If The US Defaults, Obama Ready To Terminate 16 States

By Joseph R. Carducci on October 14, 2013 Subscribe to Joseph R. Carducci's Feed

Before we really get into it here, I just want you to understand that I think there is such a small chance of an actual US default that it is probably not even worth talking about. After all, both sides of the aisle clearly know that this would potentially cause economic chaos…and even if they think it can eventually be blamed on the ‘other’ side, they will also suffer political backlash.
On the other hand, it is interesting to really examine what might happen if the US is not able to make its payments. Most of this scenario is taken from a controversial, just-released investigation. They have compared historical sources and looked at things that have actually occurred in other real government catastrophes. Accordingly, this chain of events is highly predictable.
The first thing likely to happen is that both the stock market and the US dollar will begin to drop in value. This would likely start within seconds of the news of the missed payment hitting the airways. Interest rates would also spike up dramatically and prices for darn near everything will skyrocket. How high is hard to say, but it is possible that a gallon of milk could cost $100 and a loaf of bread, $40. A gallon of gasoline could even shoot up to $1,000, depending on how many people are trying to buy some and leave town.
The next step would basically be pandemonium and chaos. Businesses would probably close their doors in an futile effort by the owners to protect their inventories. This would then lead to widespread looting and general chaos. Within an hour or so, the federal government would issue emergency notification that its disaster map is in effect. They may possibly even call up the national guard and/or declare martial law.

The authors of this investigation also think that these events will reshape the way the country looks. In fact, not every state is likely to survive. Those without a strong manufacturing base and those addicted to federal funding will likely have the worst time. There could even be states terminated by the president, with Obama extending federal or martial law to those particular areas.
OK, so the doomsday scenario will probably not play out like that…although you never really know. But here is something else to think about. We are really in a no-win situation. If Congress does not raise the debt limit, then we will have a default for sure (not likely to happen). But, if they do raise the debt limit, then we will probably see another debt downgrade in relatively short order. That alone could be enough to crash the market…it might even be enough to lead to some sort of doomsday scenario like what is listed above.
Of course, a lot of the smartest investors have already realized this. That is why something like $100 billion fled from US bond funds over the summer. Bond fund money is usually considered to be the ultimate ‘smart’ money. So…I guess we will all just get ready for October 17^th and see what actually happens. Just do not say that you haven’t been warned!
What do YOU think will happen? Will the US default on the debt? Or, if not, will we see another debt downgrade by a major rating agency? What do you think this would do to US stock and investment markets? Will it create a ‘doomsday’ scenario?