The United States is Insolvent, Not Bankrupt - Yet! (Vol.176)

Below is the text of a recent op-ed that was published, here is the link to it:

 The United States Is Insolvent — Not Bankrupt, Yet – DC Journal - InsideSources

The United States is insolvent. That’s not hyperbole, it’s a financial fact. We’re not bankrupt, at least not yet, and there’s a big difference between the two. Insolvency is when you can’t pay your bills when they’re due. When you can’t pay your bills and you can’t borrow the money to cover them, then you are bankrupt. 

Today, America is insolvent – it cannot meet its obligations through revenue alone. We avoid default and bankruptcy because investors still lend to us. In short, we are living on a credit card. As long as that card swipes, the music plays. But if it ever declined, the party will end, and with it, the fiscal stability of the world’s largest economy. 

Let’s look at the numbers. Last year, our government had total obligations of $ 15 trillion. About $7 trillion went to fund government operations (everything from defense to social programs) and $8 trillion was required to pay maturing debts. The bad news is our total revenue was only $5 trillion. 

The result is a staggering $10 trillion shortfall. Two trillion to cover the operating deficit and eight trillion to repay maturing debt. We filled the gap by borrowing $10 trillion in new debt last year. That’s insolvency, plain and simple. And it’s unsustainable. Our own government says so in its annual report. 

This isn’t a partisan talking point or ideological position, it is just the facts. Our government operates a legal Ponzi scheme in which new borrowing pays off old debt. What happens when investors lose confidence and stop loaning? How would we cover a $10 trillion shortfall? The truth is chilling. If we lose our ability to borrow, we face three terrible options: 

Option one: Raise taxes dramatically. Not just on the wealthy, but on everyone. Yet trying to raise $10 trillion annually through taxation is literally impossible. It would destroy the economy and yield little in taxes. It's fantasy. 

Option two: Print money to cover the shortfall. That’s the path to hyperinflation and economic devastation, as history has shown us time and again, from Weimar Germany to Zimbabwe to, more recently, Venezuela.

Option three: Default on the debt. That would instantly erase the value of $37 trillion in U.S. obligations, bankrupting many people and companies, devastating global markets, wrecking retirements, and triggering a severe depression, or worse. 

The Congressional Budget Office, our government’s own nonpartisan scorekeeper, projects multi-trillion-dollar deficits every single year into the foreseeable future. Our national debt of $37 trillion now exceeds 125% of GDP, and it's still projected to go to over 200% in coming decades. That will lead to economic collapse, as it has with every other advanced civilization. 

Still, no one in Washington is hitting the brakes. Politicians on both sides keep promising more, borrowing more, and kicking the can further down the road. Why? Because voters reward short-term benefits, not long-term discipline. Elected officials are focused on the next election, not the next generation. 

In the private sector, the first question a lender asks is: How will you pay me back? If the borrower doesn’t have a plan, the answer is no deal. 

In the public sector, the calculus is different. Investors lend to governments even though there is no surplus from which to repay the debt. Why? In theory governments can tax, or print, money. 

As time passes debt service becomes more expensive. Every additional dollar of borrowing digs the hole deeper, faster. ‘When you are in a hole, stop digging’. When will we stop digging and making the hole deeper? 

History tells us where this end will. Civilizations don’t always collapse from military defeat or foreign invasion, they collapse from within, when their fiscal foundation crumbles. Rome, France, and Britain each failed financially before they failed geopolitically. 

We still have time to reverse course. It starts with education. Citizens must understand the gravity of our situation. Then, they must demand change. Not slogans, not scapegoats, but real solutions. That means entitlement reform, serious spending discipline, and yes, shared sacrifice. If we do not endure some minor pain now, the future pain will be intolerable.

At Main Street Economics, we boil this down to four simple words: Listen. Learn. Think. Act. The future of our republic depends on us. As the late senator, Everet Dirkson, once quipped, ‘politicians see the light when they feel the heat’. If voters don’t speak up, politicians will keep delivering insolvency with a smile – until disaster strikes. 

Do we want to turn over to our kids and grandkids a country that is bankrupt? That is unconscionable and immoral. Shame on us if we let that happen. 

We are not bankrupt. Not yet. But we are insolvent. And time is running out. 

Les Rubin is the Founder and President of Main Street Economics.

BOTTOM LINE 

We Americans must lead, and that will only come with education and understanding of the gravity of the situation. 

Congress will never address this without public support. As I noted above, they are focused on the next election, not the next generation. We will only survive if we demand Congress fix this mess - before it is too late. 

LEARN ECONOMICS, THEN VOTE SMART