Sooner Or Later, The US Government Is Going To Default On Its Debt

By Douglas Carswell 

Will Congress blink first? Or will they hold out against Presidential demands to increase the federal government’s overdraft facility? If so, does holding down the US debt limit mean that the US government defaults on its debts?

We cannot be sure how the political wrangling in Washington will play out. But what we do know is that the laws of mathematics – unlike those made by Congress – are universal and unyielding. Sooner or later, suggest the laws of maths, the US government is going to default on its debts.

For a generation or so, the American government has been living far beyond its tax base, with deficits since 1970 in all but four years. In 2010, it spent $1,900 billion more than it collected in tax – borrowing more than the entire GDP of Canada or India just to pay the bills.

If the federal deficit has come down since then, total public debt is now well over 100 per cent of GDP, compared to less than 60 per cent in the early noughties.

To put those large numbers in context, the average American earns over $70,000 a year. Against that, every American is liable for $131,368 of public debt, plus a further $1,031,131 to pay for all those unfunded promises their government has made. And that is before ObamaCare. Total debt payment on all American debt will be $50,000 per family by 2015.

Is it manageable? Perhaps. Maybe. Just about.

Now imagine that interest rates return even half way towards their post-war historic average? Wipe out. The barely manageable will become completely unmanageable.

Something is going to give. And I don’t mean in a philanthropic sort of way.

It’s not simply the US in a precarious position, either. Throughout the West, officialdom has lived beyond the means of the citizenry to pay for it. “We have” in the words of the former deputy Prime Minister of Greece, Theodoros Pangalos “been spending the future for half a century.”

While the US government has $16 trillion of debts, the Japanese have run up $14 trillion, the UK $2 trillion and the Eurozone countries $12 trillion. Unlike the US, which has retained an extraordinary capacity to innovate, neither the Japanese, nor the Europeans are likely to achieve the sort of growth required to recover.

Greece might have been the first Western country to discover that you cannot keep running up debts to pay for a lifestyle you do not earn. She will not be the last. The laws of mathematics are universal. Government – regardless of political sentiment or who wins elections – is going to get a lot smaller.

If you want know what the future of UK politics is going to look like, don’t just keep an eye the latest opinion polls. Watch out for those Japanese, UK and US ten year bond yields, too.