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Washington Times

What really happens If the U.S. can’t pay its bills?

By June 28, 2024No Comments

(This column originally appeared in The Washington Times)

When you run a business, you’re constantly trying to look ahead. You make decisions now on hiring, spending and investing that will position your company to either grow or just weather the storm. You know you can’t control the future. But you can take some measures to protect your interests and lower your risks.

As business owners, it’s clear that the U.S. government is on a financial path towards a major reckoning. Our deficit annual deficits are now more than 6% of GDP — a massive number — and are projected to continue at the same pace for the next 10 years. According to the Congressional Budget Office, “debt held by the public increases from 99 percent of GDP at the end of 2024 to 116% of GDP — the highest level ever recorded — by the end of 2034.”

Spending continues to increase unchecked. Our economy can only grow so much. These are trillions of dollars that humans cannot perceive and that even our brightest economists still don’t entirely understand. But one thing’s for sure: At some point, it will be impossible to raise more funds to fund our deficits. And then our bills will go unpaid.

Economists like to say that you can’t compare a public entity’s financial statements to a company’s financial statements because some of the dynamics — like the ability to borrow and print money — are different, and they are right. But there are still many similarities, and whether you’re looking at a P&L for the U.S. government or my company, the fundamentals are still the same: debt maintenance is fundamental, and every entity needs to bring down its debt to sustainable levels.

Like any problem, our deficit problem is fixable. There are options. The government could raise our taxes to crippling levels. Or it could inflate its currency to better afford its obligations. Or it could simply decide not to pay the full amount of its debts as companies do in Chapter 11 bankruptcy. Some of this could happen. What will definitely happen is that the U.S. will be forced into austerity, as our friends in Greece were.

Some spending cuts are obvious and should’ve happened long ago. For example, why is someone with $1 million in the bank receiving Social Security checks? Why are military contracts so much more expensive than other contracts? Why does the government fund certain education or healthcare institutions with enough endowments to fund themselves? Are all these agencies really necessary? Are all these people really necessary?

This will hurt many businesses.

Like the companies that receive government contracts. Or the firms that service companies that receive government contracts. And the ones who sell pizza and car repairs, landscaping services, and plumbing repairs to federal workers. Or those who receive research funding, grants, low-interest loans and tax credits, or federal money directed to state and city services. Austerity measures will mean an across-the-board cut in income for all of these parties.

Unemployment will spike. There will be a worldwide depression, as so many companies around the globe depend on U.S. consumers and markets. The dollar will significantly weaken, making goods purchased overseas more expensive. Stocks will fall. Bonds will be harder to issue. Some banks will fail. Capital will be restricted. Household wealth and retirement savings balances will markedly decline.

And, unlike the pandemic, there will be no Paycheck Protection Program or supplemental unemployment insurance paid out. There will be no grants for theatres, tax credits for “employee retention,” or billions spent to help “historically disadvantaged small businesses.” Most of us will be on our own to deal with this.

However … the 360 million people who live in this country will need to eat. They’ll still need a place to live. They’ll still want a beer to watch Netflix and to surf the Internet. People will adjust their spending habits. There will be some who look at lowered stock prices and invest. Others will snap up properties and struggling businesses. The police, military, and healthcare workers will still have jobs. Our financial markets will contract and then ultimately recover like they always do. Farms will still grow food.

We’d still have countless businesses, natural resources, infrastructure, shops, and restaurants. There will be winners and losers. The wealthy will easily survive. Most of the middle class will weather the storm. Those more vulnerable will — as always — suffer the most.

Hopefully, the government can target aid to the people who need it this time. In the end, life will continue with the generations who endure this hardship, never forgetting the experience.

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