By Don Cooper
The debt clock says that the federal government currently has a debt of $28 trillion that must be paid back with interest which means, for all intents and purposes, the US Federal Government is insolvent, bankrupt. This isn’t a joke and it’s not a conspiracy theory, it’s political, economic and mathematical fact regardless how uncomfortable it may make you feel or how unsettling it is psychologically. It is mathematically impossible for them to pay back that debt plus interest and keep the government funded. Even if they taxed everyone at a rate of 100% it wouldn’t put a dent in the debt. Their only option is to continue to borrow more money to pay off the existing debt and interest. This leads to an exponential growth pattern of debt that is an inescapable economic death spiral.
Practically speaking, the government is already in default on its debt, it just refuses to admit it because it would be political suicide so they create a charade, cook the books and engage in some magical financing to keep up appearances of propriety. Continuing to go into debt in order to pay off debt is a political and economic illusion and just postponing the inevitable and making the inevitable consequences that much worse. In 2020 almost half the federal budget was borrowed, so what happens when they can no longer keep up the charade and stop paying their debt and can’t borrow anymore? What happens when the federal budget is cut in half?
- Pension funds – historically government bonds have been considered conservative investments and most pension funds include them as a large part of their portfolio. All those funds will lose a large portion of their worth when the government can’t pay them putting retiree’s pensions at risk.
- Interest Rates – there is an inverse relationship between bond prices and the interest rates on those bonds. Commercial interest rates are tied to the interest rates on government bonds, so as the demand for and price of those bonds falls due to lack of demand, the interest rates will skyrocket and those with adjustable-rate loans will be forced into default similar to 2007. It will also adversely affect economic investment since the higher interest rates means bank loans will become more expensive and returns on savings accounts will be more profitable. People will choose to save rather than invest in new businesses and new ideas.
- Government Contractors – being unable to borrow means the budget will be slashed to bare bones. Government contracts will be cancelled and the employees of those companies as well as all their suppliers will find themselves either under-employed or unemployed depending on what percentage of the business depended on government funding.
- Social Programs – without the money to pay Medicare, Medicaid, Food Stamps, subsidized housing and all the other welfare programs that tens of millions depend on, those people will be left with diminished levels of food, shelter and medical care.
- State Governments – many state governments receive billions every year from the federal government. The state governments then fund local governments which will also have to slash their spending or go into further debt themselves.
- Social Security – the Social Security Trust Fund has no money in it, all it has are government bonds so when the government defaults on those bonds, the trust fund will be worthless. For decades, social security payments have been made with contributions from current workers – a ponzi scheme — but with the diminished work force, contributions will be drastically reduced so social security payments will have to decline.
- Foreign Military Bases – without the money to fund foreign bases, they will be closed and the soldiers restationed stateside, the one bright light in the whole fiasco
- International – unable to pay their international obligations, foreign governments will withdraw their demand for US goods and for US Dollars.
- Taxes – in a desperate attempt to save face, politicians will try to increase taxes and fees across the board but with the diminished workforce the increases will have little effect on revenues while retarding economic productivity even further.
- Federal Reserve – the fed has always been known as the ‘lender of last resort’ and in this case it really is. It will be the only institution willing to create money out of thin air and ‘lend’ it to the politicians to continue financing their shenanigans. The continued devaluation of the currency and the governments inability to pay it back will lead to a collapse of the Federal Reserve, the government and the economy.
Conclusion
As the assassins say in the movies: this is happening. Unfortunately, regardless what anyone does now, the die is cast and the outcome preordained. It’s the inevitable outcome of all empires and the US empire is just the latest.