Opinion: The day the United States declares bankruptcy

Imagine turning on your television one morning and seeing a flashing banner across every network with stark words, impossible to ignore: “The United States government declares bankruptcy.”

For a moment, it would feel like the famous broadcast of “The War of the Worlds” radio broadcast, when listeners thought an alien invasion had begun. People would assume it had to be a mistake. America cannot go bankrupt. The United States is too powerful, too wealthy, too central to the global economy.

That assumption is completely wrong. The United States is not too big to fail. In fact, we are too big to save.

The constant warnings we have been hearing about our national debt are real. These are not partisan talking points nor abstract academic debates. Rather, it is the result of simple arithmetic. If Washington continues to spend trillions of dollars that it does not have, the day will come when the rest of the world refuses to buy our debt. When that moment arrives, the system breaks.

The national debt stands near $39 trillion, a figure larger than the entire annual output of the American economy. Even that staggering number fails to capture the full scope of the problem, specifically, the long-term unfunded obligations tied to major federal programs such as Social Security and Medicare. Within six years, several key trust funds are projected to be exhausted, which, under current law, would mean a 28 percent cut in Social Security benefits.

These numbers come from the federal government’s own projections, not guesses, not speculation.

Current forecasts show multi-trillion-dollar deficits stretching indefinitely into the future. Year after year, the gap between what Washington spends and what it collects grows wider. This path is unsustainable, even the government tells us this. Credit markets have issued cautionary signals. Fiscal scholars across the ideological spectrum have sounded alarms. Economists who disagree about almost everything agree on this point: our present course is unsustainable.

Typical Americans are speaking out for their families, sharing their concerns and ideas on how to address this looming threat. This message from “A Mom That Cares” after the State of the Union address boldly confronts these problems and offers a plan to solve them.

There are more growing voices warning about the danger. Economists and fiscal analysts are pointing out an uncomfortable truth that many leaders prefer to ignore. The American economy can be strong while the federal government’s finances are dangerously weak. Those two realities can coexist, and, in fact, they do.

To this point, the United States has been able to finance its borrowing because investors worldwide think U.S. Treasury bonds are the safest asset on earth. If that belief changes, the consequences hit quickly. Interest rates would surge, the cost of servicing our debt would explode, and the federal government would find itself devoting a larger share of its budget to paying interest. Essential priorities would be squeezed as interest costs crowd out everything else. Eventually, investors will stop buying the debt at any price. There is no interest rate that compensates for a bad loan.

History offers a sobering lesson. Every republic has eventually collapsed, and fiscal failure has been the primary cause. When governments promise more than they can deliver and borrow more than they can repay, this does not end well.

The troubling truth is that Washington has been moving in this direction for decades. The government has accumulated deficits regardless of which party controlled Congress or who occupied the White House. This is not the fault of one president or one political faction. It is the predictable outcome of a political culture that rewards short-term promises and postpones long-term responsibility.

The strength of the private sector should not blind us to the vulnerability of the national balance sheet. If we refuse to confront this problem now, the confrontation will come later under far worse conditions.

One day, the flashing banner may appear across our screens. When that moment arrives, there will be no easy cure. Devastation will ensue.

We must demand that representatives in Washington restore fiscal sanity while there is still time. Hard decisions must replace comfortable illusions. The debt crisis and bankruptcy are not distant possibilities waiting somewhere in the future. It is already visible in the numbers.

We ignore these warnings at our own peril. We must all act and demand that our leaders fix this problem while we still can.

ABOUT THE WRITER

Les Rubin is the founder and president of Main Street Economics. He wrote this for InsideSources.com.