The U.S. Government Is Really “Poor” and Has to Live with Borrowed Money

A wave of world economic panic has been set off by the U.S. sovereign debt problem, which has becomes the world’s most important issue. People are worrying about the impact of the U.S. debt as well as having a lovely discussion about the U.S. bankruptcy problem.

Will the U.S. bankrupt? We have just stably sailed through the U.S. debt crisis, and it looks as through there will be no bankruptcy. However, early in 2008, global investor Jim Rogers said that the U.S. government is already bankrupt.

If we look at this from an economic view, the U.S. government is bankrupt. Bankruptcy means that the debtor cannot pay his debt and his property has been discharged through legal means in order to end the bilateral claim and liability relationship. The U.S. government is run like a company, which means that it provides public service and products through taxes and bonds, and if the expenses are much greater than the income, it won’t be able to make ends meet, which means that it cannot pay for its debt, so it is bankrupt.

However, what the U.S. holds is sovereign debt not corporate debt. If a corporation becomes bankrupt, the renter will take all the debtor has to pay for the debt; but if a debtor country bankrupts, will the renter countries dare to take all the country has? Of course not. Therefore, when a country uses its sovereignty as a guarantee to borrow money from other countries, and when it doesn’t repay its debt, if the renter countries want to take all it has, the country will fight back in the name of sovereignty violation. This is the biggest difference between sovereign debt and corporate debt, and also the basic difference between corporate bankruptcy and national bankruptcy.

If a company becomes bankrupt, it cannot be run; does that mean that America breaks down once its government is bankrupt? That’s not the case. According to scholar Chen Hang’s explanation, the U.S. government can apply for bankruptcy protection, and as long as the bankruptcy institution has taken actual measures to rebuild itself, it doesn’t have to pay the debt for a while. It can pay the debt after its reconstruction. To say the least, even though the U.S. government breaks down, American society can still operate normally; America has a big society with a small government, so its capacity to govern itself is very strong.

We can see that the U.S. won’t become bankrupt easily, but why has it constantly faced bankruptcy crises? This is because the U.S. government is very poor. Some might ask how the U.S. government can be poor since the U.S. is so wealthy and rich in resources. It is true that the U.S. is rich in resources, but it only means that Americans have money but the U.S. government is actually poor, it cannot live without borrowing money from its own people and other countries.

If we should classify the world’s countries, they fall into four categories: the first category is strong countries with rich people; the second strong countries with poor people; the third weak countries with poor people; the fourth poor countries with rich people.

The U.S. falls into the fourth category. The annual income of every individual in the U.S. is $40,000, but the government is so poor that is has to borrow money from its citizens. Besides that, it also borrows money from other countries and owes debts both at home and abroad, which makes it the world’s largest debtor country.

The party that the U.S. government owes the most to isn’t another country but its own people. Its internal debt is almost 70 percent of all its debt. Among the remaining 30 percent, made up of foreign loans, China holds eight percent of its debt. While the Chinese worry that the U.S. won’t repay its debt, Americans worry that their government won't pay them back. The Chinese worry that America’s mad printing of money will make its creditor rights shrink, shouldn’t Americans worry that the overissuance of money will lead to the depreciation of its currency?

As far as I’m concerned, since Americans are rich and its government is poor, why doesn’t the government levy more taxes from its citizens so that it can pay for its debt without borrowing more money? The U.S. won’t squeeze its citizens even though the politicians are having a hard time. Since Obama took office, he tried to increase tax revenue, but after discussing it over and over again, it still doesn’t have any effect.

Since the U.S. can’t levy more taxes, and sometimes it even has to return taxes to its people, in addition to increasing expenses, the U.S. government has to live with borrowed money. However, this is a civilized process; borrowing money is an equal relationship, and the government has to bow down its head to ask. Moreover, one should have credit when borrowing money. Therefore, the U.S. government dares not to break its promise to its people; even it doesn’t care about overseas creditors, it still cares about its domestic renter.

If the U.S. government wants to borrow more money in the future, it has to be trustworthy, otherwise other countries won’t lend money to it again, haven’t we bought over a trillion in U.S. Treasury bonds? In addition, we have no choice but U.S. Treasury bonds when it comes to buying foreign exchange reserves. Gold? This is the plaything of the Wall Street bigwigs, they will win you at this game you before you even realize it. Buy oil and mineral resources? The owners do not sell these deposits easily. Since our foreign exchange reserves are in U.S. dollars, it makes no difference if the U.S. dollar depreciates since our reserves will shrink anyway. It still makes the most sense to purchase U.S. Treasury bonds.

What’s interesting is that even though the U.S. government is poor, it is still able to borrow money. The major reason is that the U.S. dollar is the world’s reserve currency, which is one of America’s interests. In order to maintain the hegemonic status of the U.S. dollar, the US government needs to have credit. Credit is priceless, even though the government only has credit, it will not seem poor.