Four ways that Uncle Sam will respond to its $75 trillion insolvency

Monday, April 8, 2019
By Paul Martin

By Simon Black
April 08, 2019


Last week I told you that the US government recently reported a negative net worth of MINUS $75 TRILLION.

That’s not a type-o. According to the Treasury Department’s annual financial report for Fiscal Year 2018 (which they just published last week), the US government is hopelessly bankrupt.

Now, I’m not talking about this trying to stoke fear and panic.

Quite the opposite– I’m hoping that this conversation results in calm optimism. But the point is that it’s an important conversation to have… because a number as large as $75 trillion absolutely has consequences.

To believe that any nation can be so desperately insolvent without suffering any negative impact is just plain foolish.

Debts have to be paid. Obligations have to be met. So at some point, with numbers these gruesome, something has to break down.

This is not a dire prediction or wild conspiracy theory. It’s an arithmetic certainty.

Remember, this isn’t even my analysis. The government itself acknowledges its $75 trillion insolvency. The Social Security Administration acknowledges that its trust funds will run out of money in 15 years.

This is happening. So let’s take a look at the government’s very narrow playbook:

1) Ignore the problem

Politicians are already acting as if nothing is wrong.

Sure, occasionally you’ll hear someone complain about the debt, or there will be a debt ceiling showdown. But no serious alarm bells are ringing.

And because they don’t make a big deal over the debt, no one else does either. Everyone just goes along as if there’s not a problem.

2) Raise taxes

This is HIGHLY likely because it’s the most politically palatable option. The Bolsheviks are already coming to power under a mandate to soak the rich. They want wealth taxes, dramatically higher income taxes, corporate taxes, surtaxes, etc.

Problem is– it won’t help.

Since the end of World War II, tax rates in the United States have been all over the board. Back in the 1960s, the wealthiest paid a highest marginal rate of 90%! Now the highest is 37%.

During that period, corporate, individual, and capital gain rates have bounced around like a drunken pinball.

Yet throughout it all, despite how high or low tax rates have been set, overall tax REVENUE (measured as a percentage of GDP) has been more or less the same.

US tax revenue averages out to be about 17.7% of GDP, year in, year out, regardless of what actual tax rates are.

In other words, the US government’s ‘slice’ of the economic pie is about 17.7%, plus/minus a very narrow range.

The Rest…HERE

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