What Would Happen if the United States Went Bankrupt?

Written by James Hirby | Fact checked by The Law Dictionary staff  

By definition, bankrupt means: An entity judged by a court to be unable to pay its debts, whose property is taken and disposed of for the benefit of creditors.
A lot of different views exist out there in Web-land on this question. Many ask back, “What do you mean ‘if’?” meaning that they believe or understand that the US is already bankrupt. It just keeps printing money. Lawrence J. Kotlikoff, economics professor at Boston Univ., points us to the US fiscal gap is 14 times GDP. Greece, on the razor wire of bankruptcy, has a fiscal gap of 11 times GDP. Mr. Lotlikoff states that the US fiscal gap is huge compare to the official US debt number because Uncle Sam has spent 60+ years accumulating its massive portfolio of obligations, mainly to make social insurance payments, and has carefully kept this off the US financial books. Mr. Lotlikoff continues with the oft joked about notion that US officials label offensive numbers inoffensively to allow dismissing these numbers as meaningless, not a part of the financial issue. He invites us to read more deeply into his viewpoints and recommendations at [www.kotlikoff.net]. To quote him: “Time is not well defined in physics. The debt is not well defined in economics. Both are functions of frames of reference, i.e., language. Neither tells us about reality.” This begins to be a bit frightening.

Asking the question, “What happens if the US goes bankrupt?” using Google led us to a conservative viewpoint site: [http://townhall.com/columnists/johnhawkins/2011/04/12/5_things_that_will_happen_to_you_when_america_goes_bankrupt/page/full/]. Columnist John Hawkins specifies five particular things:
2) Your taxes will skyrocket.
3) Your life could be in danger.
5) You will have a dramatically reduced standard of living.

Argentina’s debt crisis a decade ago had the following happen:
1. the power failed, 2. the police stopped working, 3. the gas stations closed, 4. the grocery stores ran out of food, 5. the retirement checks stopped coming, and 6. the banks went under (taking people’s life savings with them).

Most of the chatter online splits into those focused on inside the United States versus those who are looking at the world economy. Many world viewers state that the United States would not go bankrupt because the world economy would not let it as the world economy allegedly feels a US collapse means a world economy collapse, and only God, Goddess, Allah, or other “creator” knows what would result.

Usually, the inability to pay debt means one has no money. The United States prints its own money. Yet, money used to pay debt is worthwhile only in terms of the debt it pays. If money holds less worth, it pays less debt. This means that it takes more money to pay the same amount of debt. It is a spiral that reduces the worth of money over time. Eventually, the US might run out of trees … to make paper. (lol)

A very interesting read of US Federal financial history and the US Central bank:
The American Dream
Nov 12, 2010

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