Thursday , 17 August 2017


'America Is Bankrupt' Claim is Total Nonsense! Here's Why

We are being bombarded daily with breathy articles about a United States groaning under deficits that surely signal bankruptcy, Social Security checks that eventually won’t clear, and of course a looming financial crisis…Much of this commentary is well written – it certainly is popular – but it is total nonsense. [Let me explain.] Words: 960

So says John Tamny (www.realclearmarkets.com) in an article* which Lorimer Wilson, editor of www.munKNEE.com,  has further edited ([  ]), abridged (…) and reformatted below  for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Tamny goes on to say: 

Problems with the Bankrupt Narrative

  1. The first problem [is] that the deepest, most informed markets in the world disagree. If U.S. finances were really as bad as the commentariat suggest… Treasuries would be in freefall. Indeed, be it an individual, a company or a country, truly bankrupt entities can’t borrow at low rates of interest. By virtue of being insolvent and unable to pay back debts, bankruptcy causes borrowing rates to rise, and in a very big way. That the  U.S. Treasury continues (sadly) to borrow large amounts of money, and that investors line up for the privilege to purchase the debt, tells us that those who regularly dine out on the bankruptcy concept should temper their rhetoric. They should [understand] that, as large as the Treasury’s debts are, basic economic models [show] that the debt could be paid off with ease over time as long as the U.S. economy grows in the 3% range .
  2. If the debt is what concerns people, the simple answer is to unshackle the individuals who comprise the U.S. economy by reducing tax rates and regulations, providing freer trade and a stable dollar thereby allowing the productive to produce the revenues necessary to pay off the government debt that we worry too much. [That] being said, any tax plan, be it lower or higher rates (both can work) used to goose revenues, should be looked at with skepticism. Politicians, irrespective of party, always spend the revenues that reach them, so the better long-term plan is to cut tax rates so low that revenues actually decline, and do this in concert with spending decreases that bring the federal government within its constitutional limits. We don’t have a revenue problem, we have a spending problem.
  3. Many argue that a crisis awaits [because of] the size of our national debt growing as a percentage of the U.S. economy. Their muse in this regard is a recent and very worthwhile book by economists Carmen Reinhart and Kenneth Rogoff, This Time Is Different, in which Reinhart and Rogoff note an historical correlation between country debt reaching 100% of GDP, and default. The problem with [their analysis] is that the United States is not just any country. Filled with arguably the greatest collection of minds and entrepreneurs in the world (the number would be even larger absent a silly American aversion to immigration), debt that forces other countries to default can’t fell a country stocked with such amazing wealth producers.
[Then there is] Japan’s national debt which is presently 220% of its GDP (92% in the U.S.), but there doesn’t exist any market evidence of Japan being on the verge of default. Japan’s problems are a combination of protectionist policy in the U.S. that forced a massive deflation on the country, along with an aversion to failure that props up companies that should have been allowed to fail. This is in no way meant to excuse ridiculous levels of spending in both Japan and the U.S. (the spending itself weighs on economic growth), but it is to say that the history of defaults can be deceptive.

What the Real Problems Are

Rather than argue that the looming crisis for the U.S. is the day that investors tire of U.S. debt, the scaremongers in our midst should reorient their narrative. The true crisis at present is all the government capital waste and destruction that has prevented a myriad of Microsofts, Googles and Intels from ever seeing the light of day thanks to our federal government consuming so much limited capital. Similarly the crisis is an individual one when we consider the millions of Americans who might be doing things that are actually stimulative to the economy and to their self esteem were they not working for the government.

Conclusion

In short, the crisis is decidedly not the day when investors turn the other cheek to the issuance of government debt. Instead, the crisis we’re experiencing is in the here and now as an ever expanding government and its gargantuan need for capital smothers true entrepreneurialism, and the productive jobs that entrepreneurs create.

America is not bankrupt, and it’s not close to being that way. Rather than fear the “bankruptcy” day that never seems to come, it’s time to change the discussion to the greater truth that the U.S. was a nation founded on limited government, and if we return to just that prosperity will be our reward along with freedom from all the silly articles about America being broke.

*http://www.realclearmarkets.com/articles/2011/04/26/lets_put_to_bed_the_america_is_bankrupt_myth_98983.html (John Tamny is editor of RealClearMarkets and Forbes Opinions, a senior economic adviser to H.C. Wainwright Economics, and a senior economic adviser to Toreador Research and Trading. He can be reached at jtamny@realclearmarkets.com.)

Editor’s Note:

  • The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
  • Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.
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Debt

2 comments

  1. At the start, I also felt comforted by an article exclaiming US bankruptcy as total nonsense. Until I got to the reasons:
    1) Investors are still lining up to buy US debt.
    Well, if they don’t, won’t that mean their own holdings of debt will crash? Wouldn’t they rather see an orderly drop? And what about the reports that “investors” actually means 70% is now being bought by the Fed itself?

    2)Unshackle the economy: cut taxes, cut regulations, cut spending and worship free trade.
    Even if these ideas have merit, used in this context, it sounds merely like a political ideological platform; the one that has been in vogue since 1980 and did not prevent the mess we find ourselves in. Rather than an ideology debate, it looks to me more like we’ve suffered a simple, massive raid. Perhaps opportunism is the real problem and instead we should be debating how we can prevent future raids. When did cheating become honorable?

    3)We’re unique. Debt which fells others cannot do the same to us.
    Not only does this reek of the arrogance for which we’ve become famous, it also sounds just like the real estate arguments we’ve been making for the last 3+ years: prices are falling, but not in our area…oops, not in our town…oops, not on our street…oops, not for MY house.
    Instead of arguing whether or not “this time is different”, write a book called, “It can’t happen here”, list all the reasons, and after collapse, it can be used as a case study for future reference.

    I apologize for being so harsh, but we’re talking life and death and platitudes aren’t going to save us. I’m tired of being a cynic.

  2. Your article was relief after all the prognostications about the coming economic disaster for the US economy.
    However, why are there so many articles floating around indicating that the US dollar is on the verge of some sort of catastrophic failure due to either the loss of it’s designation as the reserve currency and/or a sovereign debt default? Either leaves the dollar-centered citizens with pennies per dollar saved or invested or, worse yet, on the verge of Armaggedon.
    I know, or at least hope, that these other economist experts are not printing things they don’t believe.
    How can a ordinary American ever hope to prepare for the future when the experts are pointing us in opposing directions.
    Please don’t recommend that I gather more information because I’ve read enough to be able to make a decent stab at arguing both sides….
    If there is nothing to fear why are so many so concerned? The uncomfortable truth may be that the experts don’t know; but the stakes may be too high not to err on the side of caution.
    At any rate, thanks for the respite!