Can the United States government go… bankrupt?

Seems like a ludricous idea; after all, how can a government go bankrupt?  Well, according to this powerpoint presentation (which I’ve also provided in video form above), if administrative agencies and municipalities like school boards and entire towns can go belly-up, then so might a national government.  Consider also the recent troubles in Iceland.  Russia has come to their rescue, providing them a €4bn loan from the goodness of their hearts.  Time for a Mr. Rogers moment: “Can you say, ’satelite state’ boys and girls?  How about, ‘return of the Soviet bloc’?”  Of course, one has to wonder whether Russia, with its own earthshattering fiscal crisis, can really afford any financial adventures into the North Atlantic.

What I’m most curious about is what precisely a federal bankruptcy would mean.  Would it be a scenario like that which happens to a company, i.e., it will be restructured and recreated into something signficantly different?  If so, what happens to you and me, J.Q. Public, during the intervening limbo?  What would the new United States government look like, and how would it operate?  (Would it even still be a democratic republic?)

The apocalyptic picture is one painted by Michael Hodges, cumrudgeon author of the Grandfather Report, and John Rubino, the alarmist hack behind DollarCollapse.com, as well as Collapse of the Dollar and How to Profit From It and How to Profit from the Coming Real Estate Bust (very humanitarian titles, wouldn’t you say?)  Two years ago I corresponded with Hodges (Rubino wouldn’t return my e-mails).  We had a bit of an irascible back-and-forth, and I disagreed with much that he said.

Or would federal bankruptcy mean the slashing and burning of government-provided services and programs?  Again, if so, what happens to you and me down here, on the street?  I’m curious to hear everyone’s thoughts.

——————

A reader had this to say about my “presidential platform“:

Chris,

While I admire your willingness to put your views out there, I have to respectfully take issue with some of your statements, especially vis a vis the current financial crisis.  It seems to suffer from over simplification of the issues-a problem that seems to affect both right wing and left wing media.

Respectfully submitted,
-an independent.

Certainly, my take on the economics could stand for some nuance.  But when we consider (a) that the engine of the recession is the sweep of foreclosures on variable-rate mortgages, and (b) our political leadership’s complete lack of any attempt to address this problem, then I’d opt for the cold-water-on-the-face approach.  And while I appreciate the argument that “if the banks fall, we fall,” i.e., through the folding of small businesses and the consequential losses in jobs, fundamentally the Paulson plan is just a top-down solution to what is really a bottom-up problem.

Nevertheless, not-so-radical options may exist.  For instance, on October 2nd the Wall Street Journal ran an interesting editorial proposing a free-market solution to the mortgage crisis, and a friend suggested that having banks convert all variable-rate mortgages to fixed-rate mortgages might stabilize the plummetting prices.  Meanwhile, the BBC’s Robert Peston argues for a synchronized free-market global approach.  None of these would be cure-alls, but at least they would directly help the little guy as opposed to the more of the supposedly miraculous trickle-down effect.