“If it were another country, the U.S. should probably declare bankruptcy.”
In addition to unnecessarily extending the work week in the United States, and locking most of the world’s population in poverty, Washington’s inflationary policies have placed the nation in a state of technical insolvency.
Insolvency, because there is no plan to repay the debt, and no means to available to repay it, even if there was a plan; and, technical, because as long as international creditors continue to supply the United States with goods, despite its inability to earn sufficient means to repay them, Washington can blithely pretend it is not insolvent.
This is the current essential feature of the US national debt, ultimately it will not be repaid, and repayment of it will not be demanded. It is a feature subject to to sudden and somewhat catastrophically violent change.
There is, however, a problem with this convenient fiction – and convenient it is, because were China to demand repayment on the credit it has extended to the US, the global impact would be clearly unthinkable.
The problem: US inflationary economic policies require an ever increasing flow of new credit to Washington. In addition to normal deficit spending, which has become routine, the Iraq War continues, and continues to demand means to effect it.
Additionally, in case you were sleeping for the past two years, the financial system collapsed – which required a significant amount of very expensive government intervention to forestall a global meltdown.
The Real News Network has an interesting breakout of the financial bailout costs below:
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Finally, the burden of stagnating wages and income on working families, combined with a flood of new credit to those same families (as if debt were a substitute for income) has resulted in the actual insolvency of a significant number of American households to such an extent families in general have been compelled slow their spending.
So, just as baby boomer have begun to reach the age where they will be drawing down on the Social Security promise made to them for the last sixty years, Washington finds itself not only needing to raise the funds which it collected for such an event, but spent on its inflationary economic policies, but also to fund about $2 trillion to $3 trillion dollar of obligations arising from the war, an overnight doubling of the national debt resulting from the collapse of the financial sector, and the means to reflate economic activity in face of the worst economic downturn since the Great Depression.
This is the great flaw in the Washington’s inflationary economic policies. It is forced to borrow money from wherever to fund its deficit spending, and, accrues a mounting volume of debt in the wake.
After WWII, when the US was the industrial superpower as a result of the carnage, US deficit spending was paid for out of its trade surplus. But, that went away by 1971 or so. Since then this spending, and the growing US debt, has been funded, for a significant part, from recycled dollars of US imports – an additional share of this debt is “funded” by the sleight of hand created when the US “lends” itself our Social Security benefits.
People have become accustomed to the idea Washington can create goods out of thin air – toss a billion here and there, and 42 inch high-definition wide-screen plasma televisions just appear. What most of us don’t realize is the US doesn’t make those televisions – they are imported from Taiwan Province, and the mainland of the People’s Republic of China.
Which means the money the US is spending – to the extent it purchases real goods – ultimately comes from those areas, not the Treasury. And, only as long as China is willing to accept the dollars.
Which brings us to the great conclusion of this CNBC article:
“‘Nobody really knows how these policies will work out,’ Stoeferle said. ‘If it were another country, the U.S. should probably declare bankruptcy.'”