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American Default

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Hello folks

I have a couple of questions i was hoping someone could give me the answer to in simple terms

Can someone please explain to me what the possible consequences could be on my str fund in the UK , If America defaults on its debt?

Also I just watched the film Inside job & in the film the rating agencies who gave AAA status to the CDO's stated it was only there opinion & they shouldn't be held liable,

Would the exact same thing happen if a country defaulted which had AAA status, the rating agency would claim it was only there opinion again?

Thanks in advance

Simon

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I can't see how the ratings agencies can still rate the US AAA. If there is even a tiniest chance of default on August 2nd which there a appears to be it surely warrants a downgrade.

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Hello folks

I have a couple of questions i was hoping someone could give me the answer to in simple terms

Can someone please explain to me what the possible consequences could be on my str fund in the UK , If America defaults on its debt?

Also I just watched the film Inside job & in the film the rating agencies who gave AAA status to the CDO's stated it was only there opinion & they shouldn't be held liable,

Would the exact same thing happen if a country defaulted which had AAA status, the rating agency would claim it was only there opinion again?

Thanks in advance

Simon

Ah, the thrill and joy of speculation.

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what the possible consequences could be on my str fund in the UK

To be honest, your STR fund is most at risk from the actions by the Bank of England as it systematically devalues our pound

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Can someone please explain to me what the possible consequences could be on my str fund in the UK , If America defaults on its debt?

As long as you are within the government guaranty limits on all the accounts, you are safe... just remember some banks are part of others, and the guaranty is per banking group not per bank or account.

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As long as you are within the government guaranty limits on all the accounts, you are safe... just remember some banks are part of others, and the guaranty is per banking group not per bank or account.

but bear in mind that if the government prints the money up to replace all those bankster lies it'll buy absolutely bugger all.

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but bear in mind that if the government prints the money up to replace all those bankster lies it'll buy absolutely bugger all.

What are you talking about...it buys bugger all anyway. ;)

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IF they default, we will surely see US interest rate rises ? In turn, will that cause massive ripple effects around the world as other countries rush to raise rates to attract investment ?? This could be a GOOD thing for your STR...

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IF they default, we will surely see US interest rate rises ? In turn, will that cause massive ripple effects around the world as other countries rush to raise rates to attract investment ?? This could be a GOOD thing for your STR...

I can only hope

But there are some in the press suggesting money will inflow to perceived safer government bonds, heaven forbid if that's the UK then that would put a concrete lid on interest rates here for a greater length of time

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I can only hope

But there are some in the press suggesting money will inflow to perceived safer government bonds, heaven forbid if that's the UK then that would put a concrete lid on interest rates here for a greater length of time

Also please note that Ratings agencies will also be considering the the "safety" of your cash. Bearing in mind the actual event of default is not the driving force behind any loss but the Loss given default. Take the example of Railtrack when it technically defaulted. Bonds and (subsequently CDS on Railtrack bonds) actually moved nothing value because the whole debt could technically be re-issued at 90 cents on the dollar which is where it traded in any case. As such, those who could call a default didnt bother because they were better off allowing the company to recommence paying agin when it sorted its liquidity.

This would be the same event, the US government may miss a payment on 2nd August (and dont under estimate the panic), but the vast majority of bond holders will sit tight and wait for the shennanigans to get sorted and then probably accept the interest late (and for those not due the poblem may be sorted prior to them being due cash).

The US government can and will if it resolves to simply lift the debt ceiling and/or print usd (via the Fed) to pay off its debts. That's why although the purchasing power of a currency can be devalued (thats why we (savers) generally charge an interest rate), the credit premium for a Government that has the option to print is always very small as defaults can and are only really technical (unless they have a lot of non-domestic denominated debt e.g Argentina)

In short, Greece would be a real default (unless the ECB grandfathers it), wheras the US default will involve a lot of people P*ssing their pants until Chopper Ben cranks up the presses (again).

Listen to most of the people on here, they have seen the light whilst our Governors explaore every avenue to end up in the same printing room. (In my opinion of course)

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I can't see how the ratings agencies can still rate the US AAA. If there is even a tiniest chance of default on August 2nd which there a appears to be it surely warrants a downgrade.

Probably because if they downrate the US they will be labelled as terrorists.

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Also please note that Ratings agencies will also be considering the the "safety" of your cash. Bearing in mind the actual event of default is not the driving force behind any loss but the Loss given default. Take the example of Railtrack when it technically defaulted. Bonds and (subsequently CDS on Railtrack bonds) actually moved nothing value because the whole debt could technically be re-issued at 90 cents on the dollar which is where it traded in any case. As such, those who could call a default didnt bother because they were better off allowing the company to recommence paying agin when it sorted its liquidity.

This would be the same event, the US government may miss a payment on 2nd August (and dont under estimate the panic), but the vast majority of bond holders will sit tight and wait for the shennanigans to get sorted and then probably accept the interest late (and for those not due the poblem may be sorted prior to them being due cash).

The US government can and will if it resolves to simply lift the debt ceiling and/or print usd (via the Fed) to pay off its debts. That's why although the purchasing power of a currency can be devalued (thats why we (savers) generally charge an interest rate), the credit premium for a Government that has the option to print is always very small as defaults can and are only really technical (unless they have a lot of non-domestic denominated debt e.g Argentina)

In short, Greece would be a real default (unless the ECB grandfathers it), wheras the US default will involve a lot of people P*ssing their pants until Chopper Ben cranks up the presses (again).

Listen to most of the people on here, they have seen the light whilst our Governors explaore every avenue to end up in the same printing room. (In my opinion of course)

I sort of follow your post above, thanks, and by light I assume you mean of the yellow variety

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I can't see how the ratings agencies can still rate the US AAA. If there is even a tiniest chance of default on August 2nd which there a appears to be it surely warrants a downgrade.

