This post posits the theory that the US government is on a collision course with bankruptcy and collapse of the currency, in the short term. Federal borrowing is currently far more than the unobligated receipts of the entire federal government. Since a lender is essentially buying part of a stream of future cash flows owned by the borrower, no rational lender will for any length of time loan more than the total cash flow possibly available for repayment. Such lending guarantees a default and grievous loss to creditors.

However, popular opinion in the United States strongly opposes the drastic budget cuts, and especially the repudiation of unfunded liabilities, necessary to restore the US government to solvency. US citizens are at present generally unwilling to acknowledge the fact that their large claims for money and services are held against an entity that has massive unfunded obligations, and no means of satisfying those claims over the long term. Although the federal government has operated in technical insolvency for many decades, it is rapidly running out of options. The endgame is becoming increasingly obvious and undeniable.

The title of this post was shamelessly plagiarized from Alan Simpson, co-chair of the Deficit Reduction Commission. As Simpson’s dire warning implies, balancing the budget is no longer on the radar. The goal is only to reduce the deficit. This post explains why such maneuvers will at most delay the impending collapse of the currency for a short period of time.

This is planned as the first post in a series designed to help major stakeholders (taxpayers, benefit claimants, holders of dollar denominated assets, and holders of federal debt instruments) avoid or reduce injury from a collapse of the currency. However, unrelated posts will be interspersed with posts that belong in this series. Read more here…

America, You Have a Serious Problem