What if the United States defaults on His debt would it cause the next Great Depression and improve the world economy Right now there's a Titanic battle going On in Washington with the debt ceiling And we have Janet Yellen the treasury Secretary insisting that every Responsible member of Congress must Agree to raise the debt ceiling and There's a very good reason to be afraid If the United States really stops paying Their bondholders and defaults this will Spell doomed not just for America but The global economy we even have the CEO Of Bank of America preparing for Potential U.S debt default and this is Really serious stuff now I want to be Clear that this isn't a Doomsday Prophecy it's a worst case scenario of What might happen if a debt default does Go through and it doesn't matter if it's A technical default where interest Payments stop or if it's a debt Jubilee Where the U.S government declares their Own debt forgiven right if the debt Isn't honored or paid back the Fallout Could be tremendous and Hyper inflation Might actually happen in the United States so what happened happens after The U.S defaults now a lot of us we Believe that the dollar will crater and Gold will Spike to 20 grand instantly Right but in fact we could actually see The dollar strengthened in the short
Term and let me explain guys now the Problem with the world economy today is That almost every country with the Exception of Russia is centered around The U.S economy and the dollar in other Words The World Is Still incredibly Dollarized right even China still relies Heavily on the dollar now almost 60 Percent of Central Bank Reserves are in U.S dollars and 60 of trade is still Invoice in dollars but a big one the Huge Time Bomb is the amount of global Debt that's denominated in U.S dollars Over 60 percent of global debt is issued In a green bag and if the U.S suddenly Defaults and says sorry guys we screwed Up and we don't have the money to pay You now this immediate Fallout will be a Shortage of U.S dollars because the System is set up for the reserve Currency to flow around the world not Just in the United States because if a Default happens it will trigger one of Two things right either the principal or The debt will vanish and disappear all The interest payments suddenly stop and If we look at the global treasury market It is around 24 trillion dollars strong And foreign treasury Holdings are Already at 7.2 trillion dollars with Japan China and the UK holding the most So let's just assume that the U.S just Screws the foreign bondholders and Defaults just there now suddenly there
Will be a shortage of dollars going Around and countries will no longer Receive the interest payments on their U.S bonds and we know what this leads to A currency crisis there will be a Massive selling of local currencies to Get whatever dollars are left because You still need to import goods and Commodities Plus you need to fulfill Your own dollar denominator debt that's How crazy things can get many foreign Countries still operate on the dollar System and this is called the euro Dollar market it many banks in Europe And Asia transact borrow and lend money In US dollars so if you hold US Dollars And deposited it outside of the United States you have Euro dollars you're part Of the euro dollar market so in essence The euro dollar market and their need For US Dollars will keep the dollar System propped up immediately after that Default but make no mistakes guys this Will be temporary because geopolitically A default will piece of the world right Not only will foreign bondholders see Their treasury values created to help But they might also experience their own Default as well if they can't get enough Dollars now this is what's crazy the Bank of international settlements Estimate that's over 80 trillion of Hidden dollar debt floating around in The system that is the taking derivative
Time Bomb because it exceeds the stocks Of treasury bills repo and Commercial Paper combined so if a default happens Treasury values will collapse and this In turn could explode the debt bomb in The shadow backing system here will be On the scale beyond the 08 and Lehman Brothers collapse now once the collapse Happens or maybe even before the global Bond implosion we could start to see the Great unwinding of dollar denominated Debt and this is key and let's call this The great unwinding or the Great Escape Right countries central banks and even Companies will start to reduce or even Stop issuing dollar denominator debt Because what's the point at this point The dollars will be fluctuating wildly Against foreign currencies and you have No idea how much you will lose on the Exchange rate when your bond eventually Matures the point of issuing debt in Dollars is because of its Reserve status You want stability and to remove Exchange risk investors they love US Dollar bonds because they believe it is Rock Solid but if the stability is Removed then what's the point if the U.S Treasury themselves can't honor their Debt we're going to get the dollars to Repay your own debt right and even if You could after five or ten years the Dollars U-Haul will be developed value Against your own currency and the danger
