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Will America Go Bankrupt? We Already Are

by Jerry Robinson on October 6, 2013 · 11 comments

Will America Go Bankrupt? We Already Are

The days of American economic hegemony are numbered. We are a nation living on borrowed time, thanks to borrowed money.


by Jerry Robinson

America’s debt limit was reached on May 17. Since then, Americans have been forced to listen to our dysfunctional, and completely out-of-touch, political leaders wrangle over the economic monstrosity of their own making.

America’s derelict corporate-owned media outlets make good money exploiting the neverending blame game that plagues Washington.

It’s the blue team vs. the red team. Who’s your team?

You can have them both because, to me, they have never looked more like two sides of the same coin.

And now we are being told by those who hold the nation’s purse strings at the Treasury Department, that unless America’s debt dilemma is solved no later than October 17, the nation will officially enter a state of default upon its debt. No doubt, this would cause the U.S. economy to descend into a state of chaos.

According to U.S. Treasury Secretary Jack Lew:

“The United States has never defaulted on its obligations, and the U.S. dollar and Treasury securities are at the center of the international financial system… A default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse.”

Lew isn’t the only key figure in America’s budget battle that has been ramping up his media appearances. On Sunday, House Speaker John Boehner made such an appearance to defend the official GOP position on ABC’s This Week with George Stephanopoulos. You can watch the interview below and read the transcript here.

While Boehner publicly gripes about rampant government overspending, he and his allies have been enabling America’s fiscal crisis for years. They approved every debt ceiling increase throughout the last decade under President Bush Jr. When Bush Jr. spent trillions on war, enacted the gargantuan Medicare Prescription Drug benefit, and doubled the national debt from $5 trillion to $10 trillion, the Republicans were silent.

In 2008, Republicans told American voters that the fundamentals of the nation’s economy were “strong.”

And in the very month that the U.S. stock market crashed, in September 2008, Republican apologists, like television entertainer Sean Hannity, profusely denied that there was anything wrong with the economy.

However, all of that changed in 2009 when President Barack Obama entered office.

The sudden “conversion” to fiscal sanity by the GOP is welcome, but highly suspect considering that both parties have spent more money than the government has taken in for 55 of the last 60 years.

In a show of complete hypocrisy, the Republican controlled House voted over the weekend to provide back pay to furloughed federal workers (deemed “non-essential”) once the partial government shutdown ends. That’s right, America’s “fiscal conservative” heroes in Washington want to use your tax dollars to pay non-essential federal workers while they sit at home during the shutdown.

Why? For one of two reasons. Either 1) the GOP doesn’t want to lose key votes in the 2014 elections from disgruntled federal workers, or 2) they know that if Federal workers go one week without a paycheck, there will be rioting in the streets.

Either way, you’ve gotta love those “fiscal conservatives.”

But, all this begs the question: With a national debt of $17 trillion and $100+ trillion in unfunded liabilities, should America’s overburdened taxpayers be forced to finance the federal government’s desire for hundreds of thousands of “non-essential” workers?

Apparently, asking such questions is below the American taxpayer’s pay-grade. You and I just pay the bills. (Click here to see how the Federal government really works)

Will America Go Bankrupt?

These are truly historic times.

So, too, the stress levels in our culture have reached the boiling point. This can be seen by the growth of America’s pharmaceutical-industrial complex, which has succeeded in drugging a large portion of the nation, as have their peers across Europe.

Once again, the spirit of revolution seems to bubbling forth in the United States.

With Congressional approval ratings at all time lows, Americans are clearly unhappy with Washington.

So, what if October 17th arrives with no debt ceiling deal? Put simply, America will officially be delinquent on its debts for the first time in its history. In government terms, its called a default.

Since America has never experienced a default, we have no precedent on what the initial impact would look like. (Some experts have given their predictions of what a default would look like here.) But given the economic uncertainty facing nations and corporations around the globe, a default would likely cause a run on the U.S. dollar. This would lead to skyrocketing interest rates, followed by a dramatic economic contraction.

Higher interest rates will mean higher mortgage rates, higher minimum payments on credit cards, along with any other debts with variable interest rates.

