The Story of America's Default byline dated 7/26/2028
This discussion attempts to summarize the Great Dollar Default which occurred between 2008 and 2026 and discusses the principals, history, and final chapters of America’s Fall from Economic Power.
By Bestcom.Newsvine.com with
special thanks to
the Argentine Crisis and Wiki
To set the stage, I want to briefly describe the youthful character of this once great nation. It was a nation founded on principles of a strong republic, having divine faith, and the belief that all men were created equal and that individual liberty was of the utmost importance. The greatest evidence of this liberty is quoted in the words of one of America’s most astute founding fathers, Thomas Jefferson:
“The strongest reason for the people to retain the right to keep and bear arms is, as a last resort, to protect themselves against tyranny in government.”
These principles were followed with great dignity toward the development of new laws and ideas that by law had to follow the principles of the constitution. Great struggles such as America’s civil war caused bloodshed to retain these principles and were retained as originally composed for a century. However, no nation can endure without adjustment of these principles to fit within the framework of advancing civilization. The founding fathers did not envision the effect of monopolies and the economic impact on millions of people brought about by the greed of men left to their own liberty. In the early 20th century, there were laws enacted that prohibited a small minority of powerful entrepreneurs from depriving the vast majority of their nation from economic liberty. Laws were established to provide a higher value on equality over liberty. Monopolies were managed, banking was supervised and after the great depression, the people were given various social safety nets to assure democracy continued: social security, welfare and government watch over the economy. This proved to be a successful modification of the original principles and strengthened the nation to be able to defeat the greatest dictatorships in the world; mainly Germany under Hitler and the USSR in the 20th century.
As the American government saw the success of these new policies, they developed more social safety nets with the belief that government could solve problems as well as or better than free markets, if enough personal liberty was taken from the individual and was empowered in government bureaucracy. In the 1960’s, President Johnson ( a strong autocratic President) extended government control over welfare, medicine, industrial safety, and the military. These efforts resulted in a wavering of the strong republic producing unintended economic events such as abolishing the basis of American money as the gold standard, increasing welfare to the point that it was better to take welfare than work. Accompanying this welfare policy, was an increase in immigration which were motivated not by freedom but by access to take advantage of these benefits. No longer did immigrants gain their freedoms when coming to America, but they also found they could coast by on social benefits. A sub class of people developed that created a larger than intended gap between the 10% poorest people and the 10% richest. Educational requirements were lowered at the same time as the teachers remuneration was raised to the status of well paid professionals with exceedingly high benefits. This exacerbated the problem by creating teachers that were more interested in their welfare than the students. The influx of an unmotivated immigration coupled with poor teacher motivation pushed the educational excellenceof the average American lower and lower. Several attempts to rectify were tried, but professional and political liberalization had achieved their goal. No longer was America a republic, but had become a social democracy.
As socialization was occurring, the political leaders (liberal and conservative), refused to stand on the principles of the constitution. In the executive office more and more fiscal socialists were elected, the legislature enacted more bills to spend the money and the neo liberal judiciary branch so modified the interpretation of the constitution that they upheld new laws that were clearly not intended by the constitutions original ideas. “It was the best of times and the worst of times.”
In 2009, a new leader took over from a former President,George Walker Bush. The former president was extremely weak in fiscal policy, having run the national debt up to 40% of GNP. However, the entry of the new neo-liberal president, Barack Hussein Obama, elected by the baby boomers and voters that had grown use to free benefits without consequences. The belief was that he would be able to carry on the fundamentally flawed principles by giving these people new hope. Unfortunately, on the way to the market, this new President encountered one of the many economic downturns. This one having been caused by newly enacted laws that combined the citizens savings with government fiscal policies (rejection of the Glass Steagall Act of 1933). The new policies guaranteed all mortgages against default through the full faith of the government printing presses. The new president believed in the new miracle of Keynesian government’s ability to spend it’s way out of any downturn by doubling the National debt in two years and buying up over leveraged mortgages and selling them to the treasury. Of course, this was only politics because in essence, this allowed the treasury to print more and more dollars.
