the whole world froze. Shipping stopped. Airlines couldn't fly. It was a very scary time. The US government started writing checks, huge checks, and we just got through it by the skin of our teeth. But again, this time, it's the US government defaulting and no one can play that role in this meltdown.#
    • If we're lucky, and people believe they can trust China or the European Union, they might write off the assets they have stored in the US, and never use our bank as the safest place to store value, because we all lost so much in the run that followed the default. We'd start storing value in Chinese or European currency. And the US would become an ordinary country, with no special ability to print money that everyone accepts. It won't be a recession in the US, instead we will see an invisible support for our economy disappear in an instant. Some of it already disappeared, the last time we flirted with default. But if we actually default, the US economy will become much less potent. We no longer will have the ability to print money to pay our bills. Now some people will tell you that's a good thing, but they're the worst kind of idiot. It's like saying it's better to be homeless because you don't have to pay rent. We won't have an idea how our lives are elevated by this privilege until we lose it. It's been there for our whole lives. #
  • The Soup Nazi in Seinfeld. #
  • I'm sure there are some inaccuracies here. I am not an economist. But I think I do correctly understand the big picture. We learned a lot about it in 2008 and after. This isn't something you want to screw around with, but that's what we're doing anyway. It's even more insane than what the British did in Brexit, and that's hard to do! So let's not do it. Call your Congressperson, especially if they're Republican, and let them know you understand what they're doing and you will work tirelessly against their re-election if they don't withdraw their support, immediately, for default. #

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Last update: Sunday May 7, 2023; 11:04 PM EDT.

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