Our national credit rating, which was lowered by S&P from a stellar AAA to AA+ amid Washington’s 2011 debt ceiling debacle, would be in jeopardy of being reduced again. The stock market didn’t like S&P’s 2011 decision and reacted by falling more than 600 points in one trading session.

If U.S. stocks get hit, as they inevitably will, this will send 401(k) and IRA values plummeting. As retirement accounts evaporate, Americans will tighten the purse strings leading to a dramatic slow down in consumption.

Social security payments would stop, as would disability payments and a whole host of other government benefits.

And what about other countries? How would they react?

The Bank of Japan (Japan’s version of the “Federal Reserve”) has already warned that if Washington fails to solve its internal debt issues it would cause a “severe” blow to the global financial markets. The BOJ has stated it would likely raise its current stimulus levels to inconceivably high levels in the event of a U.S. default.

And other U.S. creditors, including nations like China, would have yet another reason to reconsider their loans to a bankrupt U.S. government.

But, even if America avoids the worst case scenario, its reputation has been soiled. Much of the world is coming to the realization that America is, indeed, nothing more than an economic house of cards. In a nation of just over 300 million citizens, the Federal government sends out 80 million checks every month. This number is only set to increase as each day, 10,000 Americans are reaching retirement age, and all are eligible for government benefits.

The days of American economic hegemony are numbered. We are a nation living on borrowed time, thanks to borrowed money.

It’s time for an overhaul of Washington. But don’t expect that overhaul to come from the Republicans or the Democrats. They are both part of the problem, not the solution.

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Scripture of the Day

“A false balance is an abomination to the LORD, but a just weight is His delight.”
Proverbs 11:1

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Jerry Robinson
Jerry Robinson is the author of Bankruptcy of Our Nation: Your Financial Survival GuideIn 2010, Jerry created FTMDaily.com with a mission to wake up Americans and share with them the principles of true financial and spiritual liberty. Every Tuesday he hosts the FTMWeekly Radio, a podcast covering economic and geopolitical topics.Jerry has been blessed to be able to lecture around the globe on the topic of economic and geopolitical trends. He holds a degree in Economics from the University of Tulsa and resides in the beautiful Ozark mountains with his beautiful wife and son. Jerry is a licensed life insurance agent. See more
Jerry Robinson
Jerry Robinson
  • http://twentyninesecondsandcounting.wordpress.com Roland Martin

    As I have said before, I did not consent to this debt and I don’t know anyone with a brain who did, so why should we be on the hook for this drunken party that the dem/repub gangsters have charged to US? The solution is simple, though it takes guts: Repudiate the onerous debt under international law, put the politicians and bankers that caused this mess in jail, outlaw and prosecute the federal reserve, abolish income tax and let the states govern themselves.

    • deegee

      But surely by voting you gave your consent ?!?

      • Mike Young

        Deegee, voting is Consent to some degree yes, I agree with you there but unless the voters are fully informed on the topic, then we did not give our Consent. Consent is only applicable on being informed on the matters and the American people were not informed on the potential damages caused by the Federal Reserve Act before it was implemented, if they would have been informed that we would have to borrow our own money from a for profit Banking Cartel and pay interest charges on this borrowed money out of our hard earned wages called Federal Taxes, I am sure the American people would have outright rejected the entire idea of having a Federal Reserve banking System, so no we did not give our Consent, even back in 1913.

    • Mike Young

      Roland Martin, you are absolutely correct. No American citizen had Consented to this debt, the only people who consented to this debt is the Congresspeople and Bankers back in 1913 when they authorized to sub-contract their job and Duty to “Coin Money and Regulate the Value thereof” to a Private for profit Central Bank called the Federal Reserve which is the very reason why we now have to Borrow our money instead of printing our own money all Interest free.
      They did this without asking the American people for their Consent, and without giving the American people the opportunity to vote on it either. The Federal Reserve is the very reason Federal Income Taxes was created, to pay for the Interest money that goes directly to the Federal Reserve for the Borrowed money our Government borrows from them.

