Why can't a US state default, but a EU state can?
"But do you know about a US state risking to go default now or in the past?  In 1847 four states - Mississippi, Arkansas, Michigan, and Florida - failed to pay all or some of their debts.  All of these states had issued debt to invest in banks.  From the detailed source listed below: ""...it should be remembered that all cases of state debt  repudiation, as contrasted with mere default, involved banks.""  Jackson had killed the federal central bank 10 years earlier and the states were trying to create their own inflationary central banks.  Six other states delayed debt payments from three to six years (source, page 103, this source has more details).  This is the only case I know of where US states defaulted.  US cities default more frequently. I'm very confused do US single states like IOWA have debt and emits obligations on their own like Italy does in EU? Yes.  Individual states can issue their own bonds. Oh, and just another little thing I would like to know, is Dollar a fiat currency too like the Euro? Yes, the US dollar is a fiat currency.  I think the better question is: ""Is there any currency that is not a fiat currency?""" US or EU states are sovereigns which cannot go bankrupt. US states have defaulted in the 1840's, but in most of those cases creditors were eventually repaid in full. (I'm not 100% sure, but I believe that Indiana was an exception with regard to costs incurred building a canal system) The best modern example of a true near-default was New York City in the late 1970's. Although New York City isn't a state, the size and scope of its finances is greater than many US states. What happened then in a nutshell: Basically, a default of a major state or a city like NYC where creditors took major losses would rock the financial markets and make it difficult for all states to obtain both short and long term financing at reasonable rates. That's why these entities get bailed out -- if Greece or California really collapse, it will likely create a domino effect that will have wide reaching effects. "But do you know about a US state risking to go default now or in the past? Ultimately, a US state could go into default.  However, I doubt that such a scenario would be allowed to transpire. This seems to happen to California with some regularity.  That is, risking default.  What would happen is not quite well known: ""There is no provision for a state to go bankrupt,"" Kyser said. ""I don't think anyone really knows what will happen or even if the state will go into receivership if it does default. I can tell you this, officials are looking at all the (current) laws."" (source) I believe that the answer to your question is that it could happen, but likely would not be allowed to occur.  The nature of the EU and US are quite different.  The individual states forming the US are not separate nations.  For better or for worse, the US is a stronger federation than the EU. (Something that is lamented at times when the Feds mess with the purview of the locals.)"
Have seen analysis that at least one state won't be able to repay their obligations using reasonable assumptions, I'm sure it applies to more.  A lot of greed went into securitizing those payments the way they did. There no legal framework that allows states like the US or countries in Europe to default on their debt.  Should congress pass a law to default the US supreme court is likely to nullify the law. What? Our currency isn't backed by debt currently. It's a fiat currency. Now, if you're asking whether we could back the value of our currency against some type of debt, sure we could, but it would be an incredibly poor decision.   The Constitution doesn't specify the type of currency the U.S. has. It gives Congress that power to either delegate that decision, as in the case of the Federal Reserve or pass their own laws. Oh, you mean converting your money to that of a country whose public debt is [103% of GDP, instead of the 108% of your own?](http://en.wikipedia.org/wiki/List_of_countries_by_public_debt)  That seems hardly an advancement, even more so considering that the public debt of the Eurozone as a whole is 82.5% of GDP.  Greece is just 2% of the European economy, its default would not mean the collapse of the Euro. "Any clearing/ legal experts out there?  Is this possible- and if so, is it that big of a deal? Here are my thoughts:  1. The EU is right to request euros to be cleared on ""home soil"" for sovereignty reasons since 2/3s of euro currency is cleared in London.  2. Moving euro clearing back to the eurozone... would just mirror US regulations.  Whats the big deal?" "Correct!  But this is only true when a central bank is involved.  So if there's a single institution that has a territorial monopoly on the production of money (and competing currencies aren't allowed via ""legal tender laws""), then the debt-based money system OP describes isn't actually the system being used.  That's the problem with his post:  he's trying to make it seem like our current system of fiat currencies is somehow natural or emergent.  It's not.  