Ron Paul has made the comment that the federal government has defaulted three times in history. There are various opinions on default and some see it as restructuring. The Funding Act of 1790, signed by President Washington is considered by some as a modification of obligations incurred by the states, and not an actual default. "This act directed the Secretary of the Treasury, Alexander Hamilton, to assume the Revolutionary War debts of the states, allowing creditors to exchange the state-backed war debt with bonds issued by the US Treasury. The interest on the bonds was deferred until 1801. A total of $21.5 million dollars was assumed." Read more of the story here.
Nine states defaulted during 1841-1842, but the federal goverment was not involved.
Ten states defaulted from 1873-1844 without intervention by the federal government.
The closest US default was in 1933, when President Roosevelt took office, and the US defaulted on the gold standard. It was a default on domestic debt obligations. At that time the United States had the largest gold reserves in the world. On March 8, 1933 Roosevelt announced that gold was safe. On April 5, 1933 he issued executive order 6102 prohibiting gold payments by banks, and limiting gold ownership of the citizens.
"Unfortunately for the bondholders, when President Roosevelt and the Congress decided that it was a good idea to depreciate the currency in the economic crisis of the time, they also decided not to honor their unambiguous obligation to pay in gold."....Alex J. Pollack, The American Spectator.
FSK's Guide to Reality gives one perspective of how President Roosevelt solved the problem in 1933:
"A corrupt Congress and Supreme Court ruled this theft valid. As usual, this theft benefited financial industry insiders at the expense of everyone else. Freed from the restriction of gold-redeemable money starting in 1933, the Federal Reserve inflated to bail out the banks, just like the Federal Reserve is inflating to bail out banks in the present. The result was a massive transfer of wealth from the productive sector of society to the parasite sector. This exacerbated and prolonged the Great Depression. In the present, the massive inflation by the Federal Reserve and Federal government will benefit the parasite sector of the economy at the expense of productive workers, who lose their salary and savings to inflation."
August 2, 2011 is our deadline for default, unlike 1933 it includes external debt obligations. As of today's date the political parties have walked away from each other!
The Netherlands has experienced it's own gold situation. The glassworkers pension fund (SPVG) has been ordered by De Nederlandsche Bank which is the equivelent to the Dutch Central Bank to sell the bulk of it's gold assets. The bank claims that gold is nothing more than a volatile commodity and that holding 13% was over weight as compared to the 2.7% average that pension funds hold. The Dutch Central Bank has forced investors to reduce their holdings!
As of the close of trading day July 15, 2011 it will be illegal to trade currency against precious metals as a result of the Dodd-Frank Law. There are some blogs that help to explain what this means in layman's terms. Read more at Gold Is Money, and Ron Paul Forums.
An interesting report on May 31, 2011 suggests IMF Chief Dominique Strauss-Kahn was charged and jailed for a secret about US gold reserves. Read the full report from The European Union times. The International Monetary Fund website dated April 8, 2011, has a Gold Factsheet post which does not mention the US pledge to deliver 191.3 metric tons to the IMF. It reports that as of February 2010, 191.3 metric tons remained to be sold in a "phased period over time." The full report from Reuters can be read here. The Economic Populist also ran the Reuters story, their site has additional economic facts. Strauss-Kahn has claimed that Russian Prime Minister Vladamir Putin is a player in the plot to have him removed as IMF Chief, thus stopping him from running for the French presidency.
Whatever historical perspective of United States default you follow, at least Ron Paul opens the dialogue of default. Having the conversation of what might happen is important in solving our debt problems.
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