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When the Government’s Checks Bounce, This Will Happen.

Written by Gary North on February 20, 2012

Americans think the U.S. government cannot go bankrupt.Foreign investors do, too.

But what makes America different from Greece? As Greece has approached a debt to GDP ratio of 160%, its credit has declined. The USA is now at 100%.

The USA has huge commitments: Social Security, Medicare, and defense. So does Greece. The voters will not tolerate cuts here. Neither will Greek voters.

The USA has a bloated government. It’s not as bloated as Greece’s, but its getting there.

The federal government runs a $1.3 trillion deficit every year. Nothing changes.There are no solutions. Everyone knows this. Still, they think that the government cannot go bankrupt.

Of course it can. It will.

What will it look like when it does? Just like Greece.

But the severe austerity measures being demanded have caused such fury in Greece, and the cuts required are so deep, that Wolfgang Schäuble, the German finance minister, does not believe that any government would be able to implement them.

His pessimism has been tipped into despair with a secret European Commission, Central and IMF report that even if Greece made good on its promises, it would not be enough to reach the target of bringing total debt to 120 per cent of GDP by 2020.

“He just thinks the Greeks cannot do what needs to be done. And even if by some miracle they did what has been promised, he – and a growing group – are convinced it will not pull Greece out the hole,” said a eurozone official.

No government can do what must be done when it runs constant fiscal deficits. If it could, it would. Keynesian deficit spending is addictive.

The cuts, including a reduction in the minimum wage, mass redundancies within the public sector, and a slashing of the health and defence budgets, sparked rage on the streets of Athens last week, with buildings set on fire amid angry protests.

But the country’s politicians are resolutely trying to sound upbeat. “The Greek people have done everything they can and we are determined to make good on our commitments,” said Christos Papoutsis, public order minister.

Is he lying? Of course. Will Greece pay back the loans? Of course not.

Will the United States government pay off $15 trillion in official debt? No. Will it get out of the $100 trillion to $200 trillion in unfunded Medicare and Social Security obligations? Yes. That’s what bankruptcy means. Getting out of obligations that the government cannot afford to meet.

With Greek morale at rock bottom, the national mood darkened yet further after armed thieves looted a museum on Friday in Olympia, birthplace of the Olympic Games, and stole bronze and pottery artefacts – just weeks after the country’s National Gallery was burgled.

One Greek newspaper suggested the state could no longer properly look after the nation’s immense cultural heritage. “The Greek state has gone bankrupt, let’s face it,” the conservative daily Kathimerini said in an editorial.

Will European governments lend more money to people who can get away with this? This time, probably. Eventually, no.

Can this endless funding of a bankrupt government be reversed? Yes. But the other governments will play kick the can as long as they can politically.

So will Congress.

Everyone kicks the can. Everyone defers the hard decisions. The debt builds up, month after month.

We are seeing in Greece what will come here. Americans do not care. They will not read articles about it. “That’s over there. It has nothing to do with us.”

Be prepared. It’s coming to the USA.

Continue Reading on www.telegraph.co.uk

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8 thoughts on “When the Government’s Checks Bounce, This Will Happen.

  1. mr bad example says:

    with "mr foodstamps" at the helm, ruining industries, printing dollars so fast the mints are smoldering, increasing the government size as fast as he can appoint new czars we'll blow past greece in a couple years.

    if the US government were given charge of the pacific ocean, we'd be able to drive to hawaii in 5 years due to a water deficit.

  2. Thank you Gary North. Please deal with the following opinion expressed in a commentary recently: Sure America is at 100% debt to GDP ratio, and that's bad. But America was higher than that after WW2 and we'll make it out of this one too.

  3. But I believe quite a bit of that debt was owed by fellow americans plus America was hugely productive and it didn't have the type of unfunded liabilities with Medicaid/Medicare/Social Security that keeps growing. Back then America simply cut back on the military and released ressources back into the private sector. This time around you don't have a major world war which everybody expects to end eventually. Also it is highly unlikely for America to get the type of growth rates that you saw in the post war era. Too much debt has been accumulated, too many regulations has been amassed, too many welfarist.

    However once America finally defaults and it starts removing all of these burdens there will be a wonderful opportunity for entrepreneurship and capitalism to flourish.

  4. I liked Sam's last paragraph which ended on a positive note.
    The author nailed it that most Americans operate on the"normalcy bias" and just can't seem to get their mind around the fact that Social Security is in the red, years before it was expected. Or that Medicare and Medicaid are huge unfunded liabilities that are not even counted in our national debt figures.
    People who did try to save,so as not to depend on Social Security, through 401K accounts got hammered.
    Though I paid in to Medicare, I'd be just as happy not to be forced in to participation. If you think Medicare is bad wait until PPCA (Obamacare) goes in to effect.
    I think that there will be areaction here just as in Greece when the government "cheese" is taken away.

  5. Back in the 40s and 50s, we had a strong manufacturing base, and we did not have 45% of the population that receives government money. We had a positive population growth, and very few illegal immigrants sucking the blood of the taxpayer. And the EPA was not around to cripple and persecute businesses.

    But enjoy your fantasy world Joe. And I hope you never need expensive medical care in the coming decade, as the road to recovery is paved with bureaucrats and ghouls with no compassion for the very young or very old.

  6. guest on this planet says:

    Remember that ss was paid for by contributions by employer and employee , it isnt like food stamps , medicaid , welfare, yet the government stole the money for their social programs

  7. PrincessPhilly says:

    Everyone seems to forget we pay for social security. That is governments brainwashing into getting the people to think it is a handout so they won't complain when it is taken away and they get to keep our money we paid in to the fund. Don't Americans have a brain to look at their paycheck deductions that they are paying for social security and their employer is paying for it too. Brain dead Americans so easy to brain wash. Hey can I brain wash everyone to turn their paychecks over to me so I can be rich. Americans would be stupid enough to do it too.

  8. SS and Medicare can be fixed. Getting younger workers to invest in private accounts like Chille and the three cities in Texas would not only eliminate the free lunch attitude of congres, but would also yeild a greater rate of return. Stop hyping hte fraud issue with Medicare and start acting. Delete the extras added to SS/Medicare;i.e. displaced aliens, illegal aliens, etc.. Defense spending can be cut by eliminating waste, cost over runs by vendors, and the often used ploy of adding 10% to last years apporiations. Also reinstating the draft and eliminate the need to contract out to mercinaries. The cost of mercinaries are higher than regular troops.