What we have now is the result of a legal monopoly." Typically the debt is held by individuals, corporations and investment funds, not by other countries. In cases where substantial amounts are held by other countries, those countries are typically not in debt themselves (e.g. China has huge holdings of US Treasuries). If the debts were all cancelled, then the holders of the debt (as listed above) would lose out badly and the knock-on effects on the economy would be substantial. Also, governments that default tend to find it harder to borrow money again in the future. There is no situation one can imagine in which the US defaults (beyond a day or three) on its obligations. The treasury can print money, and while it would be disastrous, 'monetizing' the debt would simply eliminate all outstanding debt at the risk of devaluing the dollar to hyperinflation levels. There are many different things that can happen, all or some. Taking Russia and Argentina as precedence - you may not be able to withdraw funds from your bank for some period of time. Not because your accounts will be drained, but because the cash supply will be restricted. Similar thing has also happened recently in Cyprus. However, the fact that the governments of Russia and Argentina limited the use of cash for a period of time doesn't mean that the US government will have to do the same, it my choose some other means of restraint. What's for sure is that nothing good will happen. Nothing will probably happen to your balance in the bank (Although Cyprus has shown that that is not a given either). But I'm not so sure about FDIC maintaining it's insurance if the bank fails (meaning if the bank defaults as a result of the chain effect - you may lose your money). If the government is defaulting, it might not have enough cash to take over the bank deposits. After the default the currency value will probably drop sharply (devaluation) which will lead to inflation. Meaning your same balance will be worth much less than it is now. So there's something to worry about for everyone. As do other states. The state and national debts are created by big government politicians. Such as bloated civil services, pension funds, more borrowing instead of fiscally responsible. The USA federal gov keeps trillions of shadow debt off its books and downplays the actual unemployment rate. It's all about risk. In 1990, expressing the idea of the US defaulting on debt payments would result in you being labelled as a crank.  Yet in 2011, the President and Speaker of the House played chicken with the credit of the United States, and have a date to do it again in December 2011. &gt; Europe is a temporary problem.  Lol..  The better question for this thread is how is the European economy not utterly doomed?  I see no way at all of the Euro surviving.  Greece has already technically defaulted by saying it's not going to pay back all of it's debt.  They will officially default when Germany stops bailing them out.  Spain is in the exact same situation, just about a year behind.  They haven't technically defaulted yet, but they will.  They're receiving bailout after bailout and the Greece situation only makes their interest rates worse.  Italy is just barely behind Spain, the Greek default followed by the Spanish defualt will send Italian interest rates through the roof dooming them to the same fate.  This will eventually effect the US, but our borrowing rates are held artificially low due to the Fed just printing up more fake money and letting the US borrow as much as it wants.  If you don't see this scheme crumbling and collapsing, I'm just curious what you actually think *will* happen? "Your question is expressed as a run-on sentence, which I'm having trouble parsing. Maybe you could restate.  I'm just pointing out the stupidity of the statist canard that [the debt is not a problem because] ""we owe it to ourselves"". Collectivists like to think we're all in this together, but that's not reality. Some people are taking from others by force of law.  The debt is owed to BANKS, and they want to keep this system going. Wouldn't you like to have a legal monopoly on the supply of currency? Institutions which are funded by loose credit (government, academia, military contractors, crony corporations) likewise benefit from this system.  Those who invest in US dollars, and those who are farthest from the central planning spigot are the losers in this scheme.   But there is more debt than currency, so it can't ever be repaid. So that is a moot point - it can't even hypothetically be considered.   There are however a number of other ways that this system could unwind, when it inevitably does. The banks could be left to fail, and their assets would be bid on by others through the bankruptcy process. Or the Fed could keep issuing currency to keep the banks solvent, eventually inflating the whole system into irrelevance." "For political reasons, almost all governments (including the US) spend more money than they get from taxes etc.  There are a number of things a government can do to cover the difference: Most governments opt for selling bonds.  The ""National Debt"" of a country can be thought of as being the sum of all the ""Bonds"" that are still paying interest, and that the Government hasn't Redeemed. It can all go horribly wrong.  If the Government gets into a situation where it cannot pay the interest, or it cannot Redeem the Bonds it has promised to, then it may have to break its promise (""Default"" on its payments).  This makes the owners of the Bonds unhappy and means potential buyers of future Bond sales are less likely to want to buy the Governments new Bonds - effectively meaning the Government has to promise to pay more interest in the future.  Recent examples of this include Argentina; and may include Greece soon. The US is in the fortunate position that not many people believe it will Default.  Therefore the new Bonds it sells (which it does on a regular basis) are still in demand, even though its interest payments, and promises to Redeem Bonds are huge." Don't you need ironclad sovereign debt that will never default type of trust to be a global currency? US is the closest we have at this point? If Europe wasn't on the Euro maybe you can say Germany but who else?