US Federal Government Shutdown

[TinCow]

If the US defaults and loses a credit rating with more agencies, wouldn't this have a positive effect on other types of investment? Or would the entire standard be lowered. If people thought that the US government was irresponsible, shouldn't a recognition of this fact drive bond US prices higher, interest rates up? Wouldn't this drive money into a private sector which looks better by comparison at the same time as it dosincentivises government borrowing? Collapse of trust in government does not mean trust is gone. We live in a trust vacuum - if the government loses hold, you find trust in another's hand.

This bit is incorrect. The US is in a unique position because of the level of trust that is placed in its credit-worthiness by the global financial industry. There is no alternative to the US for this role, which is one of the main reasons the markets haven't already abandoned us. If there was somewhere else they could go that was as safe, or even close to as safe, they would already be there. But they aren't because there isn't. Once the US is no longer regarded as a guaranteed safe haven for investments, we will be in a world where this is no guaranteed safe haven for investments. That's not necessarily a financial apocalypse either, but there simply isn't another investment option that is ready to step into our shoes. People talk alot about China, but there is a growing sense in the markets that China itself is riding a bubble. Asian markets have always been notoriously bubble-rific and big collapses out there are part of doing business. European confidence is gone and will not return for a long time. I shouldn't even need to mention the problems with South America, Africa, and Russia. There's also the problem that even where there are other markets that are considered safe, they aren't large enough to meet demand. Part of the benefit of the US is that we carry so much debt that there's always room to invest in us. The same can't be said for much smaller states. Even if you think Canada and Sweden are nice stable places, they alone cannot support the global marketplace.

Once confidence in the US is gone, we will be in uncharted waters. There has never been a period in modern history in which there has not been a financial safe-haven for investments of some kind, not even during the Great Depression. If the markets lose confidence in US credit-worthiness, we will certainly go through a period of financial chaos the likes of which no living person has ever seen. That said, it's going to take a lot more than one day over the debt ceiling to shake confidence in the US. Make us go past the debt ceiling for a month or more, and then repeat the default process a second time and a third time, and you may want to start buying a lot of bullion.