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Author Topic: US Default = Rise in BTC price or fall in BTC price?  (Read 2853 times)
niemivh
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June 07, 2011, 04:17:19 PM
 #1

What happens to the BTC if the US Defaults on it's national debt?  It appears that this has the possibility of actually happening.  If/when the US default happened trillions of foreign holdings would evaporate overnight.  It would result in a worldwide depression and almost certainly lead to WW3.  This might be something that the US ruling elite wants as the US empire is rapidly in decline and former countries previously under the Empire's thumb are seeking to ally themselves with China, Russia, the EU or a combination thereof.  Rather than let the Empire die and have us turn to something resembling a Republic I believe they are seriously considering a default (much like 'default' of British gold payments in 1931, which at the time was a world reserve currency) which plunged the world from a long term 'Recession' into the abyss of total collapse.

My question, if this happened would Bitcoin be a haven of one's value?  Would people flee the dollar into Bitcoin?

Or, would there be a panic sell-off so people could pull money out?  Perhaps as a true panic or something prompted by domestic USD deflation where people would have to pull out of BTC to make ends meet?

Thoughts?

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TraderTimm
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June 07, 2011, 04:22:25 PM
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If the US defaulted on their debt, the dollar would be useless. I doubt people would then seek refuge in fancy green toilet paper. In this extreme scenario, I would favor bitcoin.

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Vladimir
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June 07, 2011, 04:23:57 PM
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physical gold and bitcoin will rule than, silver, tuna and led too, probably

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justusranvier
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June 07, 2011, 06:06:53 PM
 #4

Debt default is deflationary.

If all the US federal government debt all of a sudden became worthless then all those bonds would no longer be good collateral for loans so you'd see a severe credit contraction and the price of the dollar would go up.
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June 07, 2011, 06:09:13 PM
 #5

Debt default is deflationary.

If all the US federal government debt all of a sudden became worthless then all those bonds would no longer be good collateral for loans so you'd see a severe credit contraction and the price of the dollar would go up.

Don't forget the lapse in trust that would occur if the US thought it was okay to screw over bondholders. The faith in the dollar itself would be damaged to the extreme.

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justusranvier
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June 07, 2011, 06:14:53 PM
 #6

In the long term it would probably damage the dollar but in the short term demand for dollars would still exist (to pay private debts, make payroll, etc) while the supply would have been drastically reduced.

In a debt default scenario dollars to become priceless before they become worthless.
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June 07, 2011, 06:30:37 PM
 #7

In the long term it would probably damage the dollar but in the short term demand for dollars would still exist (to pay private debts, make payroll, etc) while the supply would have been drastically reduced.

In a debt default scenario dollars to become priceless before they become worthless.

Just one example of many, but here's a reputable source that disagrees with the 'priceless dollar' scenario.

http://www.cfr.org/international-finance/us-debt-ceiling-costs-consequences/p24751

(Council on Foreign Relations)

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niemivh
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June 07, 2011, 06:45:21 PM
 #8

If the US defaulted on their debt, the dollar would be useless. I doubt people would then seek refuge in fancy green toilet paper. In this extreme scenario, I would favor bitcoin.

I fail to see how that's automatic.  The decision to hyper-inflate the currency is just that: a political decision.  So is a deflationary crash that the Right-wing of our establishment is calling for.  If the US defaulted it would say we aren't redeeming T-Bills for USD and we aren't paying interest on those T-bills any longer - so how would that result in the USD being worthless overnight?  Currency controls could mitigate a tidal wave of capital inflows so I fail to see how it is guaranteed total devaluation of the dollar although it would certainly take a significant hit.  People compare a potential US default to the Weimar Republic which is a totally inaccurate model for how a US default would look.  The US is a world reserve currency much like the British pound was prior to 1931.  After the British defaulted on gold payments their currency didn't go to 0, it floated pretty close to what it already was at.  I'm not saying that will be the case here, but what models can we reliably use to predict how a global reserve default would look like?

