Since the United States started running up large budget deficits when the Great Recession started, there has been some talk by some groups that our debts are “unsustainable” and the United States risks being “Insolvent” and forced into bankruptcy(see here, here, and here).
So let’s say that the deficit levels stay at the level they are and the economy remains bad and it causes the Unites States to become “Insolvent”, then what happens? The answer is, nobody knows. The reason is that no country, that controls its own currency, has ever declared bankruptcy and quit paying its bills.
That being the case, anyone who tells you what would happen, and the warning signs that its about to happen is only giving their best educated guess since its never happened.
That being said, I came up with an idea of how to tell if the United States is heading towards insolvency. First, make a list of all the countries and their debt-to-gdp ratio. This will tell us how much every government owes vs. how much they make every year. Once we’ve done that, we can see where the United States ranks. Now we can look at all the countries that have a higher debt-to-GDP ratio. Presumably any countries that have a higher debt percentage would go bankrupt before the United States. They can be our canary in a coal mine.
Fortunately, Wikipedia has already made the list for us using data from the CIA.
Rank |
Country |
% of GDP[1] |
Date |
|---|---|---|---|
| 1 |  Zimbabwe |
282.60 | 2009 est. |
| 2 |  Japan |
189.30 | 2009 est. |
| 3 |  Saint Kitts and Nevis |
185.00 | 2009 est. |
| 4 |  Lebanon |
156.00 | 2009 est. |
| 5 |  Jamaica |
124.50 | 2009 est. |
| 6 |  Italy |
115.20 | 2009 est. |
| 7 |  Greece |
113.40 | 2009 est. |
| 8 |  Singapore |
113.10 | 2009 est. |
| 9 |  Iceland |
107.60 | 2009 est. |
| 10 |  Sudan |
103.70 | 2009 est. |
| 11 |  Belgium |
97.60 | 2009 est. |
| 12 |  Sri Lanka |
86.70 | 2009 est. |
| 13 |  Egypt |
80.10 | 2009 est. |
| 14 |  Israel |
78.40 | 2009 est. |
| 15 |  France |
77.50 | 2009 est. |
| 16 |  Hungary |
78.00 | 2009 est. |
| 17 |  Portugal |
76.90 | 2009 est. |
| 18 |  Canada |
75.40 | 2009 est. |
| 19 |  Germany |
72.10 | 2009 est. |
| 20 |  Malta |
69.40 | 2009 est. |
| 21 |  Austria |
69.30 | 2009 est. |
| 22 |  United Kingdom |
68.10 | 2009 est. |
| 23 |  Kenya |
66.70 | 2009 est. |
| 24 |  Jordan |
64.40 | 2009 est. |
| 25 |  Seychelles |
63.20 | 2009 est. |
| 26 |  Nicaragua |
63.10 | 2009 est. |
| 27 |  Netherlands |
62.20 | 2009 est. |
| 28 |  Cote d’Ivoire |
61.90 | 2009 est. |
| 29 |  Norway |
60.60 | 2009 est. |
| 30 |  Brazil |
60.00 | 2009 est. |
| 31 |  Mauritius |
58.70 | 2009 est. |
| 32 |  Philippines |
58.70 | 2009 est. |
| 33 |  Albania |
58.10 | 2009 est. |
| 34 |  India |
58.00 | 2009 est. |
| 35 |  Bhutan |
57.80 | 2009 |
| 36 |  Ireland |
57.70 | 2009est. |
| 37 |  Uruguay |
56.60 | 2009 est. |
| 38 |  Cyprus |
56.20 | 2009 est. |
| 39 | World | 56.00 | 2009 est. |
| 40 |  Ghana |
55.20 | 2009 est. |
| 41 |  Morocco |
55.10 | 2009 est. |
| 42 |  United Arab Emirates |
54.00 | 2009 est. |
| 43 |  Malaysia |
53.70 | 2009 est. |
| 44 |  Vietnam |
53.70 | 2009 est. |
| 45 |  Spain |
53.20 | 2009 est. |
| 46 |  Tunisia |
53.00 | 2009 est. |
| 47 |  United States |
52.90 | 2009 est. |
| 48 |  El Salvador |
52.70 | 2009 est. |
| 49 |  Argentina |
48.60 | 2009 est. |
| 50 |  Croatia |
46.80 | 2009 est. |
As you can see, if the United States is or is becoming “insolvent”, then so are 46 other countries that will do so first. I don’t see how our government could go into bankruptcy, but not Italy which has more than twice our debt problem.
