http://debashishbanerji.com/creativewriting/poetry1/kashmir/ There is no polite way to say this – “Wake Up America,” a federal default on the national debt will directly hurt anyone who has or expects some form of retirement income. Don’t expect government to look out for you. Government will do what is best for it, citizens be damned. Citizens are mere commodities that send money, in the form of taxes, to the government for its discretionary use.
To remain in power the government will do whatever it takes to retain power, including incurring more debt, printing as much money as needed, notwithstanding its value, devaluing its currency, or even defaulting on its debt. If debt reaches astronomical proportions and the federal government is forced to take action, it will take the easiest path which is to default on the debt owed to the general public, which is most likely, you the reader.
Part I of this series uses a chart to illustrate that the National Debt is bipartisan, both parties engage in massive spending without any known way to pay for it. Part II discusses the underlying assumption of the Progressives Modern Monetary Theory, i.e., massive debt is irrelevant if it is in the currency of the sovereign. The sovereign merely needs to print money from “thin air” to pay it off. This Part III identifies who will be directly impacted by a default.
Identifying who is impacted by a federal default is a critical piece of information that should be given directly to citizens. Unless our government addresses the issue, the national debt will continue to increase. The Congressional Budget Office estimates the debt will be double the nation’s GDP by 2051, or $ 42 trillion or more.
Interest payments in 2020 were $ 325 billion. They are estimated to rise to $928 billion by 2029. If the Fed raises rates only 1%, that will increase add another $19 trillion over ten years to the national debt.
Our elected representatives are doing nothing to address the national debt, not even bloviating about it. Even the Modern Monetary Theorists recognize that inflation is the one event that could upend their theory that debt does not matter to a country with its own currency. Inflation is starting to rise at a fierce pace. Interest rates hit 20% in the late 1970s under President Carter. A twenty percent interest rate on bonds today would require the federal government to pay $6 trillion a year in interest, an amount larger than the budget of the U.S. The U.S. would be crushed by debts it could not pay. It would have to default or render the dollar worthless against world currencies.
So, who gets hurt if the federal government defaults on its debt obligations?
As of March 31, 2021, the U.S. National Debt exceeded $28 trillion. $ 21trillion of the debt is owned by the public or 78% of the debt. $7 trillion of the debt is owed to foreign countries.
Put aside the $ 7 trillion in foreign debt, it will be renegotiated. The real concern is what happens to citizens whose retirement rests on the government’s promise to make payments on its financial obligations. Unfortunately, federal agencies collected trillions of excess dollars from federal programs like social security and loaned that money to the federal government to spend. The citizens paying these social security taxes only received promises from the federal government to repay the borrowed funds at some future time. That money or a large portion of it will be lost in a default?
There is nothing citizens can do about it if the federal government defaults. Yes, nothing! Government can change pension laws at will to relieve itself of a debt problem. Only the government is sovereign. Moreover, the doctrine of sovereign immunity protects the government from its citizens. Government wins, you lose. An easy proposition to understand.
The magnitude of what the federal government owes citizens is staggering:
$10.81 trillion is owed to the Federal Reserve and government agencies that gave cash from certain programs like Social Security to the federal government to spend.
$3.5 trillion is owed to mutual funds.
$1,.09 is owed to state and local government pension plans.
$ 784 billion is owed to private pension plans.
$253 billion is owed by insurance companies.
$147 is owed to owners of U.S. Savings Bonds.
$2.28 trillion is owed to a variety of individuals, government-sponsored enterprises, banks, and other investors.
Most of the beneficiaries of these debt instruments are Social Security recipients, pensioners, mutual funds investors, bondholders, and insurance companies. All these payments are long-term payments to individuals who depend on those payments for survival.
Would Social Security recipients, mutual fund investors, pensioners think the same about “free” federal money if they knew their retirement savings were being put at risk by their government?
The federal government is in a predicament that it cannot get out of without actually making fiscally sound decisions that address the long-term sustainability of the country. As the federal government creates new multi-billion- and trillion-dollar programs, it moves closer to a default. If the Federal Reserve can keep interest payments around zero, debt is manageable since there is little interest due. Every 1% increase in interest rates raises the debt over a few years by trillions.
. The federal government is pitting Americans against Americans as to who gets a piece of the pie and when the pie is divided. Does the federal government give away the entire pie now and let those who invested in the nation live without pensions? Does the federal government opt to forgive student loans, authorize child care and universal basic income for all? Should the federal government support illegal immigrants with food, shelter, clothing, health care, education and basic income by putting social security recipients at risk? How high can taxes go before people abandon the country? How much can we cut from the military before the U.S. can no longer defend the USA?
Tough questions that must be answered.
The federal government is now an entity separate from its people. It lives in a world that does not exist for ordinary people who must survive without the ability to tax others. If the national debt is not addressed soon, “we the people” will live in involuntary servitude to the federal government.