Would gold be a safe holding?  As it would be likely that the government might confiscate gold again to back the currency (at least for people domestically, and if Sara Palin is listening: that doesn't include Julian Assange) as the level of the 'big players' countries acquiring of gold has been increasing as rapidly as the fanfare of the bitcoin.  =D

A lot of speculation here, but I guess there is no real way to tell what the hell might happen.  Let's hope it doesn't.  

(PS A 1% Tobin Tax would fix the national debt problem or stopping the wars of course)

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TraderTimm
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June 07, 2011, 06:50:11 PM
 #9


A lot of speculation here, but I guess there is no real way to tell what the hell might happen.  Let's hope it doesn't.  


I'd rather not find out by a default, no. I suppose what I'm trying to communicate is any major disruption in the world reserve currency would result in people fleeing to other alternatives. That would include bitcoin, I'd imagine.

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Bazil
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June 07, 2011, 06:55:45 PM
 #10

I see this whole discussion as pretty pointless.  Debt ceiling, not debt ceiling, the US isn't going to default, it would just cut back in other areas until the next budget cycle.  To say the US would default is the same as assuming that you are going to hit a slow car on the road just because your car is moving faster than it.  No, instead you see the car as you approach and you slow down, not smash into it like a brainless wonder.

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rezin777
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June 07, 2011, 07:05:53 PM
 #11

physical gold and bitcoin will rule than, silver, tuna and led too, probably

These are some of my favorite things!
Lupus_Yonderboy
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June 07, 2011, 07:06:06 PM
 #12

Bitcoins will of course go up vs. the dollar. People would be wise to divest themselves of any dollars or dollar denominated securities now. Buy Euros, or yen, or pounds, or bitcoins. The Republicans have often and loudly stated that they will do anything to ensure President Obama only serves one term. Going by their statements over the past few weeks, this seems to mean that they really will do anything, including destroying the US economy. After all, if Great Depression 2.0 happens, then Obama won't be re-elected.

If you live in the US and you have a 401k or IRA or any other type of retirement account, right now would be a real good time to cash it out and move your holdings into other currencies and/or metals. Bitcoins are probably not going to be crashing in the next couple of months, so they are probably fairly safe. Hell, any currency not pegged to the dollar is going to be safer for the next couple of months. The day the US defaults any dollars you have are going to effectively be worthless. I also would not doubt that many OPEC countries would move to start oil valuation pegged to the Euro, further destroying whats left of the dollar.

On the plus side, the US may be able to compete with China again, since everybody's wages will be on par with a Chinese farmer's.
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June 07, 2011, 07:11:33 PM
 #13

If you're talking about an actual default (as opposed to printing of money), it would have a deflationary affect on the US dollar.  The value of bonds would fall likely causing knock on defaults by various other entities.  There would the a scramble to raise cash as a debt deflation kicked in.  So, the value of the dollar goes up.  To the extent people held BTC and needed to sell it to pay off dollar based debts, the value of BTC would drop...however, the value of BTC could remain largely unaffected (but still cost a lot less in dollar terms due to the dollar deflation).

On the other hand, if you are talking about a default via printing press (a default in the sense that the US just devalues the currency rather than making changes in fiscal policy to balance its budget or actually defaulting), then the value of the dollar falls.  To the extent people opt to buy bitcoins as a result, the value of bitcoins would rise.  However, the value of BTC could remain largely unaffected (but still cost a lot more in dollar terms due to the dollar inflation).

The printing press seems to be the path of least resistance (compared with a default on US bonds, cutting various entitlement programs, cutting war spending, or raising taxes).  Only time will tell.

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June 07, 2011, 07:51:03 PM
 #14

It's absolutely deflationary. Maybe the dollar still dies eventually anyway, but reducing the supply does not hurt the dollar. Refusal to default even though there is not enough value to hand out is why they are printing and why the dollar will die.

Default = admission
Printing = denial

What do you think is going to happen?

