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Author Topic: When US debt ceiling is lifted . . .  (Read 4720 times)
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July 03, 2011, 01:53:47 PM
 #21

When the debt ceiling is lifted everyone will breathe a sigh of relief and life will continue as usual.  (The debt ceiling is one of those things that seems good on paper but which in practice serves only for political grandstanding and theatrics.)


The usual isn't usual. You are suffering from normalcy bias if you think the usual is sustainable. the real debt ceiling is reached when the creditors don't want to lend any more money. That day is approaching.

Current US inflation is 3.6%.  Current US 10 year bond rate is 3.2%.   So the US gets to repay less than the amount it borrows. Raising the debt ceiling only allows the US government to take more of this free money. 

The real injustice is that if your government feels like it, it can print dollars.  So not only does the US borrow for free, it gets to repay less than it borrows and at any point it can simply print the money to repay it.  What a deal.


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July 04, 2011, 05:05:45 AM
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But why would creditors stop lending money?

Creditors never stop lending money... they stop lending it at a given rate. They demand higher rates, and this is where the danger lies.
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July 04, 2011, 05:40:02 AM
 #23

When the debt ceiling is lifted everyone will breathe a sigh of relief and life will continue as usual.  (The debt ceiling is one of those things that seems good on paper but which in practice serves only for political grandstanding and theatrics.)


The usual isn't usual. You are suffering from normalcy bias if you think the usual is sustainable. the real debt ceiling is reached when the creditors don't want to lend any more money. That day is approaching.

But why would creditors stop lending money? That's their business. Despite the risks, there will always be someone to make money off of giving someone else money. If you're running a business, you don't stop selling your product and expect to make money.

If you lose money on every transaction, you can't make it up by increasing volume.

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July 05, 2011, 08:39:40 AM
 #24

When the debt ceiling is lifted everyone will breathe a sigh of relief and life will continue as usual.  (The debt ceiling is one of those things that seems good on paper but which in practice serves only for political grandstanding and theatrics.)


The usual isn't usual. You are suffering from normalcy bias if you think the usual is sustainable. the real debt ceiling is reached when the creditors don't want to lend any more money. That day is approaching.

But why would creditors stop lending money? That's their business. Despite the risks, there will always be someone to make money off of giving someone else money. If you're running a business, you don't stop selling your product and expect to make money.

If you lose money on every transaction, you can't make it up by increasing volume.


I'm not a smart man, but I was under the impression that creditors never really lost money. Even if they get a bad debt they just sell it off to a collection agency, usually for way more than the original debt was worth. Kinda what causes inflation, I'd imagine.

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July 05, 2011, 08:48:50 AM
 #25

it doesn't matter what happens, weather we finally meet our ceiling and have no more credit's to work with or weather it's extended again and again- at the end of the day however much debt there is it will never go away until the credit/interest system just plain erased- it creates unneeded competition to exploit ignorant/less intelligent people

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July 05, 2011, 08:51:46 AM
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I'm not a smart man, but I was under the impression that creditors never really lost money. Even if they get a bad debt they just sell it off to a collection agency, usually for way more than the original debt was worth. Kinda what causes inflation, I'd imagine.

usually for a fraction of the original debt. way more - interesting where you got this information from Smiley

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July 05, 2011, 03:52:56 PM
 #27

I'm not a smart man, but I was under the impression that creditors never really lost money. Even if they get a bad debt they just sell it off to a collection agency, usually for way more than the original debt was worth. Kinda what causes inflation, I'd imagine.

Under the impression that creditors never really lost money?  That doesn't pass the straight face test. If creditors never lost money, and only made it, then everyone would start lending and being a creditor. Of course that's silly. Creditors lose money ALL THE TIME - when they sell a debt to a collection agency, they get less than the original amount of the debt, they're merely trying to limit their losses at that point.

