Wednesday , 24 April 2019


The U.S. Gov’t Is Hopelessly Bankrupt! Here’re 4 Ways They See It Being Resolved

…The U.S. government is hopelessly bankrupt reporting last week that it has a negative net worth of MINUS $75 TRILLION. [Here’s] a look at how they see this problem being resolved – or not.]:

To believe that any nation can be so desperately insolvent without suffering any negative impact is just plain foolish. Debts have to be paid [and] obligations have to be met so, at some point, with numbers…[that] gruesome, something has to break down. This is not a dire prediction or wild conspiracy theory. It’s an arithmetic certainty…This is happening…

[Here’s] a look at how the government sees this problem being resolved – or not.]:

1) Ignore the problem

Politicians are already acting as if nothing is wrong. Sure, occasionally you’ll hear someone complain about the debt, or there will be a debt ceiling showdown but no serious alarm bells are ringing and, because they don’t make a big deal over the debt, no one else does either. Everyone just goes along as if there’s not a problem.

2) Raise taxes

This is HIGHLY likely because it’s the most politically palatable option…[but,] the problem is [that] it won’t help…[because] U.S. tax revenue averages out to be about 17.7% of GDP, year in, year out, regardless of what actual tax rates are…

You’d think that they would recognize this– that eight decades of tax data would make them think– “Gee, if we can’t increase our slice of the pie, why don’t we just try to make the pie bigger…” but, no, they fall back on the same old ‘soak the rich’ mentality, because it gets them elected.

3) Default

Since raising taxes won’t actually fix anything, their next move is to default. This could mean either:

  • a) defaulting on their creditors, i.e. people who own the debt… or
  • b) defaulting on their obligations to taxpayers (like Social Security).

[Regarding the latter]…that’s already happening:

  • In 2018 annual report, the Social Security Administration stated that its trust funds will run out of money in 2034, just 15 years away.
  • After that, they’ll have no choice but to dramatically cut benefits for current and future Social Security recipients.
  • Imagine paying into the system for your entire life under a promise that you’ll receive certain benefits, only to have that promise broken. That constitutes a default. And it’s already in the works.

Defaulting on creditors is a tricky one. The top owners of U.S. debt are as follows:

  1. Social Security Administration:
    • Social Security is the top U.S. debt holder so, if Uncle Sam defaults on Social Security, that program is even more royally screwed.
  2. Federal Reserve:
    • The Fed owns trillions of dollars worth of U.S. debt so, if Uncle Sam defaults, it would wipe out the Fed’s solvency and create an epic currency crisis for the U.S. dollar.
  3. Foreign Creditors like China:
    • If the Fed defaults on the Chinese, it would create a global financial crisis, as nearly all foreigners would dump their US bonds.
    • Borrowing costs would skyrocket as a result, bankrupting the government.

None of those is a good option, which leads to…

4) Inflation

…Governments really like inflation, because it slowly reduces the value of the debt that they’ve borrowed and, because inflation is so gradual (around 3% annually), no one kicks up much of a fuss, even though it steals prosperity year after year…[As a result,] they will most likely continue to print money in an attempt to create inflation and inflate the debt away.

Conclusion

[The above four approaches to America’s major debt problems] are all things that a reasonable person should plan on…but it’s not anything to fear. There are plenty of solutions. For example, it certainly makes sense to consider owning some inflation-proof assets [such as]: 

  • gold and silver,
  • real estate (including foreign property),
  • shares of a well-managed, high cash-flow business,
  • etc.

Those assets will do well against inflation.

It also makes sense to create a robust retirement structure like:

  • a solo 401(k)
  • or SEP IRA

so that you’re not as dependent on Social Security because that reckoning day is absolutely coming.

The government is practically giving us a date to circle on our calendars. Failing to plan for it is insane.

Editor’s Note: The above excerpts* from the original article have been edited ([ ]) and abridged (…) for the sake of clarity and brevity. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.

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(*The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.)

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