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June 07, 2011, 08:48:20 PM
 #15

I like to refer to these articles whenever this topic is raised:

http://hnn.us/blogs/entries/53544.html

http://www.econlib.org/library/Columns/y2009/Hummeltbills.html
niemivh
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June 07, 2011, 09:12:38 PM
 #16

I don't buy it that the Republicans want Obama gone.  They've been getting everything they want from him while paralysis has frozen the left-wing of the party due to the fact that Obama has a (D) next to his name.  He's GWB 3rd term in all area's of policy that matter: war policy (albeit different methods employed although still unquestionably imperial), economic policy is largely the same, fed policy is unchanged, etc.  The establishment wants the social safety net erased so that money can go to the war machine and bigger and better bailouts QE3 and QE4 will be right around the corner.

I'll keep my politics out of your economics if you keep your economics out of my politics.

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nuggets4all
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June 07, 2011, 09:46:28 PM
 #17

The US gov't IS defaulting on its debts. Every time the Federal Reserve monetizes govt debt by buying treasury bills, the govt is defaulting. Paying your debts back in funny-money is a stealth form of default.

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June 07, 2011, 09:46:52 PM
 #18

Debt default is deflationary.

If all the US federal government debt all of a sudden became worthless then all those bonds would no longer be good collateral for loans so you'd see a severe credit contraction and the price of the dollar would go up.

+1 Thank you! At least one person on this board has basic economic literacy.

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niemivh
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June 07, 2011, 09:49:47 PM
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More Austrian politics wrapped in the language of economics.

Problems with blaming "entitlements" for national bankruptcy in this article:

1) Doesn't include Missing Trillions from the Pentagon: http://www.cbsnews.com/stories/2002/01/29/eveningnews/main325985.shtml
2) Doesn't take into account Trillions of dollars spent on pointless wars over the past 20 years.
3) Endless subsidy of nearly 0% interest loans to Wall St. banks.
4) Loves CDS (Credit Default Swaps) which are effectively insurance without any capital to back them up which used to be illegal and still should be which had a huge role in the collapse and bailout.
5) Never considers any tax changes or increases to shore up whatever deficit these programs have.

But of course that's not a problem for him, because Austrian economics are often used in our modern time for the justification of the looting of what remains of our government.  The reason they preach that the sky is falling with regards to Medicaid and Social Security is that they don't want to pay for Medicaid (the rich) and they want to loot Social Security and privatize it.


I'll keep my politics out of your economics if you keep your economics out of my politics.

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Montpelerin
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June 07, 2011, 10:30:37 PM
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More Austrian politics wrapped in the language of economics.

Problems with blaming "entitlements" for national bankruptcy in this article:

1) Doesn't include Missing Trillions from the Pentagon: http://www.cbsnews.com/stories/2002/01/29/eveningnews/main325985.shtml
2) Doesn't take into account Trillions of dollars spent on pointless wars over the past 20 years.
3) Endless subsidy of nearly 0% interest loans to Wall St. banks.
4) Loves CDS (Credit Default Swaps) which are effectively insurance without any capital to back them up which used to be legal and still should be which had a huge role in the collapse and bailout.
5) Never considers any tax changes or increases to shore up whatever deficit these programs have.

But of course that's not a problem for him, because Austrian economics are often used in our modern time for the justification of the looting of what remains of our government.  The reason they preach that the sky is falling with regards to Medicaid and Social Security is that they don't want to pay for Medicaid (the rich) and they want to loot Social Security and privatize it.



I really don't know where to begin with your reply, but I would initially like to point out that your assertions are quite disingenuous.

If you would like to reply to the articles in my post, please do - but if you choose to ignore them and place your own accusations and political agenda upon a false reply, it only reflects poorly upon yourself and your positions.

First, your opening accusation "More Austrian politics wrapped in the language of economics" is incorrect in more than one way.
1. The correct phrasing would be "More libertarian politics wrapped in the language of Austrian economics".
2. While Hummel does incorporate some Austrian positions in economics, he is not an Austrian economist, his personal economics (from his own explanation) incorporates neo-classical positions as well as others.

Regarding your "entitlements" rundown:

1. There may be trillions of dollars missing from the Pentagon and I am sure the Author shares your dislike.
2. The Author does not support state-sponsored wars (why do you phrase the question in an accusatory way?)
3. Again, you phrase your question in an accusatory way, as if the Author supports this action.
4. In which article does the Author support CDS?
5. I'm sure a $.02 National sales tax will take care of that... - /sarcasm
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