Interesting editorial in today's New York Sun; "What Default Looks Like":

What would happen if America defaults? Our prediction is that millions would be thrown out of work, housing prices would collapse, people's savings would be wiped out, and we would be forced to retreat in war. Congress would be deadlocked, foreign governments would be calling for the establishment of a new international reserve currency, the Middle East would be in flames, Communist China and Russia would be flexing their muscles, and the unemployment rate would soar and stay above 7% for four, five, or six years or even more, and the Federal Reserve would be looking irrelevant.

If that sounds a lot like the past six years, it's no coincidence. That's because we are living in the midst of a default. America defaulted on the dollar in the first decade of the 21st century, and we have been seeing what a default looks like ever since. On the day that President George W. Bush was sworn in as president, the value of the dollar stood at a 265th of an ounce of gold. Then, in the years of war that followed September 11, 2001, America defaulted. It allowed the value of the dollar it issues as its unit of account to collapse to less than, at the moment, a 1,300th of an ounce of gold and, at one point, to below a 1,800th of an ounce of gold.

That's a default. Oh, we understand that people don't call it a default. That's because we live in the age of fiat money. Under the law there is no definition of the dollar. If one takes a Federal Reserve note to the Treasury and asks for it to be redeemed, one gets another Federal Reserve note or metal slugs denominated in dollars or parts thereof and devoid of any specie, neither gold or silver. But the fact that people don't call it a default doesn't mean it isn't a default. We made this point before, in January 2011, when an aide to President Obama, Austan Goolsbee, asserted that a default would be "unprecedented."

There are serious observers who dispute that claim. Kenneth Rogoff and Carmen Reinhart, two distinguished economists, wrote a paper on defaults that has been widely quoted. They say it is possible to see America as a "sovereign default virgin." But that's only because they exclude "events such as the lowering of the gold content of the currency in 1933, or the suspension of convertibility in the nineteenth-century Civil War."

The debate between "hard money" and "fiat money" supporters is not new to this century, or even the 20th century. The advantages of a hard money monetary system need not be repeated here, nor the drawbacks of "fiat" money printed by the Fed.

The real question is, can we get there from here? Is there a realistic way back to some kind of hard money standard? Even economists who favor a gold standard for our currency aren't sure. The overthrow of a financial and monetary system would necessarilly involve shocks to that system with unanticipated and unforeseen consequences. In other words, the "cure" may be worse than the disease.

Meanwhile, the Fed and its easy money supporters continue to believe they've got everything under control and there's little to worry about. But you have to wonder about the human capacity to deal with and understand such enormously complex systems. After all, humans have to program the computers that are telling the Fed the state of play in the world economy.

Only the high priests of monetary policy at the Fed purport to have the big picture that tells them where to set interest rates, how much in bonds to buy under quantitative easing, and how their actions will affect the value of the dollar. Their deliberations are mostly in secret. And yet, their decisions have the potential to blow up the economy - and people's lives - if they're wrong.

Default or no, the Fed needs reforming - and sunshine laws. At least that way, we may be able to stave off a total meltdown.