Perhaps - or, maybe, the logic is similar to my own... where I assume that this default talk is mere sabre ratting to get the best possible terms.

Of course, this might be a 'crying wolf' scenario - but, if that's the case... erm...

I've been wondering what would happen if the US was (significantly) downgraded or default. The immediate consequence would be that US sovereign debt would need to take a haircut on balance sheets across the globe... and, given the volume of US issued paper, I'd expect that to have a significant effect on supply/demand. Without intervention from central banks, we'd see a radical widening of yields on US debt - which would act to radically de-leverage every other market... With intervention from central banks, the legitimacy of banking itself would be drawn deeper into question... and I've absolutely no idea where that would lead.

IMHO, whatever happens, it won't be called a default... though vested interests will push things right up-to the wire. While I'm not certain, I think this situation will, over a period of weeks to months, lead to higher interest rates on a global basis... probably no sudden dramatic shift (as Obama claims possible) but... a change in circumstance that will make falling asset prices a medium (if not short) term certainty.

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And how will all this affect the exchange rate pound to dollar?

Could the pound rise against the dollar, despite our criminal Govt.s attempts to devalue it?

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And how will all this affect the exchange rate pound to dollar?

Could the pound rise against the dollar, despite our criminal Govt.s attempts to devalue it?

Bloody good question... not only don't I have a clue - but, I suspect, neither do others.

The relevant questions will include questions of liquidity - and the capital flows that would arise from an increased yield on US denominated debt - mitigated by (the inevitable) reactions by other governments and central banks. I'd expect money to leave equities and go to bonds - so, I guess, the question we need to answer is what is the sensitivity of non-debt non-dollar assets by portfolio size - where the investor is (or would chose to be) dollar denominated. Not an easy question to answer, I guess.

Edited by A.steve

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Its not legal for them to default, under the constitution.

They will have to have a balanced budget though, and their GDP will crash $1 for every $1 they dont borrow

Edited by Bloo Loo

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Guest spp

Trying to work out how the £ would perform is crazy.

It is linked to the world's reserve currency! Can you imagine the domino effect? There would be chaos between the central banks.

Default will continue by stealth..they WILL raise the debt ceiling.

The alternative to currencies was offered years ago, but we've been silenced from mentioning that...

Edited by spp

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The rating agencies are trying to cover their own backs when this blows up. It was only an opinion after legal advice, I'd be interested to know if at the time it was sold whether this was the case, any small print in the rating offered?

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What is going on in the US currently is very much to do with who wins the Presidency next year - Obama or the Republicans.

Obama knows he must win this battle to stand any chance of winning next year. The Republicans know that they can finish Obama off here and now next week.

That is the stake they are playing for.

This is why, as much as my head says that there will be an eleventh hour deal, my gut is telling me that there will be some kind of default.

Not a end of the world, run for the hills with your beans and gold default but a default that will see a sizeable correction in the stock markets and an oppoortunity for Obama, a few days later, to bring in emergency QE3 - and to be as the saviour of the US against those pesky Republicans.

Not only will it allow Obama to do the above but, as he should have done qith QE1 and QE2, he could now pump the money towards infrastructure projects in the US which would mean loads of jobs... which will mean loads of votes for him... and he can put all the blame on the Republicans...

He needs millions of unemployed Americans back in work and feeling wealthy again long before next November. If not, he stands not a hope in hell of getting re-elected.

A default next week will allow him all of this.

This is why, despte everything Obama is saying publicly, I have a suspicion that he and his team will welcome a default.

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If default is avoided, (which is most likely) how are the Chinese, Japanese and A-rabs going to react? I really can't see them holding on to US debt let alone buying more. Interesting few months ahead I think...

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Hello folks

I have a couple of questions i was hoping someone could give me the answer to in simple terms

Can someone please explain to me what the possible consequences could be on my str fund in the UK , If America defaults on its debt?

Also I just watched the film Inside job & in the film the rating agencies who gave AAA status to the CDO's stated it was only there opinion & they shouldn't be held liable,

Would the exact same thing happen if a country defaulted which had AAA status, the rating agency would claim it was only there opinion again?

Thanks in advance

Simon

Some thoughts on that at my blog link below. However you might need some help parsing them into implications for your STR fund.

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Bloody good question... not only don't I have a clue - but, I suspect, neither do others.

The relevant questions will include questions of liquidity - and the capital flows that would arise from an increased yield on US denominated debt - mitigated by (the inevitable) reactions by other governments and central banks. I'd expect money to leave equities and go to bonds - so, I guess, the question we need to answer is what is the sensitivity of non-debt non-dollar assets by portfolio size - where the investor is (or would chose to be) dollar denominated. Not an easy question to answer, I guess.

I think the opposite, voluntary default by a sov issuer is expansionary monetary policy. What is the difference between default via inflation and default via canceling selected coupons?

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I think the opposite, voluntary default by a sov issuer is expansionary monetary policy. What is the difference between default via inflation and default via canceling selected coupons?

The size of the money supply and who gets paid.

in an inflation money is transferred from th epopulation to a handful of insiders.

In a default the population is left alone.

Pretty simple, really.

Or, another way - inflation isn't a default.

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I think the opposite, voluntary default by a sov issuer is expansionary monetary policy. What is the difference between default via inflation and default via canceling selected coupons?

Eh?

There's little difference (except for the individuals who are defaulted upon) between selected cancellation and default... both contract the money supply. Not only are the defaulted instruments no-longer synonymous with money - but yields rise - and, hence, interest rates rise - and, hence, lower absolute levels of debt can be afforded on any given revenue stream. Nothing expansionary in sight - as far as I can tell.

Edited by A.steve

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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