This came in response to Trump toying with the idea of US debt default a few weeks ago. My intention was to post it here in a timely manner but it got lost it the sauce for awhile. So in the famous words of Ringo Starr, forgive the lateness of my reply.
Trump was probably just trying to reveal a little perceived financial acumen. When interest rates rise, bonds become cheap. Since the government has an effective perpetual lock on how low the floor is on the money supply and an explicit perpetual lock on how much of the real value of that money supply that accrues to itself, it can make good on those bonds for less than it sold them for. Instead of taking money from taxpayers, it's taking money from investors. It's all smoke and mirrors since the currency is fundamentally unsound, based on nothing but word of the federal government itself.
That said, there are three ways the US federal debt resolves:
1) A massive increase in the money supply and corresponding severe inflation, 2) default, or
3) some sort of advance comparable to the industrial revolution or maybe scalable nuclear fusion that supply-sides us out of the massive hole the US has dug itself into (tinkering with marginal tax rates is not going to do it--this requires a revolutionary technological advance).
It will never be paid off otherwise. The Keynesians and the monetarists have no more arrows left in their quivers. They're to the point now of talking about negative interest rates. We've had almost a decade of rates approaching zero while simultaneously seeing real per capita growth, well, approaching zero as well. There's no way out.
We're on top of another bubble. Student loans are my best bet for the primary way it expresses itself, with another housing bubble as the next most likely trigger. It may be a combination of the two or something else altogether but it's not a question of if, it's a question of when. Another deep down turn is coming, and the "recovery" we've seen over the last eight years has been so anemic that it feels disingenuous to even refer to it as such. We're going to be stuck in this bumpy, secular decline until something major gives.
Option #1, government-induced hyperinflation, is massive theft from the collective productive class in America. This is the most likely way it resolves. It's why we don't have a mortgage (if nothing else, we'll have the house and the land it's on), a large chunk of savings in gold (and varied other tangibles like the power nine), the rest in stocks (which are inflation-resistant if not inflation proof), and virtually nothing in cash or cash equivalents.
I prefer #2, the Rothbard option, default. It's the ultimate America-First answer. For all other non-governmental or government-backed investment options, creditors take a real risk in lending for a return. If the debtor can't pay, the creditor takes a haircut. The creditor has legal recourse depending on the situation, but best case scenario he gets less than his principal, often substantially less, as in pennies on the dollar. For those who foolishly assumed the debt of the US federal government was a safe place to plant their assets, they'll have a rude awakening.
The sovereign wealth funds and the big foreign government buyers of US debt can go to hell. The drug dealer, China, wanted to keep lending to the drug addict, the US, so the addict could keep buying opiates--the stuff that makes up our half-trillion dollar annual trade deficit with China--from the dealer, and now the addict is kicking the habit and refusing to pay because he can't pay. Too bad, dealer. You should've seen what a bad investment this was. There's no squeezing blood from a stone, and the addict can still kick your ass in a fight so you just lose, hard, on this deal, dealer.
It's a reset button, it'll cause a lot of immediate economic turmoil, but what rises out of the ashes will be a saner, more sober global financial system that ideally won't be based on absurd fractional reserve banking, massive debt leveraging, and perpetual debt servicing.