If You Believe the Nonsense About the United States Government Going Bankrupt You Have to Believe that a Flying Elephant Can't Swim

Nations don't exactly go bankrupt. When things get really bad and they can suffer hyper inflation it is a sign that maybe the nation should be 'bankrupt' and not that it is actually bankrupt. Germany could not pay the excessive war reparations heaped upon them after defeat in world war one. The country suffered very badly but it did not break up into bits . The experience caused a mass re-nationalization which might not be what one would expect with the bankrupt degeneration of society theory. Most nations where there is a national identity have no problem surviving a financial collapse. Total defeat in war is another story. Germany was one of the last European nations to unify and one of the first almost to dissolve after world war one. Yugoslavia did dissolve and break up into bits and pieces after the death of Tito it suffered hyper inflation and civil war. Yugoslavia was bankrupt. mostly because of years of hard communism and having a planned economy with plenty of insider pilfering of state assets. Today we hear about 14 trillion dollar in deficit and debts running to 20 trillion in a couple of years and a net national debt exceeding 80 trillion dollars and the concern is that the US is edging toward financial ruin. Some concern is justified because strange things can and do happen even when the probability is very low. Chances are very small that the US is heading toward financial ruin although a sensational panic is always possible in markets so one can't say never but one can say the probability is very low. Capitalism works fine in spite of government top down destructive planning even in places like Japan and that works to save the economy from the kinds of ruin that Germany suffered after world war one and Yugoslavia suffered under decades of rule by Tito. A Lot of people were bankrupt in the United States going into the great depression but not every one and the country did happen to survive that financial mess . Today there is a rising feeling among people that US debt public and private is unsustainable in a way that hyper inflation may result and that some elements of government or political parties are actually attempting to destabilize the economy to increase their own political authority base of power. Those fears seem unjustified especially when one makes historic comparisons to countries that did suffer real financial ruin in the past. Even Spain managed to survive the pounding it took as the British replaced them as the masters of the imperial world. History does not have too many examples of utter financial ruin being the cause of them disappearing from the map or as nations. Financial ruin for the USA is sort of a wishful thinking on the part of speculators who would prefer seeing their investment in gold grow in value by astronomical levels at the expense of the US dollar. For all the years of compounding inflation the dollar actually still exists as a viable currency with a long history of US national debt behind it. Really bad financial circumstances that will destroy the US break it into bits and lead to civil war and chaos is almost on the level of absurd without some really devastating catalyst like what Germany or Yugoslavia suffered. One can never put it past the best intentioned of governments to do completely the wrong thing and cause enormous harm to their people and the national economy. Germany went from financial ruin after world war one on to eventual ruin again under Hitler. Foreign owners of most German prewar bonds recovered very little of their lost principal investments. Total economic collapse just because of a lot of debt on the books is harder to find historic examples of than you might realize. Name one nation or country that totally disappeared from the face of the earth just because it ran up huge debts it would later have trouble paying. One that comes to mind is France in it's Revolution. The royal family's finances were ruined after the revolution but France was not ruined. History tends to tell us that governments tend to suffer the most under the circumstances when they create what might seem insurmountable levels of debt. Dept in the USA is pretty well counterbalanced by high tax revenues that are much more likely to be collected than in other countries. Part of our government believes that it should be spending us into insurmountable debts. There are risks of doing this that can only harm the parties involved. Government can and does renege on contracts when it feels like it so it can virtually erase any debts at will and that only ruins their credit rating not necessarily their spending programs....

Some people would just love to see the US Federal Government go bankrupt simply because it lets the debtor off the hook to pay back the creditors. The make of the Federal debt is part of the debt owed to our own citizens many of whom are rich or older citizens who traditionally have sought to have safe income bearing investments, foreign countries that run a trade surplus with the US instead of engaging in immediate trade and the government itself that uses its own treasury notes for so called "lock box" budgetary and social spending accounting. A government default on debt is not a good idea from the perspective of anyone owed money by the US government but for the tax payers who are the real debtors government bankruptcy could mean at least temporarily a lot less government interference in their lives and less expense. Sure there is a difference between the government going bankrupt and shutting down. A lot of it could shut down and it's loss would hardly be noticed. A more permanent shut down would be a tea party and libertarian dream come true. The worry that the US goes bankrupt is very much over rated as some end of times moment. The United States has not progressed to the state of the soviet union or France or Argentina yet where a government default would just be yet another bad joke of power consolidation of an ever growing government happy to be bankrupt and taxing society more as a result. The American people are slightly more of the can do type and they are resourceful. Inflation has been compounding for over 100 years in the US which is proof that just because the dollar continues to decline that the decline by itself means much of anything. If the dollar is worth 98 percent of what it was back in 1913 or 98 percent of what it was worth 30 years ago if you accept gold prices as the comparison.
the economy is still seen to have become wealthier over either time span as a whole.