This isn’t to say debt isn’t a problem, just that we aren’t quite at the point where we need to worry about insolvency. Once our debt-to-gdp ratio is either in the top 3 of the world, or other countries(who control their own currency) start defaulting on their loans, then we should start worrying.
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Wouldn’t it be similar to post WWI Germany. I’d imagine we would use Hyper Inflacion to pay our depts. But, Then some one comes to the rescue of the working man, pushing for more support of unions especially those federally backed. Putting the blaim where it is “due”. On rich “white CEOs” and putting the nation on track to “better things”. Ya know on second thought thats nothing like Germany, they had pride in theyre country.
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Well, I disagree. I think Americans do have pride in their country. However, I would hope that that pride is a little less zelous than the Post WWI\Pre WW2 German pride.
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I would agree that a good many people are proud of this country. But, there are also a great many that blame America for things like 9/11, the poverty of other nations, global warming, and so on.
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Putting aside the rest of your rant, I’ll respond to this:
There are several differences between the United States today and Post WWI Germany.
First, we aren’t being forced to pay war reparations.
Second, our debts are all in U.S. dollars whereas Germany had to pay its war reparations in gold or foreign currencies. It is that second point that really killed Germany.
Third, our major industries aren’t being occupied by French and Dutch soldiers that are taking our natural resources minded by workers that are paid by the currency.
Fourth, England isn’t claiming the profits from 26% of our exports.
If all those things happened, then yes. Hyper-inflation would occur and all the negative consequences associated with it.
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we aren’t being forced to pay war reparations.
Nope just forced to pay for everything else, including growing debts with massive interest.
our debts are all in U.S. dollars whereas Germany had to pay its war reparations in gold or foreign currencies. It is that second point that really killed Germany.
Do you really think that if the Dollar tanks china will still accept it?
our major industries aren’t being occupied by French and Dutch soldiers that are taking our natural resources minded by workers that are paid by the currency.
Our major industries are leaving to other countries which is kinda the same thing.
England isn’t claiming the profits from 26% of our exports.
Our Government instead is just claiming over 26% of profits within the US and spending much on foriegn aid
isnt the kinsian plan hyper inflation?
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Staying on the topic of what differentiates our situation from post WWI Germany. Here is the list of why all of your equivalencies are either factually wrong or are false analogies.
Ignoring the typical right-wing talking point… here is why your comparison is factually wrong. My guess is that you are confusing what the pronoun “we” refers to. When talking about inflation and Sovereign debt, it is important to separate the sovereign government from the private economy. Our government doesn’t have to pay for anything we don’t want it to.
Now, going to the economic consequences you’re ignoring something. German citizens paid for all government services just like us. However, in addition, they had to pay for the reparations, but the government didn’t increase taxes to “pay” for them, they instead just printed more money. That is what caused the inflation. If their government had increased taxes to pay for the reparations it would’ve hurt the economy, but it would’ve kept inflation in check.
Your question is a logical fallacy, begging the question. In the premise of your question, the dollar would have to already be in hyper-inflation to “tank” causing China to no longer accept dollars which would cause hyper-inflation. In other words, something else would have to first cause hyper-inflation.
Now to answer your question… First, a factual statement: As long as China’s businesses wishes to sell us imports, it will take our dollars. This is an indisputable fact that is important to understand so I’ll say it another way. Chinese businesses cannot sell us imports without accumulating dollars. So the answer to your question is “yes” as long as they wish to keep selling us imports. If they decided to no longer sell us imports, then our trade balance would invert. At that point the dollar’s value would begin to appreciate because we would start getting our dollars back as we continued to sell them exports.
In all likely hood this process would happen gradually. If it happened within a short period it would cause chaos in both economies(Chinese and American), but when the dust settled, the result would still be the same: The dollar’s value would begin appreciating relative to Chinese currency(and probably other currencies).
Not even close to the same thing. The effect of industries leaving an economy can cause 1 of 2 things to inflation – neither of which causes it to rise. If the industries that leave are replaced with other industries, than the effect on inflation is 0 because you’re not affecting aggregate demand. If the industry leaving isn’t replaced then it will cause unemployment which reduces inflation.
Germany, was still paying for the workers to work, but was getting no economic benefit for their work. The closest thing we have to that is unemployment insurance. However, in Germany they weren’t paying their 1/3 or 1/4 of their wages, they were paying the FULL wages and the companies were also subsidized for their losses. This would be like the Federal Government paying the wages of the entire auto-industry, AND their suppliers, AND giving the companies the expected profits for the cars and parts, AND then dumping all the cars they make into the great lakes. (At this point you may be tempted to try and compare this to the auto-bail out from 2 years ago, but if you can’t see the difference between a loan and this scenario – then it would be hard for me to take you serious.)
