Are you bankrupt? Don’t worry, so is America

While Democrats and Republicans squabble about cutting the deficit by billions, the national debt has ballooned to $15 trillion. This amounts to $133,000 per taxpayer. Unfortunately, this amount does not factor in the estimated liabilities of the Federal Government which exceed $100 trillion. This estimate is the amount of money the government is expected to dole out in entitlements: Medicare, Medicaid, Social Security, ObamaCare, Social Security Disability benefits and student loan bailouts. The bottom line is the federal deficit number we hear reported dramatically understates our actual liabilities.

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Additionally, the numbers listed above do not include the amount that has been promised to state government employees. Experts estimate that states may be unable to pay the estimated 2.5 trillion in promised retirement and benefit funds to former employees. We have already seen several cities such as Stockton and San Bernardino, California, announce that they were filing bankruptcy earlier this month, in part for their inability to meet their employee retirement obligations.

When will it hit the fan? When our lenders realize that we cannot pay them back they will demand higher interest rates to compensate them for the risk. They may decide to stop lending us money altogether. The common solution proposed by our Democratic president is to tax the rich. Even if we trim wasteful spending and tax the rich it won’t get us any closer to reducing our federal deficit. Unfortunately, America is simply unable to repay their creditors and we are facing bankruptcy.

Peter Schiff in his new book The Real Crash suggests the time to declare bankruptcy is now. “When a person has debts he cannot repay, he declares bankruptcy. He then formulates a plan for repaying his creditors to the greatest extent possible.”

What is the alternative? Schiff argues that are current strategy of borrowing money to repay our current debts may work while the Federal Reserve maintains interest rates at near zero, but as mentioned above, this will only work as long as the Fed can maintain the  artificially low interest rates and convince our creditors that the U.S. is still credit-worthy.  Schiff argues that eventually our creditors will realize that we really cannot afford to pay them back, and they will refuse to loan us money. The Federal Reserve will then be forced to print more money to buy the maturing bonds our creditors will not buy, creating potentially hyperinflation.

What are the alternatives? According to Schiff there are only two: to keep on printing money which will risk hyperinflation and a total collapse of our economy or the Federal Reserve aggressively raises interest rates and tightens the money supply. Schiff admits this will lead to a massive contraction of the economy and default, but one that is preferable to a total collapse.

The news is grim, but Schiff offers some unconventional solutions. His premise is that we have lived far too long above our means because the rest of the world was willing to live below theirs. The jig is up. When other countries are not willing to finance our extravagance they will began to spend their money at home. Schiff suggests that what used to be safe investing (treasury bonds and the U.S. stock market) may not be anymore. It is time to get creative and smart before America is forced to declare bankruptcy.

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Beth

Beth L. is a content writer for Better Bankruptcy. Good content and information is one of many methods we utilize to bring you the answers you need.