Frqan

Defining a Government Default

If you’ve read any sort of economic news, one word keeps popping up all over the place: Default. Now, while many people may not understand the concept of default fully, it really is a big problem that may arise as you start exploring the debt that happens with individuals and with the country. First off, what is default and why does it matter?

On a personal level, it’s when a borrower doesn’t fulfill their obligation to pay their debt. We usually hear this when people are talking about student loans (or other loans), and it results in a damaged credit score and some not-so-fun legal implications. People may have to look at things like consolidation and whatnot to try and get the issues with this under control.

But that’s not the kind of default we’re looking at here. The country is looking to possibly go into default. “Wait, how can a country go into default? Can’t consolidation help to get debt under control like it does with individuals?” Let’s take a closer look.

In short, our country is in a lot of debt. Our country literally depends on psychology; the dollar is strong if people think our country is doing well, and it’s weak if people think we aren’t doing well.

How would this affect the government? Well, first, it would hurt the government’s credit score. Who checks the government’s credit? Aren’t they the ones checking our credit? Enter Moody’s Investors Service, one of the primary players in determining the United States’ Government’s credit score. They also determine the credit scores for individual states and large investors around the world. They’re a big deal. And they’ve been threatening states that they’re going to drop their scores. If the U.S. goes into default because of not finding a resolution; the results could be disastrous.

Now, in turn, how would this affect us? First, if the government goes into default and the credit score decreases, there goes confidence in the U.S. economy. That’s how we determine the strength of the American dollar. Lo and behold, the American dollar would lose more value and our economy would tank even more. That would make it more difficult to get things under control and they may have to pull a lot of strings to get it worked out.

Also, think about everyone that the government either employs or gives money to. Think of everyone on Social Security, Medicare, Medicaid, Food Stamps, whatever. And even if you’re supported by state level programs, if the Federal government doesn’t have money, they may not get it either. The government would have to prioritize what they would and wouldn’t be able to pay. What about all those employees all over the country? Our armed services? This could get nasty, quick.

consolidation

This is how the government could default. People that the government owes money for whatever reason would not get it. Interest may not get paid on our debt to other countries. There are a lot of things that could happen that would need to be taken care of quickly and without too much delay.