21A002 The Red Ink  by Jim Davies, 1/12/2021 

The FedGov is spending 91%  more than it receives, so adding to its debt, and owes far more than it can ever repay, and both mean trouble. Can't tell you when, but a collapse is inevitable. It's bankrupt, but so far won't admit that obvious fact. Here is the proof, and some idea of what may happen.

From the Debt Clock, as I draft this it owes $27.4 trillion (it will be more when you read it) but collects only $3.5 trillion in taxes. So if it stopped spending altogether on things voters say they want, it would take the FedGov (27.4 / 3.5 =) 7.8 years to pay it all off (with 100% of what it takes in) and voters are absolutely not going to choose that.

Alternatively it might pay off the debt by diverting say $1.2 trillion/yr for 30 years, in the manner of a house mortgage; meaning that voters will have $3.5T taken from them but see only $2.3T (66%) worth of the goodies they expect - for each of the next thirty years. That, too, ain't going to happen and the same would be true if, instead, taxes were raised by $1.2T for debt repayment without any extra goodies being provided.

So the FedGov is bankrupt because voters have produced that result, and because those elected have allowed them to have it. Blame irresponsible Pols by all means, but blame voters as well. Aren't you glad you don't vote?

Its debt in 1944 was also humongous, yet it was retired; Truman cut tax rates and slashed spending so as to stimulate a massive economic recovery, and the resulting boom generated enough tax revenue to do the job. But I've not heard that anything similar is planned by 8% Joe.

What would happen if the FedGov simply abrogated its debt (announced that it will not pay it, so there)? For an answer, we need to look at the creditors.

The $ figures here are obsolete but the percentages are... close enough for government work.

A third of the debt is owned by US investors, most of them pension and mutual  funds and banks. So if those assets were to vanish, say farewell to the prospect of a pension extra to Social Security. 

Then (in blue) there's 27% held by the FedGov itself, and that is mostly the "Social Security" fund. If that were zeroized, tens of millions of oldsters would starve to death. So a better name for it is the UNsocial INsecurity System.

The "Federal Reserve" owns 11%, but that is a fiction, a sleight of hand; the FedRes is the outfit that creates "money" out of thin air when nobody else will buy the FedGov's debt. Does sticking it to the FedRes matter? - I'm not sure. It might mean the FedRes goes belly up and vanishes, and that would be a plus.

Finally (in red) 29% is owned by "foreign investors"; and that means mostly foreign governments, of which the ChinGov is the largest. And there lies another big worry, for the ChinGov is very well armed. A good analogy is that of an enforcer for a loan shark; if a debt isn't repaid, kneecaps become vulnerable. In this scenario, WW-3 looms likely.

So the government system has created an almighty mess, with no way out.

That fact is so obvious, I'm surprised the following hasn't already taken place; but at some moment it will. This FedGov debt is sustained by "rolling over"; that is, as each Treasury Bill matures, another is offered for the investor to buy. So at some point a big investor will say "No thanks. I no longer think a T-Bill is a safe way to place my funds." Then all the rest will come a-tumblin' after.

When that happens the fiction of stable government will be over. The FedGov may still refuse to admit it, but the above dark consequences will happen anyway because it will lose the ability to repay. Where investors will place their funds instead is hard to predict - but the best known safe haven is gold, and when that happens the $ price of gold will no longer just rise, it will explode. So it's a really good idea to buy gold coin now - and store it yourself.

The other huge consequence will be that living standards will plunge - especially for the elderly - and blood will run in the streets, as one faction after another blames the others for the catastrophe. The real blame lies as above. What will happen next is anyone's guess; one of my friends expects libertarian millionaires to step in, take possession of utilities and essential services so as to keep the lights on, and thereby usher in a free society. I'm very skeptical; there may be some wealthy libertarians (because they bought gold now) but a free society cannot come about until everyone understands it, with responsibility and a refusal to work for government, as well as freedom.

And that means universal education, and it means you have to spread it. TOLFA is waiting. If that alternative is taken, we can bring down the whole rotting structure in an orderly fashion without the bloodshed, replacing it gradually with a free-market society as my Transition to Liberty suggests. It's like the difference between the planned demolition of a vacated building with a sudden, unexpected collapse which kills those inside. And the race is on.