Will America Declare Bankruptcy?

Theoretically, if Obama and Congress don’t agree to raise the debt ceiling before the August 2 deadline, it will mean that the United States will default on its debt obligations — that is, there will be overwhelming financial chaos and the Federal Reserve will be forced to take precautionary measures to save the dollar and the financial markets. In America, it’s not unusual for legislators to conflict with the government over budget items on both the national and state levels, to the point that the federal government completely shuts down until the two sides come to an agreement. This has happened several times before, most recently when the Minnesota state government shut its doors in the faces of its citizens.

With an unprecedented national debt, estimated at $14 trillion, and the federal budget deficit at more than $1.4 trillion, the government is faced with two solutions: the best option, bad as it is, being to flood the market with cheap dollars and issue additional treasury bonds — that is, create more debt. As for the national budget, the Republicans, who control the House of Representatives, are pressuring Obama to reduce federal spending. Meanwhile, the Democrats argue that a reduction in spending would in itself harm the economy, which has been showing signs of slowing that warn of renewed stagnation; and they are demanding an increase in taxes.

America’s problem is not new. It is fundamentally connected to the fact that America has the largest capitalist economy in the world, upon which numerous other new economies — like that of China and India — depend on as an open market, relying on the dollar as the dominant currency in strategic sectors such as oil, raw materials, agriculture and others. At the same time, the countries of the Eurozone, led by Germany, are struggling to rescue Greece, Italy, Spain, Ireland and Portugal from bankruptcy, with the strength of the dollar fluctuating despite America’s debt problems.

What harm does it do us if America goes bankrupt? This is a dangerous question because the answer reportedly is that the financial collapse of the U.S. will drag the other countries of the world into economic catastrophes, the likes of which have never been seen before. China alone holds an estimated trillion dollars’ worth of American treasury bonds, and the Chinese banks and the oil regimes of the Gulf have around a billion in surplus dollars. The result would be overwhelming chaos hitting the world markets and economies of developing countries, with the risk of a global depression and socio-political crises with serious consequences.

The most likely possibility is that President Obama and Congress will succeed in overcoming the ongoing crisis and avoid bankruptcy. But the immediate solution lies in increased debt, borrowing from others and printing billions in currency. This will just postpone the inevitable; it is naïve to assume that America will find a cure for its accumulated debt, successfully reinvigorate its economy and reform its financial system, which suffers from corruption and abuses of power by the authorities, with the elite 1 percent of the population controlling more than 90 percent of the country’s wealth.

No one will benefit from a bankrupt America at the present time, except for those calling for chaos and insane radicalism. At the same time, it doesn’t appear that America has found a long-term solution to the structural problems that threaten the security of its financial system and its political stability. In truth, America has begun on a path that could either delay or accelerate its fall from superpower status. This has happened to great empires in the past; and over the years, the world has reshaped itself economically and politically as new powers appeared on the scene. Of course, the Arabs are never taken into account!