The USA isn't going to go 'bankrupt'. What may well happen is few years of austerity along with a nasty recession and bear market. It took Volcker just two years to kill inflation, which in those days was far higher and more entrenched than today. Nonetheless, such would crush all kinds of contemporary expectations about infinitely rising asset prices, or the God-given right to "quiet quit" and Zoom-meeting your way through a six-figure job.
There is nothing left after you hit rock bottom. When its the system that caused the rock bottom, you can't climb out of it via the same broken fiat system run by central bank policy. The fiat system requires forever expanding credit. Debt is super high, and in order to resuscitate a nasty recession, you will have to expand credit some more. Who will take on more debt and how? You need prices inflating in order to keep it going and people borrowing more so that you increase the supply of money. The things they could do in the 30's or even the 80's they no longer can because debt is already so high.
Volker had to raise interest rates to levels not possible today. Even he said the solution he used would not be possible today. The politicians in charge today won't propose austerity. They just decided to give $10k to everyone with student debt who makes under $250k/yr for married couples. $750B for "climate change" administered by people who fly private jets and consume / emit orders of magnitude more energy then you or I. No, they need to spend money we don't have to buy votes. Never count on them to do the right thing. They only care about staying in power and enriching themselves at your expense. Expect them to propose a solution that sounds good to an idiot such as price caps, but has failed both in theory and in practice. They'll count on the average voter being to stupid and lazy to understand.
It's a sticky situation for sure. At this point Hayek's "Road to Serfdom" should be required reading for everyone in secondary school... so that the general population can understand what's at stake; as well as the how's and why's. Otherwise, the west will crumble towards totalitarianism (of either a friendly fascist or cordial communist nature). There's always time left to "right the ship" by making appropriate decisions; as an individual or as a culture. The question that remains is does the Fed have enough backbone left to unequivocally squelch the growing criticism that it's been politicized. I think they have to take a page from Volcker's playbook. Maybe not in terms of huge rate increases, but something that shocks the ever increasing naysayers as well as the go-along-to-get-along crowd. The idea of a "soft landing" is a complete fairy-tale. It's like jumping out of a plane a 20k feet, catching a small up draft, and thinking that the ground won't hurt at the bottom. It's going to sound very unorthodox but I think it'd be a huge win if a hard currency were reintroduced as legal tender that'd officially float freely against the monopoly paper we're currently using. Then, people could decide how much trust to put in God as opposed to man.
Your response is based on a misunderstanding. It is not clear whether you are speaking of what's called "national debt" or private debt and credit. For the U.S. there is currently no real national debt. What we call "national debt" is the sum of Treasury liabilities due to outstanding Treasury securities held by the Private sector. Treasury securities held by the Central Bank should not be counted in this sum. Treasury securities mimic debt instruments but they do not represent real debt. The U.S. must continue to issue Treasuries so long as it's productivity expands. And as long as the dollar is a reserve currency, the productivity of nations carrying out trade denominated in dollars must be included. What is important is rate of Treasury issue rather than the amount per se. Treasury securities issuance is tied, dollar for dollar, to U.S. deficit spending. Therefore both deficits and linked Treasury issuance is made necessary by increasing productivity. It's a matter of how much deficit is the right amount; not whether we should spend in deficit; from time to time, we must! Deficits, and thus Treasury issuance, are controlled by Congress; not the Central Bank. Private sector debt is of course real debt and has to do with private sector bank credit. Credit responds to Central Bank monetary policy which determines the wholesale price of money that banks must pay for the money they lend out. Private sector credit responds to both retail bank rates and demand. Interest rates and demand are interdependent.
Interest on debt was much less a factor during the Volker hikes. ***I am NOT an interest rates (bonds/treasuries) expert so ...
Do you mean to imply that our trading partners don't care how much we borrow or if it ever gets paid back?
Again, we do not borrow, not currently. But of course they care how many Treasury securities we issue. And that, by extension means they care about our deficits! They certainly care about the interest rate on Treasuries. But if the care about whether the Treasuries get paid off, they don't understand Fiat money for a nation like the U.S. that has deep sovereignty over the money it issues. U.S. Treasuries can be paid off. There is zero risk of a U.S. default. The risk is all an inflation risk. All U.S. Treasuries could be paid off, i.e., bought back, in a few days if need be, but economists can't agree on what the impact of that would be. (Japan not long ago bought back about 50% of their JGBs. Japan is in a situation similar to that of the U.S. They also have deep sovereignty over the Japanese Yen.)