Is the entire euro dollar market that no One is talking about now for a lot of us We are just focused on a petrol dollar And how the Saudis they are pricing Their oil in dollars now this is Important 100 if the default happens it Is obvious that Saudi Arabia and OPEC Will start to unwind itself and move Away from dollars right maybe they will Accept the Yuan or maybe they no longer Trust any currency and they only accept Gold now back in the 1970s Saudi Arabia Actually exchanged between 10 to 12 Barrels of oil for one ounce of gold and This could happen again because once Trust is lost it could be lost forever Now just the words fiat currency might Give the Middle East a nightmare what's The point in accepting Fiat currencies That could default when we could have Gold but let's focus back on the euro Dollar market for a bit according to the American Economist Robert Murphy trade In the euro dollar is enormous we are Talking about 12 trillion Euro dollars Floating around while all dollars Assets In the U.S banks total only around 22 Trillion now in contrast the petrol Dollar trade is less than 3.5 trillion Dollars annually so the euro dollar Market is a much bigger contributor to The dollarization game if it happens so Just imagine if a third of the total Dollars in the world begins to stop
Circulating around countries will be Afraid of pricing stuff in dollars or Issuing dollar denominated bonds because Now the reserve currency is in free fall Versus other currencies and guess where All these dollars are going to flow They're gonna flow back into America and Tangible goods then we will really see Inflation take off right so I hope you Can see the daily chain of events that Could happen how the domino effect will First destroy the world economy leaving A trail of Destruction a currency crisis Before the tsunami comes for the American economy and this is going to be A horror story and you quickly realize Why defaulting is not a very good idea And we will see a huge power of dollars Suddenly rushed with tangible goods and Commodities and this is where the Reserve currency status works against The dollar not for the dollar but Against it because everything is priced In dollars holders will likely crammed Into their exits and start as changing The green bet for tangible staff we are Talking about oil gas Gold Silver and Copper and this is going to beat up Prices in a global Commodities right the Dollar will become hot potato and Everyone will be passing it around its Value will be cratering against Real Assets as well now even the Federal Reserve has been tracking how much
Purchasing power the dollar has lost It's down almost 97 over the last 100 Years and if America defaults on their Debt the remaining three percent is Going to bleed away but the worst is yet To come now just imagine all these Dollars being held by the commodity Giants central banks and whoever's left They will scramble to get rid of the Dollars and they will come flooding back To the United States foreign dollars Will be on a hunt for tangible goods if We're talking about real estate farmland And maybe even American companies right So in essence there will be Capital Flows back into the us but for all the Wrong reasons it's not because the state Of the economy is strong but dollar Holders want something tangible for Their paper currency now and let's Travel back to the 1920s in Weimar Germany when the German Mark was hyper Inflating a wave and according to JP Morgan the German stock market also Increased in nominal terms flying up Multiple times based on German marks but If you measure it in terms of US Dollars Back then it was very volatile and even Fell towards the tail end and this tells Us that when money dies everyone holding The currency will turn into speculators And start beating everything up right Doesn't matter if it stocks real estate Or gold money is going to flee cash and
It's burning up into assets and here's The interesting thing right if we chart The German stock market against the US Dollar from 1918 it Equity fell in value And remember that the dollar was packed To Gold back then which means the Hyper-inflated stock market fell in Value versus the tangible store of Value-like gold and it's really Something to think about so if a default Happens inflation is going to soar in The United States food is going to rise Rents are going to soar groceries are Gonna go through the roof now the Default will start in the foreign Currency markets first then the Panic Could spread towards the U.S domestic Markets next and when local Americans They see foreigners beating up prices Back home they will likely join in the Further they will start getting rid of Their dollars for tangible stuff as well Now eventually the Panic will subside Hyperinflation in Germany didn't last Forever and even if it happens in the United States I expect America to Recover much quicker but because the U.S Defaulted on its debts bondholders are Now terrified of Landing the U.S Government money at such low rates right However there still be Cowboys around Really to loan money to America but it Will be at a much higher interest rate Right maybe even double digit yields now
Remember back in the 80s yields went as High as 15 doing the vocal era so this Isn't exactly impossible and this is Going to slow down the entire U.S Economy and slow down the recovery of The stock market even after Hyperinflation is over and things Restabilize we could see the s p grow at A much slower rate than 10 a year like In the good old days right higher rates Will force down government spending Because it will be insane to go back to Deficit spending I mean they could Always print up new money but let's just Assume they don't and what does this Mean Federal programs like Social Security will have to be reduced we Already have the Congressional budget Office releasing disturbing projections Showing Social Security reserves could Crash to Zero by 2033 and this is even Before any talk of a debt default and in Fact according to the White House over 50 million Americans are on food stamps And housing assistance alone all Financed by government spending so if New debt is extremely expensive the only Alternative now is to either cut down a Spending or raise new taxes so I really Want to emphasize how bad things can get For the world if the default happens it Will cause chaos outside of the U.S Before the problems start rushing back To American Shores and it doesn't matter