  • AT

    Anyone who writes that a failure to raise the debt ceiling equals a default is a liar or ignorant of the topic. The Federal government takes in more than enough tax revenue to pay interest on the debt and rollover of maturing debt DOES NOT increase the total amount of debt. Failure to raise the debt ceiling will simply require an immediate prioritization of spending and REAL spending cuts to the lowest priority programs.

    • http://ftmdaily.com/about Jerry Robinson

      AT, its time to turn off the the FoxNews-GOP spin as you have made a number of assumptions that are untrue.

      Assumption #1: All Treasurys are being rolled over. FACT: The Treasury has been faced with a record redemptions of Treasurys as of late, which means they have to pay back the principal as investors cash out and go looking for higher yield.

      Assumption #2: You say the fix is to “simply reprioritize spending.” FACT: After decades of waste and misappropriations, you display great faith in Washington’s ability to solve America’s financial problems. While you wait for Washington to reprioritize its spending, the smart money will be getting off of the Titanic.

      AT, we live under an illusion of prosperity that uses monopoly money backed by the government’s “word.” Our economy is driven by investor “confidence” and consumer “confidence”, not reality. Given our economic house of cards, it would be irrational to assume that a U.S. default would be no big deal.

      • Frank

        Hi Jerry,

        Currently all treasury bonds are being rolled over. There has not yet been an auction failure in the US treasury market. Also, the country could technically avoid default if spending was reduced. However, a sudden reduction in spending like this is clearly suboptimal. It would be better discussed thoroughly which programs should be cut.

        • http://ftmdaily.com/about Jerry Robinson

          Frank, you are right there is no current failure in the bond market. But there very obvious rumblings impacting them, including even some elevated redemption levels across the spectrum.

  • pluto999

    Default is going to happen sooner or later, possibly by massive inflation, maybe some other way. Printing a trillion dollars a year (in current dollars) is not a course of action the US can follow forever.

  • Jerry Parker

    Indeed, how could the Republican and Democratic parties survive a collapse? They both clearly are at fault and only the worst dummies among the populace would not realise that, finally. I suspect that the Libertarian and other parties will surge nationally, assuming that there is not such complete chaos that the U. S. of A. simply falls apart, in which case national elections will not be possible. A despot, Obama or someone else, more likely will emerge, if national unity somehow survives this utter financial collapse.

  • JoeAmerica

    One of the hidden prime drivers of the unstoppable government debt rise is that women will always vote for free stuff (goodies they don’t have to pay for themselves), that is the ever growing welfare state. Unmarried women are most for this and there numbers are huge. A good looking guy giving a woman free stuff is catnip to women. Women have the state as their new husband and have flings with hot guys. This crowds out reliable guys who have no incentive to launch. See economic slowdown. Currently we have high unemployment (zero in real job growth) wage deflation and price inflation.

    While Obama is making this worse it started long before him. Bush was just as bad by starting 2 unnecessary wars, it cost a fortune all on the debt tab. Lets not forget the increasing police state Bush brought and he had no problem rubber-stamping uber-liberal unfair laws and entitlements. The debt ceiling haggling and paid vacations for federal government employees for a phony government shutdown to do what, this meant almost nothing. Both political parties will not address the actual problems so I see no chance anything will change.

    What is debt and why have it? Normally it is expected you will pay the debt back. If you borrow with no intention of repayment and instead used the money to bribe friends with goodies and politically influence with promises of special favors. What do you call that?

    We continue to blow bubbles, dot com, housing and now the education bubble. The last two bubbles are most relevant. These kinds of gross miss-valuations will continue. I see nothing to stop more bubbles being blown. This is a characteristic of our current situation that will continue. The question is how miss-valued are things, how much more can it get and how will it correct?

    One way this all could happen quickly is getting militarily checked. A run on the dollar could happen, now its a question of confidence, raising interest rates (you would probably need a double digit number) would be impossible, unless laws and the FED were changed in a dramatic way, at that point you will wish you had got out.

    The next big election will decide the speed of this transition, the question is will Americans continue to vote in socialism. There will be many kinds of unjust enrichment’s and wealth transfers the state will surly attempt as the economic problems unfold. It might be time to hedge outside the USA, get some of your wealth out of harms way.