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This fall, the US government might go the very same way as Detroit and end up filing for chapter-11 help. In other words, it will end up asking itself to bail itself out. Now, isn’t that a neat little trick, a piece of magic we would all like to be able to do? Bailing myself out? Heck, I’d do it even if I weren’t in debt. Wouldn’t you? So, is it possible for the US to go bankrupt [14]?
Countries go bankrupt every day around the world, legally declared financially insolvent, totally depleted and destitute. Ruined! A ruined state! I wonder who will step in and break the counters of the Federal Reserve (‘bankrupt’ comes from the Italian ‘banca rotta’ (derived from the practice of breaking up the counters of bankrupt bankers so that they would no longer be able to do business because they had no money left)).
Countries that go bankrupt are not just the poor ones, the developing ones, the ones that are in the southern hemisphere, the ones we like to point the finger at. The UK [16] was bankrupt right after World War II. The US lent the British $4.34 billionin 1945 to help them get back on their feet (which works out today to $140 billion). That loan back then was just about twice as much as the entire British economy at the end of the war. It took the country until 2006, when the last instalment of $84 million was made to pay that money back!
The US Congress is not scaremongering just yet, but there looks as if this fall there is going to be a shootout between Obama [18] and the Republicans over two fiscal deadlines that are looming fast and in quick succession. October 1st will see the need for the Obama administration getting a measure to tide the country over and to keep it from going bankrupt. Then, in November the Obama administration will need to get agreement to raise the limit that is legally authorized on the borrowing authority. If it doesn’t, then it will face bankruptcy once again since it will default on payments. That will harm the US economy and also bring the markets into disarray. The Republicans, who now control the House of Representatives, will have the possibility of stopping that going through on both dates and thus demand severe cutbacks from Obama if he wants to get these two deadlines out of the way. Republicans will have enough leverage to be able to demand what they want from Obama. That means that there are two choices. Either the country defaults and there is no more money and the country goes bankrupt, or Obama gets what he needs and the country gets austerity [19] as a result. Either way, the future looks far from rosy.
The last time there was a shootout in 2012 over the budget of the Obama administration, the country got an increase in taxes on the wealthy [20] and that has been a bitter pill to swallow for the Republicans. The 2011 fight over the debt limit of the US resulted in the country getting downgraded by credit rating agencies. Secondly, October will see the start of Obamacare at the same time that Obama will be asking for more money to tide the country over. It looks as if that will be hard to get if Obamacare goes through and begins in October.
Any preliminary fancy footwork between Obama and the Republicans looks as if it won’t happen just yet since Congress will be taking recess on August 2nd. That means that Obama will be left out in the cold for a five-week period. Obama has spoken openly about the Republicans’ ‘manufacturing another crises’ this week also, adding fuel to the fire. On the Republican side people are talking of using this possibility of default on payment as a means to seize an opportunity and gain political ground.
For years now many have warned that the debt crisis in Greece [22], Spain andPortugal [23] in the EU are just a small glimpse of the tip of the iceberg that is ready to crash into other countries. If you believe that the US won’t and can’t go bankrupt, because it is too big to fail, then you should just think again a little. This fall, the US needs to get ready for unrest. Obama’s administration has its work cut out to get the budget approved and it won’t be easy. If it doesn’t, win the showdown between Republicans and Obama’s government then shutdowns will be the order of the day and defaults on payments. Just like in Detroit [24], there will be basic services that close down or restrict even more. Police forces will stop policing, people will withdraw their savings and hide the stash of cash under the mattress as it becomes worthless, postal workers will stop working as they go on strike demanding pay rises. But, one thing will probably remain: the National Security Agency [25] and their embittered battle to the very end to get their hands on Edward Snowden as well as get a hold on our passwords so they can eavesdrop on our very interesting conversations.
Of course, as a final word, the US wouldn’t really be able to go bankrupt, would it? The Federal Reserve would just up the printing and get the presses to roll off a few more greenbacks. But, that would have other consequences that wouldn’t even need explaining to anyone.
Originally posted: US Government Will Go Bankrupt [26]