Non traditional threat to US

6 June 2017

In my opinion the most pertinent Non-traditional threat to the US is the economy. It is the single most important, globalized, and un-accounted for problem in the US. The current problem is so bad that the US economy is days away from a (partial) default. This would be the first default since possibly the 1700’s at the founding of the nation. The problem with this is the US green back is the reserve currency of the world (all or most investments are made in US dollars). If the US defaults it will cause a ripple effect that will make the 2008 global financial crisis look small in comparison to the lobal catastrophe that will occur.

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The reason most investments are in US dollars is because dollars have historically been the most stable currency in the modern age. The US defaulting on its debts has both internal and external effects. The total of US government debt is over $ 16. 9 trillion. (US Debt Clock) Of that debt, $ 4. 8 trillion is owned by governmental agencies. This includes agencies such as the social security (holds over $2. 5 trillion dollars). Of the public debt, foreign investors own $5. 7 trillion. Keep in mind this is Just the actual government debt; effects of a default would be uch bigger.

The US reached its debt ceiling in 2012. The US constitution – 14th Amendment, Section 4 – directly forbids the government from defaulting on its debt. Thus to cope with the debt ceiling being reached the government has been taking extraordinary measures in order to pay their debts (for instance suspending investments on individual pension funds). When these measures are exhausted, the government will not bring on a global economic collapse as they default on all their bonds. They will Just be forced to balance the economy – to match their spending with their collected revenue.

This is a very different issue (still with its problems) to a full default. What is important is that a full default is likely to not happen. The brinksmanship between the rogue Republicans and the government would only threaten a ‘technical’ default on the shortest-dated US government bonds, because their shorter lives mean their maturity date is nearer than the rest of the government’s ‘safe’ assets. The problem here, as ever, is not whether the federal government is able to repay the principle from these bonds, but the short-term methods used to make these repayments.

The US treasury would still be seen as a ‘safe investment’, albeit in more economically uncertain times, and thus bonds would probably rise in price – believe it or not, the US government 10-year bond decreased in price after news that the media reported a default was unlikely. Though we are quick to forget, there have been 17 government shutdowns between 1976-1996 and the debt ceiling is raised almost every year – a full default never happens. This brinksmanship is historically common, and it is the media and politicians that fuel the political fire by indicating that this is the year where it will default.

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