The latest scare word to come out of the mouths of Republicans discussing the Obama bailout/budget/simulus enormity is "federal bankruptcy", which will supposedly occur if Congress gives Obama everything he wants in terms of a free rein to limitless spending. (At the same time, a White House advisor describes herself as "incredibly confident" that Obama's plan will work. "Incredibly" is definitely the word for it.) But what the Republicans using the new scare word don't seem to realize is that the federal government is _already_ bankrupt... and, in fact, has been... for decades.
Well, let me clarify that a bit. Let's say you're an individual person -- a normal average slob. Your liabilities exceed your assets. You could file for bankruptcy there and then... except that, unless you're a complete loser, you have expectations of future income -- a paycheck, pension check, welfare check, drug money, money from pawning your car stereo... something. Plus, all your liabilities are not coming due at once (unless you got suckered into one of those "balloon" mortgages -- but even then, the government will bail you out). Plus, there are plenty of predatory lenders out there (I define "predatory" as any lender who lends money to a person who shouldn't be borrowing money... which describes nearly all of them) who will lend you more money to tide you over, i.e. they will offer a loan which comes due in two months so you can pay off the one that comes due in one month.
So there are plenty of "fudge factors" that keep people who _could_ go bankrupt from actually doing so. Plus, people know that bankruptcy tends to have a bad effect on your credit record, which means you might not be able to borrow more money later on if you go bankrupt now... and we can't have that! Plus, what if you should apply for a job that involves taking care of other people's money? Are you worthy of their trust? (For that matter, are any of these failed banks?) So, in the broad sense, it's not just a matter of assets vs. liabilities. It's more like a matter of assets + projected income + unused credit vs. liabilities + projected additional liabilities (i.e. loans), and how all of these are distributed over time. And if _that_ figure is on the plus side, you're probably not going to go bankrupt... unless something changes. On the other hand, if that figure is on the negative side -- which means, in practical terms, that you've already borrowed more than you can ever repay, unless you win the lottery -- then bankruptcy might be your only option.
That's what happens if you're a single, normal individual. But how about if you're a government? Strictly speaking, any year in which the government has a budget deficit (i.e., more outgo than income) it's in a state of bankruptcy. But things aren't quite that simple. Sure, governments have assets and liabilities, like individuals do... they borrow money and loan it out... they have "income" (AKA "taxes") and expenses (AKA "the budget"), but they have something Joe Schmoe doesn't have, and that's the ability to print money. Now if Joe Schmoe could print money his problems would be solved. And the ability to print money solves the government's problems too -- up to a point. You can inflate the currency to reduce some of your liabilities (as long as your assets aren't in the same currency, in which case it's a wash)... and to make paying back loans (e.g. the "national debt") less onerous (but money you've loaned out winds up being worth less as well). Inflation also helps with tax intake, since it bumps people up a bracket or two even if their relative level of compensation stays the same (and don't think the government isn't well aware of this!). And inflation helps with entitlements.. as long as they aren't "inflation-indexed". So as far as the government is concerned, inflation is "a good thing", as Martha Stewart would say. So what's the down side? Well, it has partly to do with trade, i.e. with other countries, since the more bogus our money gets the more expensive their stuff gets and the less of it we can afford. But the real problem, these days, is the fact that other countries -- like China, for instance -- hold huge chunks of our national debt in their hot hands, and they get mightily unhappy when we start inflating our currency, since it threatens their investment. And a point will come when they are no longer willing to support our habit, i.e. by buying more debt. (Note that China has already reached that fork in the road... and if we lose China, we've lost it all, baby.) And the taxpayers will be so tapped out they'll be either unwilling or unable to buy any government bonds themselves, which means... no more loans, no more budget deficits. And you're saying, but wouldn't that be a good thing? And the answer is yes, it would, except that we will still owe trillions, at that point, to overseas entities -- countries, banks, and so on... and we won't be able to pay -- not just principal, but interest as well (AKA "debt servicing"). And when that happens, they'll do what anyone else would do when they get stiffed by someone going bankrupt -- they'll demand any and all assets in lieu of what we owe and can't pay. So -- and I know, this is a wild idea, but who would have believed what has already happened in the past few months? -- the Chinese could demand that we turn over our national parks to them, at fair market value. Or that a few million Americans be shipped over to China as wage slaves (or worse!) in order to pay off the debt. Or that we offer free spa and vacation services to any Chinese citizen who lands at L.A. International. You get the idea. They're not going to just write it off, or "forgive", or anything of the sort. They'll cut us up like a turkey, the way the World Bank cuts up the hapless third-world governments that are foolish enough to take out one of their loans. This is what real, genuine, hard-core bankruptcy of the United States government would, or could, mean. It wouldn't be a matter of locking up the fools who created the situation -- any more than it's now a matter of locking up any bankers or Wall Street types. They will get off scot free, as always. No, it's the people who will pay the price... although, on the bright side, it could put a crimp in the government's ability to do even more damage... at least for a while.
But will it come to this? Surely our leaders will "take steps" to insure that things never get this bad. And yes, it may take some "belt tightening", yadda yadda. But hey -- look at all that's already happened, and with the full collaboration, blessing, and enthusiastic participation of Congress and two different administrations. American business is certainly not going to object -- they're all lying around in a derelict crack house, totally stoned on the handouts they've already been given. The blows that have already been landed would be enough to bring down most economies... but ours is pretty big, and kind of robust, but it can only take so much, and when the final collapse comes, it will truly resound around the world... but nowhere as loudly as in China, and this, I offer, is a kind of poetic justice in itself. We have, on one side, the largest remaining communist (if in name only) state. On the other side, we have our economy, which has been dragged down for decades now by the exigencies of the Cold War and, later, by the perpetual wars necessitated by our Wilsonian foreign policy. One could argue that the communist world -- or what is left of it -- owes us something. The fact that we have to commit economic hara-kiri to collect... well, that's unfortunate, but at least they don't come out of the fight unscathed.
Plus, who knows, they might not do a half bad job running Yellowstone.