An no, this is not where inflation comes from. Inflation comes from the Federal Reserve, as it prints money. Stated differently, inflation IS the printing of money by definition. Price increases in the market are one effect of inflation.
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July 06, 2011, 01:15:02 AM
 #28

I'm not a smart man, but I was under the impression that creditors never really lost money. Even if they get a bad debt they just sell it off to a collection agency, usually for way more than the original debt was worth. Kinda what causes inflation, I'd imagine.

Under the impression that creditors never really lost money?  That doesn't pass the straight face test. If creditors never lost money, and only made it, then everyone would start lending and being a creditor. Of course that's silly. Creditors lose money ALL THE TIME - when they sell a debt to a collection agency, they get less than the original amount of the debt, they're merely trying to limit their losses at that point.

An no, this is not where inflation comes from. Inflation comes from the Federal Reserve, as it prints money. Stated differently, inflation IS the printing of money by definition. Price increases in the market are one effect of inflation.

Perhaps you no understand how credit lending works...Basically a poor, helpless sap decides to get a credit card. He goes and spends all of his $1000 limit. The credit card company pays that $1000 then begins to add to that total based on their rate. If this guy makes no payments whatsoever on the $1000, the credit card company will eventually sell off the debt to a collection company, usually for about two times the amount of the debt. Where was any money lost? The thing that stops everyone from doing this is that they have to front the $1000 at the very beginning of the whole deal.

So say this guy just lets his $2000 debt sit in collections for 7 years. Once this time period is up, the debt disappears. The credit company has effectively paid $1000 and got $2000 back. Perhaps it's not the direct action that caused inflation, however it did create the circumstances that allow for inflation. The only person that ends up losing money, is nobody, or everybody depending on how you look at it.

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July 06, 2011, 02:17:44 AM
 #29

I'm not a smart man, but I was under the impression that creditors never really lost money. Even if they get a bad debt they just sell it off to a collection agency, usually for way more than the original debt was worth. Kinda what causes inflation, I'd imagine.

Under the impression that creditors never really lost money?  That doesn't pass the straight face test. If creditors never lost money, and only made it, then everyone would start lending and being a creditor. Of course that's silly. Creditors lose money ALL THE TIME - when they sell a debt to a collection agency, they get less than the original amount of the debt, they're merely trying to limit their losses at that point.

An no, this is not where inflation comes from. Inflation comes from the Federal Reserve, as it prints money. Stated differently, inflation IS the printing of money by definition. Price increases in the market are one effect of inflation.

Perhaps you no understand how credit lending works...Basically a poor, helpless sap decides to get a credit card. He goes and spends all of his $1000 limit. The credit card company pays that $1000 then begins to add to that total based on their rate. If this guy makes no payments whatsoever on the $1000, the credit card company will eventually sell off the debt to a collection company, usually for about two times the amount of the debt. Where was any money lost? The thing that stops everyone from doing this is that they have to front the $1000 at the very beginning of the whole deal.

So say this guy just lets his $2000 debt sit in collections for 7 years. Once this time period is up, the debt disappears. The credit company has effectively paid $1000 and got $2000 back. Perhaps it's not the direct action that caused inflation, however it did create the circumstances that allow for inflation. The only person that ends up losing money, is nobody, or everybody depending on how you look at it.

Where did you get this crap from?

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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July 06, 2011, 03:59:25 AM
 #30

a poor, helpless sap decides to get a credit card. He goes and spends all of his $1000 limit. The credit card company pays that $1000 then begins to add to that total based on their rate. If this guy makes no payments whatsoever on the $1000, the credit card company will eventually sell off the debt to a collection company, usually for about two times the amount of the debt.

Uh, no.


http://ezinearticles.com/?How-Bad-Debt-Can-Be-Bought-and-Sold&id=1155324

How do bad debt buyers get their hands on this debt in the first place? They purchase it for pennies on the dollar, or less sometimes, from established companies. The going rate depends on just how bad the debt is. Debts that are fairly recent that have not yet even been written off as losses may fetch as much as 12 cents on the dollar in the bad debt market.