The dollar has already collapsed and continues to collapse at a compounded rate of inflation and the economy is more than used to that happening and tends to expect inflation even when the signs are deflationary as a knee jerk reaction. Everywhere there are people pointing to the absolute collapse of the dollar and then the economy and US government. Sorry to say after multiple defaults the Russian and Mexican And Argentina governments live on. Ok maybe they are bankrupt but they don't go out of business entirely. The soviet union went out of business but then it never really was in business being a communist country. A twenty dollar bill is worth a couple of bags of groceries even being worth 98 percent of what it once was worth. When the dollar is worth a half of a 1913 cent or less it still remains a medium of exchange. convert what value you have left into gold and try to figure out if you are buying at a discount to the future value of gold or at a premium but don't expect the US government to ever be paying the social security benefits or the treasury notes off in gold as opposed to dollars at any rate that is substantially above the going market rate for gold. The gold standard and promise to pay in gold is dead and only could be reinforced by an act of political suicide by our leaders or by some foreign power invading the USA and making us pay. That is one good reason to support a strong national defense and even some part of the military industrial complex just for the sake of never having foreigners in control of how we compensate them for the money we owe them. The conclusion then is simple. The government can be broke but it can't go bankrupt. It is possible for it to do it on paper or in verse but not in reality. Government no matter how good can still use its powers of coercion to force people to pay them. It happens world wide. Bad governments shake down their people any way they can no mater how broke they are. Public employee unions can just switch to become pirates and go around neighborhoods compelling citizens at gun point to pay for their services or suffer the consequences. When the people who saved their money in government bonds have none left because the government has defaulted or will only pay in some new currency the public employee pirates can demand all they want and get nothing. Political uncertainty is more of what people have to fear if the government goes and defaults just because any crisis is an excuse of government as we know it to attempt to consolidate more power at the expense of the people. Default and bankruptcy can happen except that if any part of the government is honorable and acts that way the government has plenty of asset to sell to make up for spending cash . That kind of government is just as bad bankrupt as it was before becoming insolvent.

Too many days pass by listening loud mouths like Glenn Beck talking about a possible coming total economic collapse of the United States and the prospects of the possible collapse of the US Government because it happens to somehow default on it's debts. It does seem that the Obama administration is hell bent on causing as much damage to the US economy that they can but that may not be enough to destroy and collapse everything. Plenty of countries managed to survive worse than the Obama Ideology. Economists and financial historians tend to see economies surviving impossible political conditions by saying that they survived in spite of the challenges they were exposed to. Some observers are surprised that Japan and its parliamentary government survived it's deflationary rut over the past 20 some years. The people and businesses of Japan survived in spite of many destructive things their government did. In the very worst case, If you want to suspend reality and consider an alternative fantasy history where the government itself does go bankrupt , defaults on all the money it has borrowed and this leads to a catastrophic destruction of the dollar and not just a devaluation which in turn causes economic collapse here is one scenario of what could happen. Be aware that currencies have collapsed and even died in many countries before and that does not result in the end of commerce or the economy. One only has to go down to Latin America to see that life can go on and worst of all the government's tend to survive the damage they cause all be it with a coup d'etais or series of coups mostly by military regimes. It is a very familiar story. If the US dollar actually dropped dead Americans might find themselves using Canadian dollars, bartering, trading gold , making cigarettes into currency or moving to the Euro, Yen , Yuan and Mexican Peso. That is a joke because after every coup d'etais in banana republics some new government just takes over the printing press once again introducing the new peso or dollar. It is hard to find a country that does not bounce back from a collapse with the passage of time. Some of us can't wait for the governments of California, Oregon, Ohio and New York to go belly up because we don't believe their having wasted our money is a worthwhile reason to let them keep on doing it. New York City almost did go broke once and came back from the brink. It can be a great way to sweep the rats out of office and to let the people see that had they never been so over taxed the government would not be so over extended.

Citizens quickly learn that all the big government they pay for it not even noticed as missing when it disappears because most government spending is just a form of redistribution cloaked in terminology that it is for public services and the public good when all it does is rip every one off. Who does government default to? It's creditors? Since when does government that says it is the force of anti-capitalism give a damn about it's capitalist creditors? They only seem to do so when the funding spigot is shut off. The federal government will not be defaulting to Chinese creditors or European creditors but mainly to American Creditors and principally the people! The mess we have in Washington DC is Entitlement promises being treated on the same level as government debt as debt to creditors that loan it money. As it happens the money being lent to the US Treasury happens to be the same money the US Treasury exclusively prints. That is a good reason not to expect a default. So long as the people can work and can be compelled by some level of coercion to pay their taxes the government will have revenue beyond what it can print in freshly printed dollar bills.

