Friday, February 19, 2016

No, The US Budget Is Not Bankrupt

In the American Spectator today they do the usual piece about how the United States is bankrupt, that Barack Obama is doing nothing to fix the budget and that spending is going up and revenue not so much. So it says:
The U.S. is bankrupt. Not in the same sense as an individual, of course. Uncle Sam has the power to tax. But at some point even Washington might not be able to squeeze enough cash out of the American people to pay its bills.
Actually, the US is not bankrupt. That's because, unlike you and me, the US is a sovereign nation and it can renege on anything it wants. Only one thing matters to a sovereign nation: Can it sell its debt? Venezuela is bankrupt; it cannot sell its debt and so it pays its bills by printing currency and launching hyperinflation. And yet it is not bankrupt. It is still operating, and it will continue operating even after it reduces the economy to ruins.

The situation of the United States is that it has promised all kinds of entitlements and programs to the American people and the many special interests and client groups, and there isn't going to be enough money to pay for them all. Basically, Social Security and Medicare and Medicaid are going to eat the budget.

But really, what else is new? Every government has promised all kinds of things to all kinds of people and the fact is that a lot of people get disappointed.

So at some point the US will start to renege on its promises. It can do it clean, and cut the spending and reform the entitlements and put the special interests on a diet, or it can do it ugly, like Venezuela.

The problem is, of course, that when the cuts come, the recipients will be mad as hell and will declare that they won't take it anymore. Just like the folks in Greece. So the government will do nothing, until we get to Greece.

At no time is the US really bankrupt. The US has the power to renege on anything it wants to. So there! The only question, at any moment, is who it decides to renege on. Will it be entitlement recipients? Will it be government bureaucrats?  Will it be bondholders? Will it be holders of US dollars and dollar denominated bank accounts?

The answer is obvious. When the US gets into a bind about meeting all its obligations, it will take the easy way out. It will renege on the folks that have the least political clout. That is not bankruptcy. That is just politics.

So the US budget is not bankrupt. It is just a measure of how badly the government is lying to us.

No comments:

Post a Comment