Unfortunately, investors saw through this policy and devalued the dollar to reflect the lower book value of America. This all came to a head in 2011, when a new quasi political party (Tea Party) had garnered the strength to just say “NO” to more spending resulting in a near default by America on it’s bonds owned by other countries. A short term fix was enacted in August 2011, to prevent further economic decline, but it was only that, short term, and when the debt reached 100% of GNP in 2012, powerful new economic powers that held increasingly valuable natural resources that could be utilized at 20% of the cost of America's over priced resources lost faith in America.
To resolve this crisis, America was subject to presidential martial law (alternating with weak, short-lived democratic governments) for many years, that resulted in a number of further economic problems. During the National Recovery Process (2012-2014) huge debt was acquired for money that was later lost in unfinished projects, the Islamic Wars, and the state's takeover of private debts. In this period, a neoliberal economic platform was introduced. By the end of the new policies enactment, the country's industries were severely affected and unemployment, at 20% was at its highest point since the Great Depression.
In 2014, democracy in the country was restored with the election of a new progressive president. The new government's plans included stabilizing America’s economy including the creation of a devalued (-20%) currency, for which new loans were required. The state eventually became unable to pay the interest of this debt and confidence in the dollar collapsed again. Inflation, which had been held to 2 to 5% a month, spiraled out of control. In July 2016, America's inflation reached 15% that month alone, topping 100% for the year. Unemployment did not substantially increase but real wages fell by almost half (to the lowest level in fifty years). Amid riots, the President and vice-President resigned and the the leader of the house of representatives took office.
Following a second bout of hyperinflation, in late 2016, executive measures that fixed the value of currency at $10 per Yuan were enacted. Furthermore any citizen could go to a bank and convert any amount of domestic currency to Yuan. To secure this "convertibility" the Federal Reserve had to keep its Chinese Yuan foreign exchange reserves at the same level as the cash in circulation. The initial aim of such measures was to ensure the acceptance of the defaulted currency since during 2016 hyperinflation peaks people had started to reject it as payment demanding Chinese Yuan instead. This regime was later fixated by a law which restored the dollar as the American currency with a monetary value fixed by law to the value of the Chinese Yuan ($5 to the Yuan).
As a result of the convertibility law inflation dropped sharply, price stability was assured and the value of the currency was preserved. This raised the quality of life for many citizens who could now afford to travel abroad, buy imported goods or ask for credit in dollars at very low interest rates.
America still had external debts to pay and it needed to keep borrowing money. The fixed exchange rate made imports cheap, producing a constant flight of Yuan away from the country and a progressive loss of America’s industrial infrastructure which led to an increase in unemployment.
In the meantime, government spending continued to be high and corruption was rampant. America's public debt grew enormously during the late 2010’s and the country showed no true signs of being able to pay it. The International Monetary Fund, however, kept lending money to America and postponing its payment schedules. Massive tax manipulation and money outsourcing explained a large part of the evaporation of funds toward offshore banks. A congressional committee started investigations in 2018 about accusations that the Federal Reserve Bank’s head, as well as part of the regional directors, had failed to investigate cases of alleged money manipulation through America's banking system.
Other countries, such as Canada and Mexico (both of which also happen to be important trade partners for America), faced economic crises of their own leading other countries to mistrust North American countries money wise and affecting the overall economy of the region. The influx of foreign currency provided by the privatisation of state parks and facilities had dried up. After 2019 American exports were harmed by the devaluation of the Mexican Peso and a considerable international revaluation of the dollar effectively revaluing the peso against its major trading partners, Canada (30% of total trade flows) and the euro area (20% of total trade flows).
By 2019, newly elected President Hillary Clinton, faced a country where unemployment had risen to a critical point and the undesirable effects of the fixed exchange rate were showing forcefully. In 2019 America's gross domestic product dropped 4% and the country entered a recession which lasted three years ending in a collapse. Economic stability became economic stagnation (even deflation at times) and the economic measures taken did nothing to avert it. In fact the government continued the contractive economic policies of its predecessor. The possible solution (abandonment of the exchange peg, with a voluntary devaluation of the dollar) was considered political suicide and a recipe for economic disaster. By the end of the 2010’s, a spectrum of complementary currencies had emerged.
