in

Since 1821, 98% of countries that hit 130% debt/GDP have defaulted on their sovereign debt. The US crossed 130% late last year. Govt monetary policy is no longer sustainable.

Since 1800, 51 out of 52 countries with gross government debt greater than 130% have defaulted on their commitments, either through restructuring, devaluation, high inflation or outright default. Japan is the only example of a country avoiding default despite having government debt greater than 130% of GDP, and Japan didnt solve their problems but rather just mitigated it without defaulting.

​

[Sovereign debt defaults over the years (Source: Hirshman Capital’s analysis)](https://preview.redd.it/pcyez784k4271.jpg?width=1286&format=pjpg&auto=webp&s=6a7b4a220a32e5aa3a555b6beccdc7999a241ccc)

[The US has already hit 130% in 2020](https://fred.stlouisfed.org/series/GFDEGDQ188S). And it is only poised to grow over time, with more and more debt being taken on in 2021. In historical terms, we are presently flying in uncharted territory. Will USA become only the 2nd country out of 53 to come out of such a high debt/GDP ratio without defaulting?

Its highly unlikely that the US will actually default on its debt repayments, because unlike most other countries in the list above, most of global debt is today denominated in USD, and the US govt can print more and more USD to fulfil all their debt obligations.

So what happens is that the value of USD will continue falling off a cliff. It has already lost a huge % (>90%) of its spending power over the years, and with government debt shooting up to uncontrollable levels, the value of USD will only weaken. And with that, the value of all your savings also goes down. The destruction of wealth.

The only alternatives to escape this certainty i.e destruction of USD’s buying power are real assets which are in demand, like gold, cryptocurrencies and real estate. While it is definitely possible that if the FED and US economy implodes, other markets including bullion and bitcoin/crypto crash together with it in the near term, but crypto markets are likely to see a very strong reversal because the fundamentals of crypto are the exact opposite of what the FED does.



View Reddit by DetroitMotorShowView Source

Leave a Reply

Your email address will not be published. Required fields are marked *

GIPHY App Key not set. Please check settings

47 Comments

  1. Virtually all of the post-war examples are either developing world and/or in a currency union w/o fiscal union. The pre-war examples aren’t directly comparable because they were under a wildly different and far less flexible monetary regime – the gold standard. Gold standard and fiat operate drastically differently – for some of why, [see here.](https://practicalprogressive.substack.com/p/de-fi-deep-dive-part-iv)

    It’s worth knowing some economic history when making these comparisons. You might look up Eichengreen’s work on the EU and on the gold standard – try googling “fetters of gold and paper.” de Grauwe’s work on the Eurozone is also useful.

  2. Hate to break it you. A country is only screwed if it’s debts and deficits are higher compared to its peers. What first world country right now isn’t running huge deficits? If everyone’s currency is devaluing at the same rate then they arent devaluing. It’s fixed income citizens are screwed but fug the boomers

  3. I highly doubt the US will ever even consider defaulting outside of a massive catastrophe like those listed on the chart you’ve linked. The debt issue is actually pretty easy to solve from a monetary perspective, but politics make it nearly impossible to do in the short term because raising taxes, closing loopholes, and enforcing existing tax law on the super rich is not going to happen in the current climate. Janet Yellin noted a study a week or two ago that estimated 7 trillion dollars in federal taxes went uncollected over a decade, a number that is within about 10% of what the US spends on its military annually.

    The money is there, and IMO those blocking the aforementioned changes would probably stop doing so if the US was in danger of defaulting.

  4. And? The US is paying like basically no interest on their debt. Pretty soon investors will be paying the US to hold their debt… you need to look at things in a historical context but you also need to place things within the current context. Which you are obviously failing to do here.

    Hell a lot of European countries already have negative rates

  5. Canada is on its way too. We have a low GDP to debt ratio now, but guaranteed its going to be maxed in a couple years. You can’t run a 25% GDP deficit yearly. Maybe the United States can, but definitely not Canada, the country every country in the world snubs.

  6. Countries that issue sovereign fiat currencies cannot be forced to default on any debts denominated in that currency.

    The United States will never default on its debt unless the crazy come to power and choose to do that. Ditto for the UK, Japan, Australia, and every other nation issuing a sovereign currency.

    Cryptocurrencies have a drastically worse track record on average than Sovereign fiat currencies.

  7. I hate to tell you, but the US has defaulted on their debts multiple times.

    1861 – suspended convertibility of currency to gold/silver. All gold and silver certificates and bonds were temporarily defaulted on.

    1934 – FDR defaulted on gold certificates and gold bonds.

    1971 – Nixon defaulted on silver certificates and silver bonds. Also defaulted on convertibility to gold for all other currencies.

    Now, if the USA defaults on their CURRENT debts, the **whole wide world is royally screwed.**

    You see, our fiat currency is 2/3 of the WORLD exchange reserves. This means our pieces of paper back up everyone else’s pieces of paper.

  8. „Real“ assets such as cryptocurrency. Yeah, right. Take for example BTC at its current $670 billion market cap. That sound sustainable to you? Exchanges coincidentally go down every single time the price drops by any significant amount.

  9. This debt to gdp mark doesn’t matter anymore, governments can just keep rolling over debt almost indefinitely. US doesn’t have an aging population problem Japan has, or had, and US is #1 in terms of immigration growth and private company and real estate worth. It may be concerning if it reaches 200%, however, if other countries are above 200% and are fine, then rolling over debt works. The system will continue to work until population and gdp decreases.

  10. It is not that easy, the debt levels can easily reach more than 300 %. It depends on many different factors, three of which are most important:

    1) World status; a country like the USA representing a world power can afford more debt than smaller and poorer countries with no significant effect on the global stage.

    2) The ratio of foreign to domestic debt holders. This is why Japan can ‘afford’ to have insane debt levels as most of this is domestic debt.

    3) The interest rates paid on the amount of debt.

    There is no clear line where you can say ‘If the US debt to GDP ratio hits X % it is over!’. We are definitely in a dangerous zone here, but insanity can last longer than you might think.

  11. The table shows that we could one step or 10 years away from a massive USD devaluation.

    Another financial crisis, war with China or other unexpected event could start this.

    AFAIK, US dollar is only used as an international currency for 100 years, sterling was predominantly used before. And it’s not really as Lindy as gold which was used for thousands of years.. interesting

What do you think?

Crypto Analyst Lark Davis on Ethereum: ‘This Bad Boy Has a Lot of Room Left To Run’

Crypto Analyst Lark Davis on Ethereum: ‘This Bad Boy Has a Lot of Room Left To Run’

Billionaire Stan Druckenmiller on Dogecoin, Ethereum: Won

Won’t Long or Short DOGE, Skeptical of ETH – Featured Bitcoin News