Bernanke or China? Who is right about a US Federal Government default?

According to Bernanke, Congress better lift the debt ceiling or the US will default.  Yet if the only way you can make payments on your debt is by borrowing more money, you are already in default.  So far, the US government, thanks to Mr. Ben and his QE1 and QE2 and his seemingly endless loans to the US treasury, has staved off “default”.  In China, the largest foreign creditor to the United States, financial experts are saying that the US is already in default because of intentional dollar devaluation which erodes the wealth of creditors.  Apparently, China reduced its net ownership of US treasury notes over the last quarter.  Expect that it will be harder to find lenders, and Ben will be the only one left in the treasury auction room.  That’s when QE3 will start.  Or riots in the streets, take your pick, Congress.  Eventually, the pressure to raise the debt ceiling will be too much for the politicians in Congress, and it will be business as usual–money creation ex nihilo, and the Bernanke put will save the stock market.

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