You are comparing actions that are inflationary to actions that are deflationary. England taking German currency(without providing a service or goods) is inflationary because it puts more German currency into circulation. A tax is actually deflationary because it takes currency out of circulation.
Your comparison of foreign aid to war reparation is the only sensible thing in your whole comment. I think those would be very similar. However, the amount given away in 2009 is $24 billion (budget items 151, 152 and 155). Compare that to how much Germany owed in reparations: 269 German gold marks or the equivalent of a 100,000 gold tonnes. That is the equivalent of $768 billion today. Even spread out over 10 years, it’s 3 times as much as the federal government gives out.
Let’s untangle all the false premises here.
1. Keynesian economics is a macro economic theory. It was an observation of how economics work. Referring to “the Keynesian plan” is the equivalent of saying “The Theory of Gravity’s plan”.
2. You’re setting up another logical fallacy, The Straw Man Argument. For those who believe that Keynesian economics is accurate, they will tell you that deficit spending to get out of a recession (through tax cuts or by buying goods) is more preferable than the negative affects of deficit spending. I.E., a little bit of inflation isn’t as bad as high unemployment. Inflation is not a goal(as you imply), it is a consequence of increased employment. Now of course, Keynesian’s will tell you you need to stop spending long before inflation reaches hyper-inflation.
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If Im not mistaken wasnt the question
What Happens If the United States is “Insolvent”?
you really compare Keynesian economics with the theory of gravity? You have to explain that.
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Right, and you said “wouldn’t it be like post wwI Germany?” and I was pointing out how it couldn’t be.
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And Im saying you lack imagination…. go head and try and step outa the ol box there buddy
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I was pointing out that the phrase “Keynesian Plan” is a misnomer. “Keynesian” economics is a theory on how macro economics works. There is no “plan” associated with it. There are several different economists who agree with Keynes, but they do not all have the same idea of what that means we should do.
I was comparing it to the theory of gravity to point out why it’s a misnomer. “Keynesian plan” is as ridiculous as saying “theory of gravity plan”, or “Evolution plan” or “relativity’s plan” or “Friedmanian plan”.
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“Keynesian economics advocates a mixed economy—predominantly private sector, but with a large role of government and public sector”-Wiki
Is advocating a method considered to be a plan?
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Well, I’ll give ya that. There is a general agreement on that amongst most(but not all) Keynesian economists. However, your original point that hyper-inflation or inflation “is the plan” is still wrong no matter how you look at it.
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A straw man argument is an informal fallacy based on misrepresentation of an opponent’s position.[1] To “attack a straw man” is to create the illusion of having refuted a proposition by substituting a superficially similar yet unequivalent proposition (the “straw man”), and refuting it, without ever having actually refuted the original position.[1][2]
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Keynesian economics (pronounced /ˈkeɪnziən/, also called Keynesianism and Keynesian theory) is a macroeconomic theory based on the ideas of 20th century British economist John Maynard Keynes. Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle.[1] The theories forming the basis of Keynesian economics were first presented in The General Theory of Employment, Interest and Money, published in 1936; the interpretations of Keynes are contentious, and several schools of thought claim his legacy.
Keynesian economics advocates a mixed economy—predominantly private sector, but with a large role of government and public sector—and served as the economic model during the latter part of the Great Depression, World War II, and the post-war economic expansion (1945–1973), though it lost some influence following the stagflation of the 1970s. The advent of the global financial crisis in 2007 has caused a resurgence in Keynesian thought. The former British Prime Minister Gordon Brown, former President of the United States George W. Bush, President of the United States Barack Obama, and other world leaders have used Keynesian economics through government stimulus programs to attempt to assist the economic state of their countries.[2]
Gravitation, or gravity, is a natural phenomenon in which objects with mass attract one another.[1] In everyday life, gravitation is most familiar as the agent that gives weight to objects with mass and causes them to fall to the ground when dropped. Gravitation causes dispersed matter to coalesce, thus accounting for the existence of the Earth, the Sun, and most of the macroscopic objects in the universe. Gravitation is responsible for keeping the Earth and the other planets in their orbits around the Sun; for keeping the Moon in its orbit around the Earth; for the formation of tides; for natural convection, by which fluid flow occurs under the influence of a density gradient and gravity; for heating the interiors of forming stars and planets to very high temperatures; and for various other phenomena observed on Earth.
I just don’t see it, must be my right wing fallacies acten up again.