How many trillion dollar platinum coins They decide to Mint which is a terrible Idea by the way the bond market is all About trust and use our reflection of How much the world trusts the solvency Of the U.S government whether it's a Debt Jubilee a trillion dollar coin or Debt default or Santa Claus it all Affects the trust of bondholders and That in turn affects bond yields but Things get even spicier if a default Happens because this is playing directly Into the hands of the brics Nations Especially China and we know by now that China and Russia wants to detolorize the World the China is wants to push the Yuan as a reserve currency and a debt Default is going to make it much easier And at this point all they need to do is To back up the Yuan with gold and the Rest of the world might actually buy it They could take the bid of a go back Currency because now everyone is afraid Of the dollar Fiat currencies and Especially U.S treasuries a U.S debt Default is the equivalent of the sky Falling down in the financial markets And now let's sit back and think about How America could avoid a debt default Now the most obvious solution is to cut Down a government spending and just rely On revenues to run the country this is The most prudent solution and it can be Done we can see that right now deficit
Spending is still not the majority of Total government spending in 2022 the Deficit of 1.38 trillion only accounted For 22 percent of the total budget so Cutbacks at least on paper are still Theoretically possible but let's talk About the goal revaluation guys this is The most interesting one now a lot of us In the gold Community we believe that America could suddenly revalue their Goal to over ten thousand three thousand Or even fifty thousand dollars an ounce Right for example to account for the Deficit however there's a big problem You can't just revalue go like that you Need the rest of the world to agree and That means getting the biggest gold Producers like China and Russia to agree To reprise gold and the big problem is Will they agree will they help to build Out the United States or will they Refuse to pack gold at a higher price in Order to force the default we really Don't know even the Federal Reserve Understands they can't go back to a gold Standard because if they do and in their Own words the bigger suppliers of gold Would have more control over our Monetary policy and that's why the most Obvious solution is to burn the debt Away and this is exactly what Lynn Alden Also believes is the simplest solution The Federal Reserve can hold interest Rates below the inflation rate for
Prolonged of time let inflation run hot And burn the death away and this way Interest rates will be near zero again And interest payments will come down Because the federal revenues will Increase in terms of inflated dollars And here's the crazy part even if bond Yields are suppressed by the FED again To near zero there still will be demand For U.S bonds now back in 2020 born Yields on a 10-year fell below one Percent people were buying not just Because of the lockdowns but because Dollars were needed for trade and to pay Back their own dollar denominated that Back home however if the Federal Reserve Goes into the market does QE again and Buys up all the bonds to push down Yields this will cause another wave of Inflation sooner or later yes they could Stop at that default but it will be at The expense of the US dollar the Purchasing power of the dollar will Evaporate further so let's understand How dangerous a debt default will be for The world right in the short term we Could see further currency crisis and Dollar could even rise but this is going To come back and destroy the petrol Dollar system and cause chaos in the Euro dollar market a debt default Doesn't just affect domestic American Dollars but the global supply of dollars Floating around Europe Asia and the rest
Of the world and that's why I'm very Confident that Congress will not allow a Default to happen right now they will Likely raise the debt ceiling and allow This game to continue but this is still A big concern according to the Peterson Foundation the net interest cost of the National debt is growing it is projected To hit over 1.2 trillion dollars Annually by 2032 which is an insane Amount and by 2052 it will account for Almost 40 percent of federal revenues And what if it goes above 50 or more Will the US be forced to default sooner Or later and that's why having this Conversation is so important there's Only so much you can borrow even as a Country now reversing this is definitely Possible and that's why I believe having A debt ceiling is still important it Shouldn't be abolished because it is an Important reminder that the time bomb is Still ticking away so bookmark this Video because if the default happens This might be the end game this doomsday Scenario might come true but let me know What you think how bad can a debt Default get will the US raise the debt Ceiling once again let me know in the Comments below stay safe be sure to Smash the like button and subscribe as We navigate through these crazy times