Double? Why on earth would anyone pay $2k for $1k worth of bad debt?  The bank is lucky to sell that bad $1000 of debt for $120, at a $880 loss.

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July 06, 2011, 04:03:23 AM
 #31

When the debt ceiling is lifted everyone will breathe a sigh of relief and life will continue as usual.  (The debt ceiling is one of those things that seems good on paper but which in practice serves only for political grandstanding and theatrics.)


The usual isn't usual. You are suffering from normalcy bias if you think the usual is sustainable. the real debt ceiling is reached when the creditors don't want to lend any more money. That day is approaching.

But why would creditors stop lending money? That's their business. Despite the risks, there will always be someone to make money off of giving someone else money. If you're running a business, you don't stop selling your product and expect to make money.

If you lose money on every transaction, you can't make it up by increasing volume.


I'm not a smart man, but I was under the impression that creditors never really lost money. Even if they get a bad debt they just sell it off to a collection agency, usually for way more than the original debt was worth. Kinda what causes inflation, I'd imagine.

You are absolutely correct. You are not a smart man. If you think creditors never really lose money, then lend me some. I will demonstrate to you otherwise.

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July 06, 2011, 03:26:10 PM
 #32

I'm not a smart man, but I was under the impression that creditors never really lost money. Even if they get a bad debt they just sell it off to a collection agency, usually for way more than the original debt was worth. Kinda what causes inflation, I'd imagine.

Under the impression that creditors never really lost money?  That doesn't pass the straight face test. If creditors never lost money, and only made it, then everyone would start lending and being a creditor. Of course that's silly. Creditors lose money ALL THE TIME - when they sell a debt to a collection agency, they get less than the original amount of the debt, they're merely trying to limit their losses at that point.

An no, this is not where inflation comes from. Inflation comes from the Federal Reserve, as it prints money. Stated differently, inflation IS the printing of money by definition. Price increases in the market are one effect of inflation.

Perhaps you no understand how credit lending works...Basically a poor, helpless sap decides to get a credit card. He goes and spends all of his $1000 limit. The credit card company pays that $1000 then begins to add to that total based on their rate. If this guy makes no payments whatsoever on the $1000, the credit card company will eventually sell off the debt to a collection company, usually for about two times the amount of the debt. Where was any money lost? The thing that stops everyone from doing this is that they have to front the $1000 at the very beginning of the whole deal.

So say this guy just lets his $2000 debt sit in collections for 7 years. Once this time period is up, the debt disappears. The credit company has effectively paid $1000 and got $2000 back. Perhaps it's not the direct action that caused inflation, however it did create the circumstances that allow for inflation. The only person that ends up losing money, is nobody, or everybody depending on how you look at it.

Where did you get this crap from?

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July 06, 2011, 03:29:57 PM
 #33

When the debt ceiling is lifted everyone will breathe a sigh of relief and life will continue as usual.  (The debt ceiling is one of those things that seems good on paper but which in practice serves only for political grandstanding and theatrics.)


The usual isn't usual. You are suffering from normalcy bias if you think the usual is sustainable. the real debt ceiling is reached when the creditors don't want to lend any more money. That day is approaching.

But why would creditors stop lending money? That's their business. Despite the risks, there will always be someone to make money off of giving someone else money. If you're running a business, you don't stop selling your product and expect to make money.

If you lose money on every transaction, you can't make it up by increasing volume.


I'm not a smart man, but I was under the impression that creditors never really lost money. Even if they get a bad debt they just sell it off to a collection agency, usually for way more than the original debt was worth. Kinda what causes inflation, I'd imagine.

You are absolutely correct. You are not a smart man. If you think creditors never really lose money, then lend me some. I will demonstrate to you otherwise.

