Household net worth doesn't come into the equation. Unless you condone the US government seizing private assets to pay off dept. The US government can only tax future earnings to finance its debts. If they increased taxes by 10% on everything tomorrow, they would only raise 1.45 trillion extra revenue per year. Which would see the current US government debt cleared in 40 years. If they reduced the size of government by 10%, they might be able to do it in 20 years. Runningbear
They already did it once when they confiscated the gold. You are insane if you think they won't do it again.
It all comes down to what you think about the future...how you discount the future...will it be better or will it be worse...why? All your notions of present value depent on this forsight...what we hold as valuable now depends so much on how we view the future.
I know somebody from the white house is reading this thread. Why don't you post in this thread. People need to know the truth.
Pretty poor post from Cutten. As the other poster mentioned, the US debt burden is much higher than the reported $14T when the $50+T in unfunded liabilities is taken into account. Also Cutten clearly has never read or listened to Ron Paul. While trained as a doctor, Paul has spent the last 30 years studying economics, and has a pretty good grip on how the US economy operates, particularly with regards to monetary policy (albeit from an Austrian perspective). Paul has repeated many times that the US is unlikely to default outright, but instead orchestrate a "stealth default" through inflation. Cutten's statement on Ron Paul shows uncharacteristic gross ignorance on the subject.
The other G7 countries also have 'unfunded liabilities'. You can't include them for the USA and compare with other countries whilst not including them for the latter. Besides, even including all the unfunded 'liabilities' (i.e. politician promises, which will be reneged on or funded by future tax increases and spending cuts), the debt level is still not higher than for example UK debt after WWII, which was not defaulted on. Besides, those politician promises are not debts, they can be repriced, renegotiated, cut, slashed, burned etc at the stroke of a Congressional pen. They are just political promises to their constituents, and we all know what politicians' promises are worth. US Treasury yields may well spike, but it will be because the economy is recovering and US Treasuries at 3-4% yields are seriously poor value, not because the US defaults. UST yields were 6-7% a decade ago, and there was zero default risk then, so even a doubling of yields would not imply any truth to your argument. Even if for some reason Congress doesn't cut spending, reduce benefits, or raise taxes to avoid bankruptcy, they can just let slightly higher inflation do its work of raising nominal incomes and thus tax receipts, easily paying off the debt. Retirement and SS benefits will not be indexed competitively, and will thus be 'cut' in real terms by stealth, with understated official inflation figures. The system will adjust before the crisis becomes unmanageable, as it always has done and always will do. Finally, I notice you didn't address the reserve currency and Fed issue. In extremis, the US government can simply print money to pay the debt. However, there is no real reason to have radical inflation to do this. Just allowing a 1970s style headline rate of 5 or 6% would be more than enough to render the debt (including unfunded liabilities) manageable in 5-10 years or so. 10 years inflation at 6% is a 46% fall in the real debt burden, and a 71% fall in 20 years. Also, 'bankruptcy'/default has a specific meaning. It means you fail to make an interest payment or principal repayment on the contractually obligated date. It does not mean that inflation occurs. If the latter were true, then every government in history has already defaulted on its debt, because every government has left the gold standard and had inflation over the years. Bankruptcy doesn't mean negative net worth either, otherwise everyone who has had an overdraft, student loan, or credit card balance as a young person would have gone to bankruptcy court. They didn't, therefore negative net worth is not bankruptcy.
You are forgetting the impact of inflation. Even 3% inflation reduces the real debt load by 26% every decade. Household net worth matters, because households and their assets can be taxed - property taxes for example, capital gains taxes, income taxes. Wealth taxes can also be introduced. Taxation has happened since the very beginning of the USA and is not going to stop any time soon. In the past, the USA has had far higher tax rates than today, they can go back up again if necessary. Also, there is no reason they can't both raise taxes and cut spending. All that is required is a balanced budget, or a small surplus, then inflation and compound interest will do the work over time. And there is no necessity to 'clear' the US debt, simply reducing it to say 60% would result in an easily manageable situation. Default is only likely if the present trend continues indefinitely with no steps taken to rectify it. But the nature of systems is that they adjust to developments. If the threat of default becomes more serious, the system will respond by cutting spending, increasing taxes, and increasing inflation. That is what has happened in the past, it is what is happening in much worse-off places like Greece and Ireland, it happened in post WWII UK, it will happen in Japan before it happens in the USA. What makes you think that today's US is some unique exception to this rule? Naive linear extrapolation of present trends is an unreliable forecasting method.
But a bankruptcy court judge doesn't care what you or the tin foil hat brigade regard it as. What matters is the law, and what is in the legal contracts for US Treasury holders. Apart from TIPS, there is nothing there that promises increased payments in the event of inflation. Therefore, hyperinflation is not a default under US Treasury contract clauses, and no bankruptcy court will accept a case from a US Treasury holder trying to argue that default did in fact occur. In any case, hyperinflation is not necessary. Inflation at say 5%, 6%, is more than enough to slash debts over the longer-term. Even at 3%, it will reduce substantially over time. Please, do some basic arithmetic, or look at financial history, and you will see that even a 200% debt load of GDP can be paid off. The UK paid off a >200% of GDP debt load after WWII, and it didn't go bust. And the US is no way near the peak of the Laffer curve (which almost all economists estimate to be a tax burden of at least 60% of GDP; USA is currently around 30%), so there is not even any need for high inflation - simple tax increases and spending cuts are sufficient to go into budget surplus.
"Simple tax increases and budget cuts"? It will not happen to a large enough degree, until the market forces it, through dramatically higher rates, such as is happening in some countries in Europe at this moment. The only thing that will pull US out of the quagmire is increased economic activity and increased Federal revenues resulting fom the rebounding economy.