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Can America Go Bankrupt?

July 29, 2008 RSS Feed Print

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Let's see here: $500 billion budget deficits, the possibility of a $500 billion bank bailout in 2009, and exploding entitlement costs. Surely, this can't be good. My pal Arnold Kling doesn't think so:

Think of the U.S. government as the world's biggest hedge fund. One thing a hedge fund does is engage in credit arbitrage. When you can borrow risk-free, you can make a profit holding risky assets. That is what Congress is hoping will happen with the Freddie-Fannie bailout. We have grown accustomed to the assumption that the risk of default of U.S. government liabilities is zero. That in turn allows Congress to act like the biggest hedge fund on the block. Consider the long-term obligations of the U.S. government: Social Security, Medicare, the Pension Benefit Guaranty Corporation, public employee pension plans. Add to those the risks of the securities that the government is effectively choosing to guarantee in the Bear Stearns merger, the Freddie-Fannie prop-up, and other steps that are being taken or will be taken in the mortgage and financial market. It seems to me that in order to achieve short-term stability we are piling on long-term fragility.... If people do not have confidence in the long-term financial stability of the U.S. government, the chances are that they will not have much confidence in the long-term stability of U.S. corporations, and so you would see a collapse of long-term investment altogether.

Tags:: bankruptcy,; federal budget,; deficit and national debt

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I think we will eventually get to the point where we are so upside-down on our U.S. Loans that the Federal Government will go into foreclosure. Federal jobs will be out the door and regions of the country will wind up banning together into Unions with NEW Constitutions. This is the end of the U.S. Empire and it indeed happens beginning in 2012. Civil War(s) will ensue between these Unions and there will be mass bloodletting and a kick back to the 18th Century. We become irrelevent in the world, China explodes along with Russia as the only two remaining Super Powers. This will be by 2020. Don't worry about the immigration problem. Americans will be jumping ship to overseas economies that fair better.

Daniel of MA 12:03PM January 10, 2010

I find it interesting that some people reason "well, we've been in debt before and came out alright we'll do it again." Trouble with that logic is the US spending with the wars, bailouts, stimulus, Obamacare, etc., is unprecendented --- we're working on 14 trillion now and climbing. The politicians just want the masses to be happy while their in office so they concoct all these aforementioned schemes to pacify a not so bright populace into thinking they have the answers... that they're actually smarter than all of us out here. They use fear, massage the data, spin with the media, etc., and "we're the experts, trust us" to coerce the majority into believing all this nonsense. It might suprise them that some of us can do the math and have a strong grasp of linear relationships.
David Lewenz (above comment author) is correct and points out some very valuable information for people who are willing to listen.
Michael above... well his seatbelt is not fastened and when the house of cards crashes, Michael will instantly realize he should have paid more attention to the math. It will be a quick end for him though.
The US government "deficit credit card" is being run up... way way up... with seemingly no credit limit. I know my credit card company is smart enough to put a credit limit on my card... but "we the people" don't think it's prudent to limit the amount of credit (via our future tax dollars) our elected officials can spend? One day the deficit "credit card company" will demand to be paid-in-full; guess what happens then.

Ross of NE 10:57AM October 29, 2009

The American Government has got it self pinned against the wall, if you look at the unfunded liabilities which now total 60 trillion dollars, Social Security, 10 trillion, unfunded medicare and medicade 40 trillion and under funded prescription drugs of 8 trillion. Underfunded means the government has printed the money and left an IOU in each funds account, This makes Bernie Madoff look like a prince.
Now lets look at current burn rate of the government, collecting less then 1.8 trillion in tax revenue and spending 3.3 trillion. 12 trillion of national debt that is underwritten with T-Bills. The government is just 6 weeks away from starting its new budget for 2010. Projections of deficit spending 3 trillion may be more, based on jobs recovering or not.
We have maybe two years, before this blows up! A blow up is when the fed has to raise interest rates to attract buyers of our bonds or T-bills.We are getting really close to that date. At some point the world will say, can you really pay back all that money, Which is now at 249,000 dollars for every man women and child. Since we stopped funding our debt with long term bonds and moved in the Clinton admin to short term bonds, we are really in a pickle.
From a budget stand point debt interest is the fourth largest expenditure 330 billion, but as interest rates go up coupled with 3- trillion of added debt each year, Debt interest could become the number one cost to run our government is five years.

David Lewenz of FL 6:50AM September 14, 2009

Can America Go Bankrupt?

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