We doing this in the US? bcs in that case I might just do that. Then when you don't pay me back I'll write it off on my taxes, but only after selling the debt to someone else. Or I might just keep the debt, sue you, then hopefully get a judgement that provides me a nice profit. If creditors were losing money, they wouldnt do it.

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July 06, 2011, 03:54:31 PM
 #34

a poor, helpless sap decides to get a credit card. He goes and spends all of his $1000 limit. The credit card company pays that $1000 then begins to add to that total based on their rate. If this guy makes no payments whatsoever on the $1000, the credit card company will eventually sell off the debt to a collection company, usually for about two times the amount of the debt.

Uh, no.


http://ezinearticles.com/?How-Bad-Debt-Can-Be-Bought-and-Sold&id=1155324

How do bad debt buyers get their hands on this debt in the first place? They purchase it for pennies on the dollar, or less sometimes, from established companies. The going rate depends on just how bad the debt is. Debts that are fairly recent that have not yet even been written off as losses may fetch as much as 12 cents on the dollar in the bad debt market.


Double? Why on earth would anyone pay $2k for $1k worth of bad debt?  The bank is lucky to sell that bad $1000 of debt for $120, at a $880 loss.

That's how its supposed to work, you're right. I forgot to add this part to my statement, however, so I understand how ridiculous that sounded. It was supposed to read "usually for about two times less than the amount of the debt." I know that doesn't really clarify my point, if I was even really making one....but maybe.

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July 08, 2011, 04:02:23 AM
 #35

When the debt ceiling is lifted everyone will breathe a sigh of relief and life will continue as usual.  (The debt ceiling is one of those things that seems good on paper but which in practice serves only for political grandstanding and theatrics.)


The usual isn't usual. You are suffering from normalcy bias if you think the usual is sustainable. the real debt ceiling is reached when the creditors don't want to lend any more money. That day is approaching.

But why would creditors stop lending money? That's their business. Despite the risks, there will always be someone to make money off of giving someone else money. If you're running a business, you don't stop selling your product and expect to make money.

If you lose money on every transaction, you can't make it up by increasing volume.


I'm not a smart man, but I was under the impression that creditors never really lost money. Even if they get a bad debt they just sell it off to a collection agency, usually for way more than the original debt was worth. Kinda what causes inflation, I'd imagine.

You are absolutely correct. You are not a smart man. If you think creditors never really lose money, then lend me some. I will demonstrate to you otherwise.

We doing this in the US? bcs in that case I might just do that. Then when you don't pay me back I'll write it off on my taxes, but only after selling the debt to someone else. Or I might just keep the debt, sue you, then hopefully get a judgement that provides me a nice profit. If creditors were losing money, they wouldnt do it.

It takes time before a lender knows if he is losing money. A loan payment may be late or not forthcoming at all. In the event of default the collateral may not sell for enough to recoup the losses. It gets much more complicated than that, but that only serves to increase the amount of time between when a lender starts losing money and when they find out about it. Creditors have slowed down lending for these very reasons. They will stop altogether if they can't reasonably expect a profit. 

PM me and send the papers.  I'll take your money.

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July 11, 2011, 11:30:17 AM
 #36

Absolutely nothing will change.  The debt limit is raised every few years with the party in power claiming cats and dogs and assorted ocelots will rain down if it's not lifted, while the party without power claims the other is totally reckless and irresponsible.  A few years later the two parties swap positions and go at it again.  No one is dumb enough on either side of the political divide to risk default over a few political sticking points.

Is that what is happening now?  The news reports going around suggest they may not be able to agree on a deal.  Here's one, but there are lots (just have a look on twitter if you want more): http://www.reuters.com/article/2011/07/07/us-usa-debt-exclusive-idUSTRE7660GE20110707

Quote
If both political parties suffer from a bout of insanity and refuse to agree on the new debt limit, bitcoin's value will plummet.  It's a pure speculative commodity (not currency) that has no impact upon 99.999% of the world's population.  Ask a villager in India whether they would prefer a bitcoin or gram of gold.  Ask a Chinese businessman the same question.  I bet a Greek factory worker would give the very same answer.

