We are all concerned about the many problems we face today: inflation, affordability, a world at war, the list goes on. That will all be irrelevant if the United States goes bankrupt. Make no mistake, that is where we are headed if we continue our current path.
No, we are not bankrupt yet, but we are insolvent. That is simply financial jargon, meaning we cannot pay our obligations as they come due. However, if we can still borrow, we can continue to meet those obligations and avoid bankruptcy. So, we borrow and pay, borrow and pay, and pile up unfathomable debts.
We currently have around $39 trillion of interest-bearing debt (and approximately $136 trillion if you include unfunded obligations) owed by the Treasury to many different people, countries, and institutions. It all matures at different dates. Last year alone, about $8 trillion in interest-bearing debt came due, requiring repayment. We also ran a deficit of nearly $2 trillion, meaning expenses exceeded revenue by that amount. In total, we needed to fund roughly $10 trillion in obligations.
REPUBLICAN TAX CUTS MUST NOT BE BLAMED FOR RISING DEFICITS AND DEBT
Since we had no revenue source to pay the maturing debt or cover the annual deficit, we are effectively insolvent. But we have a “credit card” that still works, so we borrowed the money, $10 trillion to be exact. $8 trillion paid maturing debt, and $2 trillion covered the deficit. This is a classic Ponzi scheme, with ever-increasing borrowing covering ever-increasing obligations.
It is not an illegal scheme because there is no deception. Investors in U.S. debt fully understand what is happening. The Treasury’s own financial statements are explicit, stating that the “current fiscal path is unsustainable.” This structure will eventually collapse. No one knows when. It will happen, as Hemingway famously described bankruptcy, “gradually, then suddenly,” when investors lose confidence and are no longer willing to lend at reasonable interest rates.
When that moment comes, as buyers stop purchasing U.S. debt, the entire system will come under severe stress. Since there is no practical way to cover a shortfall of that magnitude, the outcome would be catastrophic. We would either default on our obligations, which raises serious constitutional and legal concerns, or we would resort to printing money to pay our bills. Either scenario is devastating. Default would trigger global financial shockwaves, while printing money on that scale would lead to runaway inflation and the collapse of the currency’s value.
If the U.S. were to lose the confidence of its creditors, every other issue we argue about today would become secondary overnight. Debates over taxes, healthcare, foreign policy, and social priorities all depend on a functioning financial system. If that system breaks down, the government itself is forced into crisis mode. Basic obligations such as paying Social Security, funding national defense, and maintaining essential services would no longer be guaranteed. The stability we take for granted would quickly give way to emergency measures, uncertainty, and economic contraction.
In that environment, the value of savings, investments, and income security would all be at risk. Many businesses would go bankrupt, credit markets would freeze, and everyone would suffer severe consequences. At that point, the overriding question is, can we survive? That is why everything else we care about ultimately depends on solving this problem first.
We have seen versions of this story in other countries, but there is a critical difference here. This is the U.S., the central engine of the global economy. A breakdown here would not remain contained. World commerce would be disrupted, and the global economy would be dragged down with it.
That is a sobering reality. The precise sequence of events is impossible to predict, but if the U.S. loses its ability to borrow, there is no good scenario.
We cannot allow that to happen. We would be leaving our children and grandchildren, and all future generations, with a broken financial system. How dare we do that to them? It is unconscionable and morally wrong.
CONGRESS SHOULD STOP PAYING STATES
So how do we avoid this catastrophe? We must restore financial sanity in Washington before our creditors lose confidence and stop financing our debt. Congress must ultimately solve this problem, but elected officials will not take politically difficult steps, such as raising taxes or cutting spending, without sustained public support. They are focused on the next election, not the next generation. With public support, they will be empowered to do the right thing.
So, it is up to us, the people, to understand the issue and demand that our representatives act while there is still time and while our system still functions. We cannot bury our heads in the sand and pretend this is not a serious problem. This is truly the most imminent existential problem we face — yet no one is addressing it.
Les Rubin is the founder and president of Main Street Economics.