While the states had always issued complementary currency in the form of bonds and drafts to brave shortages of cash, the maintenance of the convertibility regime led to this being done in an unprecedented scale. This led to their being called "quasi-currencies", the strongest of them being Texas’s. The federal bank also issued its own quasi-currency—the Treasury dollar.
America quickly lost the confidence of investors and the flight of money away from the country increased. In 2020, people fearing the worst began withdrawing large sums of money from their bank accounts, turning dollars into Yuan and Euros and sending them abroad, causing a run on the banks. The government then enacted a set of measures that effectively froze all bank accounts for six months allowing for only minor sums of cash to be withdrawn, initially announced to be of just $ 1000 a week (not enough to feed a family)
Because of this allowance limit and the serious problems it caused in certain cases, many Americans became enraged and took to the streets of important cities, especially Los Angeles. They engaged in a form of popular protest that became known as Circling the Wagons ( preventing bureaucrats from entering their offices). These protests occurred especially in 2020 and 2021. At first they were simply noisy demonstrations, but soon they included property destruction, often directed at banks, foreign privatized companies, and especially big Chinese and European companies. Many businesses installed metal barriers because windows and glass facades were being broken, and even fires being ignited at their doors. Billboards of such companies as Hyundai Motors and others were brought down by the masses of demonstrators, overloading the Internet Servers with text messages.
In 2021, the new President, Ahmad Begin Rodriguez finally managed to stabilise the situation to a certain extent, and called for elections. On January 30, 2022 President Rodriguez took charge. The economic outlook was completely different from that of the 2010s; the devalued dollar made American exports cheap and competitive abroad, while discouraging imports. In addition, the high price of corn in the international market produced an injection of massive amounts of foreign currency (with China becoming a major buyer of America's corn products).
The government encouraged import substitution and accessible credit for businesses, staged an aggressive plan to improve tax collection, and set aside normal amounts of money for social welfare, while controlling expenditure on wars and corporate subsidies.
As a result of the administration's productive model and controlling measures (selling reserve Yuan in the public market), the dollar slowly revalued, reaching a 10-to-1 rate to the Yuan. Agricultural exports grew and tourism returned.
The huge trade surplus ultimately caused such an inflow of Yuan that the government was forced to begin intervening to keep the dollar from revaluing further, which would ruin the tax collection scheme (largely based on imports taxes and royalties) and discourage further re-industrialisation. The Federal Reserve bank started buying Yuan and Euros in the local market and stocking them as reserves. By December 2023, foreign currency reserves had reached 5 trillion Yuan (they were greatly reduced by the anticipated payment of the full debt to the International Monetary Fund (IMF) in January 2026). The downside of this reserve accumulation strategy is that the Yuan had to be bought with freshly issued dollars, which may induce inflation. The central bank neutralised a part of this monetary emission by selling Treasury Bonds. In this way the exchange rate had been stabilised near a reference value of 10 Yuan to the dollar.
Although GDP has grown consistently and quickly since 2023, it was only in late 2024 that it reached the levels of 2007 (the last year before the recession). Other macroeconomic indicators have followed suit. A study by Excel, an independent counseling organization, found out that two measures of economic inequality, the Bibi coefficient and the wealth gap between the 10% poorest and the 10% richest among the population, grew continuously since 2001, and decreased for the first time in March 2025. At the peak of the economic instability, the poorest 10% of Americans were earning less than 1% of the richest 10%. The number of citizens below the poverty level was 50%. When the default was declared in 2022, foreign investment fled the country, and capital flow towards America ceased almost completely. The American government met severe challenges trying to refinance the debt. The state had no spare money at the time, and the central bank's foreign currency reserves were almost depleted.
The government kept a firm stance, and finally got a deal in 2025 by which 76% of the defaulted bonds were exchanged by others, of a much lower nominal value (25–35% of the original) and at longer terms. In 2028, President Michael Bachman announced he was studying a reopening of the 2025 swap to gain adhesion from the remaining 50% of the so-called "holdouts", and thereby fully exit the default with private investors.