General question to the thread:  Is this true?  Why would bitcoin's value plummet?  Shouldn't it go "up"? 

Firstly, if the USD starts crashing it's not like people already into bitcoin are going to suddenly sell all their BTC to get in on the death spiral action; probably more likely they will dump as many USD as they can get their hands on, right?  It's true as you say, that BTC has no impact on most of the world's population, yet, but the primary reasons for this are that a) no-one's heard of it, and b) the software isn't ready for mainstream usability.  The core technology is solid enough to have gained the trust of a lot of very smart people; it's just a matter of time before its "impact" is felt far and wide.  So, I'm not sure I get what you're saying.  Is it that you think US citizens will buy gold so they can use it to buy food (and from what I've been reading around the place, guns and ammo -- so glad I'm on the other side of the planet!) as the sky falls?  That is probably true, but if I was there I'd certainly be buying a few extra BTCs as well to hedge my bets, or at least definitely not selling the ones I already have...

Secondly, well, I don't understand enough to know what will happen to the other world currencies if USA defaults, beyond the "serious global implications" suggested by lots of middle-aged men with very serious faces... but surely if USD's value falls, it will fall MORE than the other currencies?  If this is true, let's say BTC is trading at around 11EUR/15.5USD, and the USD suddenly falls so that 11EUR = 20USD (yes I know that is extreme but it's just an example).  Before there's any change in the BTC market, won't bitcoins which are still worth 11EUR suddenly be worth 20USD?  (Not that you'd want the dollars even though there are more of them!)...  And if the EUR falls too, well, BTC will go up in price even if it doesn't go up in value.  But of course in that scenario it would quickly go up in ACTUAL value because people would see it sailing along quite happily as the other currencies come crashing down around it...

Surely the relevant question to ask an Indian villager etc would be whether they would prefer a bitcoin or some USD.  Well if I was that villager, and if I knew and understood what a bitcoin is, and if the USA defaults on its debt (whether it's in 3 weeks or further down the road), I damn well know which one I'd pick!

Please tell me if and where and how I'm wrong Smiley

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tl;dr: Why would BTC plummet?  Wouldn't it go up?  Plz explain!
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July 12, 2011, 01:53:59 AM
 #37

It's theater at present but there is a interest in the world that would love to see a US default as it would be incredibly deflationary for the USD.

If you want Bitcoin to succeed a US default is not in your best interest (not that it would be anyway), a default would almost certainly send prices of BTC into the sub $1 range.

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

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July 12, 2011, 04:35:20 AM
 #38

It's theater at present but there is a interest in the world that would love to see a US default as it would be incredibly deflationary for the USD.

If you want Bitcoin to succeed a US default is not in your best interest (not that it would be anyway), a default would almost certainly send prices of BTC into the sub $1 range.

If the US were to actually default on it's debt obligations, something that I don't consider to be in the cards even if the credit limit isn't raised, the results would most certainly not be deflationary.  That would be highly inflationary.  Perhaps even hyperinflationary.  There is simply too much US $ that exists outside of the national borders that would be quickly trying to find it's way home to be intergrated into the US economy.  That would be the end game for the US $ as an international reserve currency.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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July 12, 2011, 06:10:01 AM
 #39

Tell that to the retired in another 10 years, after the social security and medicare system that they were taxed to pay into for their entire working lives is ended because there is no money in the trusts.

The Social Security trust fund is projected to remain solvent until 2037, and thereafter, incoming receipts are projected to pay out about 3/4 of the projected benefits: http://www.ssa.gov/oact/solvency/index.html.  Quoting MoonShadow: "Where did you get this crap from?"

