Why the United States of America cannot default

With everyone on every side shouting about a sovereign default of the U.S., the simple fact of the matter is that the U.S. cannot default in the traditional sense.  So long as we have a lenient and accommodative Federal Reserve Bank that is willing to print money.  The only thing holding them back are self-imposed rules against money printing.


As David Kotok puts it in his piece "Moving Chess Pieces:"

In our view the US will not default. It has an absolute ability to pay. This is a political fight, not an economic one. The credit of the US is not the same as Detroit’s or economically risky like Puerto Rico’s. The country is not dismembering like Argentina or unable to support budgets like Greece. Comparisons between the US and these others are not valid.

Or as Cullen Roche, author of the paper "Understanding the Modern Monetary System", says:

Let’s get this straight.  The United States government CANNOT default on its obligations without some sort of mental lapse from Congress (the trade here, short sovereign US CDS every time it spikes).  The government is the supplier of the sovereign currency.  The government is a currency issuer & carries NO foreign currency denominated debt.  If they have fiscal problems they simply print more.  They press a button on a computer and magic money appears in an account.  That’s literally how it works.    The US government is not a household or a state.  They are not Greece who does not print their own currency.  It’s ENTIRELY different.
Read more at http://pragcap.com/us-default#TsIDCWSgHQpGHsK0.99

 Let’s get this straight.  The United States government CANNOT default on its obligations without some sort of mental lapse from Congress (the trade here, short sovereign US CDS every time it spikes).  The government is the supplier of the sovereign currency.  The government is a currency issuer & carries NO foreign currency denominated debt.  If they have fiscal problems they simply print more.  They press a button on a computer and magic money appears in an account.  That’s literally how it works.    The US government is not a household or a state.  They are not Greece who does not print their own currency.  It’s ENTIRELY different.

Or as Alan Greenspan has said in the past to Congress and other media outlets:

The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.

And given the recent history of the Federal Reserve's willingness to print money to the tune of $85 billion per month, I say there is zero chance that the Fed will let the U.S. government default, regardless of what the yahoos in Congress do or not do.

Let’s get this straight.  The United States government CANNOT default on its obligations without some sort of mental lapse from Congress (the trade here, short sovereign US CDS every time it spikes).  The government is the supplier of the sovereign currency.  The government is a currency issuer & carries NO foreign currency denominated debt.  If they have fiscal problems they simply print more.  They press a button on a computer and magic money appears in an account.  That’s literally how it works.    The US government is not a household or a state.  They are not Greece who does not print their own currency.  It’s ENTIRELY different.
Read more at http://pragcap.com/us-default#TsIDCWSgHQpGHsK0.99

Let’s get this straight.  The United States government CANNOT default on its obligations without some sort of mental lapse from Congress (the trade here, short sovereign US CDS every time it spikes).  The government is the supplier of the sovereign currency.  The government is a currency issuer & carries NO foreign currency denominated debt.  If they have fiscal problems they simply print more.  They press a button on a computer and magic money appears in an account.  That’s literally how it works.    The US government is not a household or a state.  They are not Greece who does not print their own currency.  It’s ENTIRELY different.
Read more at http://pragcap.com/us-default#TsIDCWSgHQpGHsK0.99