Find a government somewhere else on earth that does not have a similar means of raising taxes. Even in Switzerland and Singapore taxes are usually collected in local paper money and not in hard currency like gold coins or some other fantasy medium of exchange system. For the US economy to collapse and the government to totally default one should expect a savage political environment where famine culls the population making it impossible for people to create economic gains because so many suddenly cease to exist.. Mass starvation is the sort of thing we see in North Korea where government is in practical default but unfortunately still ruthlessly in existence. The idea that Hyperinflation is a necessary consequence of a major economic collapse is also absurd in the North Korean example. There are no consumer goods to buy in North Korea . Hyper inflation is not caused as some natural consequence of bad government because a lot of bad governments avoid having hyper inflation by various means. So assuming the absolute worst here is what to expect when the US Government goes bankrupt just to illustrate the absurdity. The wonderful thing about free capitalism is that scarcity is what causes economic activity and that is one reason that economic collapse cycles are inevitable. When you get too much production in an economic boom there no longer is a lot of scarcity and prices fall. As prices fall the need for keeping people fully employed can become nonsensical. Believe it or not, High gasoline prices can lead to more employment because scarcity puts people back to work producing. It is a mistake to extrapolate an economic recession into an infinite recession in the future because fortunately scarcity motivates everyone who is hungry to go out and work to eat. Even in the land of milk and honey scarcity keeps Adam and Eve picking fruit to eat because the fruit will not pick it self to feed them. Is the USA government something like Humpty Dumpty sitting on a wall with a thin breakable skin and a liquid interior? No it is just the government offices which is a shell for every persuasive con artist and psychopath to run for and win election because they want to promises free lunches to the masses so the masses will feed them. The United State of America was born in debts of war for the revolutionary war. Lots of the founding father's fortunes did not survive the revolutionary war. The cost of war is one of the most extreme costs any government ever shoulders.

If f we want to consider armageddon being possible then lets have some fun with the scenario to satisfy talking head know it alls like Lou Dobbs and Bill O'Reiley lets assume the US government does go bankrupt after hosting a disastrous hyper inflation just because they know better but the Obama administration is suicidal and will do anything possible to destroy the US economy so there is less to re-distribute to their friends and election financial supporters. The US Government is forced to shut down because no one has enough money to pay their taxes because it takes a billion dollars to buy a cup of starbucks. The economy grinds to a halt. Banks are all shut down except for the ones that loan out gold and silver coins because a single morgan silver dollar will buy what used to be a million dollar house in the suburbs. The Obama National Socialists have taken over the government from the Obama moderates and they are nationalizing virtually everything making it property of the US government. US currency is completely worthless and no one exports anything to the US. 99% of government employees are out of a job and the other 1 percent have automatic weapons and they are working as volunteers for the Obama survival team. Martial law is everywhere but the army does not really care because no one is paying them so they just take what they need and want by force and the public lays low.

A bunch of foreign countries want to lay claim to the territories of the USA and they are willing to go to war against each other to figure out which country should own which parts. Canada and Mexico are the first to send troops in to gain new territories and the Russians immediately grab Alaska where Sarah Palin starts learning to speak Russian. Unfortunately for the Canadian and Mexican Claims the British Royals are claiming they have ownership of the main continental US and a lot of Americans are praying for the return of the Royals because the alternative is all the idiots who wrecked the US constitution. Immediately when you start thinking out what a bankrupt US government and economic collapse really means it gets pretty silly. Instead of going though all of this the government has other options which include doing what China has been doing since communism practically destroyed its economy they back their currency or peg it to the US dollar. Latin American countries with collapsed currencies just find away to ignore their pesos and substitute US dollars or other currency for their own in most transactions. People in Germany during hyperinflation who owned other than German marks including other European currencies were much better off than anyone paid i hyper-inflated bills. There is a list of countries that defaulted on debt or rather their bonds that actually survive.

Worrying about states going bankrupt maybe a bigger concern than the US federal government because states don't print their own currency and if they treat their citizens wrong they will leave the state with their money so the state can't tax it. Dependency on federal tax dollars to support over extended state programs is a possible recipe for disaster. States that have spent their resources out of control nearly default are great candidates to default. IT could be a great thing. The only reason a lot of people finance state spending is because they want to get tax free federal income and also state tax free income not realizing the consequences of investing in rather risky investments with poorly managed out of control over spending state governments. It going into default means less government at the state or the federal level it should be looked at as a positive event and not just a negative one. The sooner a lot of over extended states realize they are in default the better because otherwise they never go on a budget and will never stop growing empires. When then about higher interest rates that could occur after a state goes into defualt or the federal govenrment doing the same? It has happened before and that was not the end of govenrment nor of government borrowing. Higher interest rates from govenment can instantly mean less value for your money being loaned to them. Higher interest rates mean some bankers and investors are happier with their higher yields. The government tends to debase paper currency as fast as interest rates rise . It is all good just say it but get ready to vote when the time comes to tell govenrment that being in default means they should stop growing govenrment and be subjected to as many budget cuts as possible because bankrupting a large unnecessary govenrment and replaicing it with a smarter more honest one makes a lot more sense. Government going into default is an oppporunity for the financial savvy to make money on the event something the govenment will never understand nor appreciate. The dollar has collapsed for a very long time and it remains vialbe just subject to horrible consumer price inflation. If us dollars suddenly dissappeared off the face of the earth we would find outer types of currency to use. That is hardly the end of the world either.