The retired 10 years from now has very few qualms.  Unlikely things that may reduce his projected pay 10 years from now are: (a) hyperinflation leading to a much faster depletion of the trust fund than projected (the actual payments are indexed to inflation, so losing purchasing power that way is not one of the worries); (b) changes in legislation that may affect his retirement age / benefits (most countries implementing these changes apply them progressively based on proximity to retirement, so that a person close to retiring doesn't have the rug swept from under his/her feet). [those are the main two things I can think of, perhaps someone can contribute a few more]

Someone retiring 30 years from now has much more valid concerns about the *amount* of Social Security that they'll get.  Will it be 3/4 of what he expected?  Maybe things turn out badly and it's only 1/2 of what he expected?

However, saying that no one will get anything 10 years out from now is just sensationalist.  My impression is that it's truthiness spread to build support for dismantling the system (why should I pay for something that won't be there for me?)

Medicare's a different beast, that's in more serious trouble unless something gives relatively soon.  Of course, Medicare's cost increases are essentially in line with the increases in medical costs all around, so the underlying problem is that the cost of medical care is getting out of control.  Blaming Medicare for the predicted insolvency is just shooting the messenger.
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July 12, 2011, 08:39:45 AM
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Quote
If both political parties suffer from a bout of insanity and refuse to agree on the new debt limit, bitcoin's value will plummet.  It's a pure speculative commodity (not currency) that has no impact upon 99.999% of the world's population.  Ask a villager in India whether they would prefer a bitcoin or gram of gold.  Ask a Chinese businessman the same question.  I bet a Greek factory worker would give the very same answer.

General question to the thread:  Is this true?  Why would bitcoin's value plummet?  Shouldn't it go "up"?  


I believe BTCs should go up, since everybody will try to get out of the dollar. However if the dept ceiling is not lifted we are in completely uncharted territory, so I may be wrong. For example, if people still believe in the dollar but there is a liquidity crisis, people will need to get cash to buy their groceries and therefore they would be forced to sell their BTCs at any rate that they could get.

Quote

Secondly, well, I don't understand enough to know what will happen to the other world currencies if USA defaults, beyond the "serious global implications" suggested by lots of middle-aged men with very serious faces...

I am certainly not an expert economist, however I tried to understand what could happen in such an event. And based on what I did understand, the US government has several options how to react. It could serve its dept, refusing to pay other bills. Then teachers, policemen and Northrup Grumman  are in trouble which will in turn put shopkeepers and Northrup Grumman employees into jeopardy. They would then need to sell their bitcoins (and their other assets) to pay their bills and therefore this is a deflationary scenario (and the value of bitcoins will go down).
If the government instead chooses to default on its dept, then first of all the banks and insurance companies are in trouble. Especially since the US a currently rated AAA and therefore they do not need to monitor their exposure to US dept as closely as (for example) their exposure to Greek dept. Additionally they probably have to pay the CDS insurance for US bonds. This leads to a situation were first of all banks can not trust each other and therefore we get a 2008 scenario. But unlike 2008 the US goverment has just defaulted and can not bail out the banks! So some banks will go bankrupt. Then the other banks need to write off their dept too, leading to other bankruptcies. So the banks can not give as much credit to entrepreneurs, who can not hire anyone and therefore again more people need to convert BTCs to dollars.

However the US dollar is also the global reserve currency, and would likely loose this status. Then people will no longer need to buy dollar in turn to purchase oil and additionally they would stop investing in US stocks. So capital flows out of the dollar and the dollar gets cheaper compared to other currencies. The question is essentially, do BTCs behave like a foreign currency, then they would go up, or do they behave like a local commodity, then they would go down.

Since the effects act on different timescales, I believe that it will be a rather wild ride. First the value of bitcoins would go up, since the withdraw of capital effects are faster than the deflationary effects, then they will go down as the deflationary effects become stronger at some point and in the end bitcoins will be higher since the trust in the monetary system will be weakened.
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