If the government defaults on its debt obligations, it will no longer
be able to purchase anything, including oil and items used for national
defense, nor will it be able to fund all of the social programs like welfare,
social security, Medicare and the like, because its currency will be
worthless. If people suddenly stopped getting their government handouts,
they'd revolt, and with no money to spend on defending itself, the government
would collapse overnight. We’d go back to a barter system or a gold
standard because no governments will be left to back a paper or electronic
currency.
All international trade would stop,
and therefore importantly oil would be unavailable to most
people in western nations. All commerce, which drives everybody's
livelihood, would grind to a halt. Since most people live in cities, and
wouldn't be able to fend for themselves in the wilderness should they escape
from population centers, they would surely die within a short time. We
would instantly be plunged back into the Stone Age, or at least another dark
ages. In essence, the world, as we know it, would come to an end.
Now I do agree that at some point the governments of most western nations,
including the United States, will eventually default on their debt. As of
this writing, the U.S. has in the neighborhood of $16.5 Trillion of debt on the
books and climbing1.
The GDP of the entire nation, which amounts to all of the wealth produced
within the United States in a given year, is $15.1 Trillion per year.
Looking at it that way, it doesn't seem that ridiculous to have a debt to
income ratio that’s a little less than 1:1. But when you include all
of the future obligations (the real debt) of the U.S., like those that have
been promised for social security, Medicare and defense spending, the number
jumps to $222 Trillion2. No, that is not a typo, the real debt is
actually about 15 times that of GDP.The same rules apply for the finances of governments as they do for individuals. And a good rule of thumb is, once a person’s debts exceed their income by more than 3 times, that person is in danger of defaulting from one day to the next. The government has knocked that number out of the park. The very fact that they haven’t gone bankrupt already is miraculous. In my estimation, this part of the doomsayers’ story will happen, and in the near future.
So that begs the question: Why won’t this mean the end of civilization as we know it? The answer is: Because there are precedents for this type of thing in modern times. Governments have gone bankrupt and their paper money was rendered worthless before. And guess what? The show went on. Civilization continued, and the rest of the world went on with their lives.
The times when this happened were due to similar scenarios in which the respective governments didn’t have enough revenue to cover their expenditures, so they just printed more money. This devalued those currencies to the point that nobody would accept them anymore, and those governments were forced to restructure their debts, issue new currencies with new valuations and get their fiscal houses in order. Now this was not a good situation for those nations, but the world did not end.
Now an argument can be made that a nation as large as the United States, with global reserve currency status, has never done this before. And some would say that either the U.S. is immune from such a thing, or the results would be so catastrophic that the world would be plunged into darkness. Both would be wrong. The U.S. couldn’t possibly honor all of those financial obligations if tax revenue increases remain on par with today. They will have to either print money, or restructure their debt (default, bankruptcy, cutting of programs, etc.), because they certainly won't be able to increase taxes to the levels they would need to be without severe political backlash (or without causing the revenues to actually shrink). This problem will work itself out, one way or another.
But even in a financially catastrophic event, nothing real necessarily gets destroyed in the process. All of the infrastructure, the roads and bridges, farm land, power plants and transmission lines, refineries, hospitals, firehouses, police stations and on and on, will all still be here. And that goes along with the people that populate that infrastructure. All of the engineers, farmers, plant workers, doctors, firemen and police will all still exist. And so will the military for that matter.
As long as we don’t see massive ethnic or political genocide by the government, the military and police will continue to defend our borders and infrastructure. No essentials need to disappear for any period of time. The revolutionaries during the American Revolution often didn’t get paid for several years, so it’s not unprecedented for people to work without pay to serve the greater good within this country3. I’m still optimistic about the American people. I believe that we will come together in a time of crisis, like we always have, to fix these problems.
There won’t be any revolution because there’s no legitimate reason to revolt. Everything that we’re dealing with is a product of our own making. We, the people, have demanded everything that our government has provided us, good or bad. We still have the Constitution. We still have the three branches of government, with all of their glorious checks and balances. We still have our votes.
Like Lincoln and his constituents did, I vote to preserve the Union. I’m not willing to scrap and part out 237 years of what has become the greatest idea for a nation in the history of man. Yeah, we’ve got our problems. And they’re big mind you. But the system was built with the kind of flexibility that will allow us to restore it to its former glory. We can still use the Supreme Court to nullify unconstitutional laws. We can still form new political parties and vote these ‘bums’ out of office. We can still fix our revenue and tax structure. We can still peaceably assemble. We can still vote.
1http://www.usdebtclock.org/
2http://www.theburningplatform.com/?p=38718
3http://www.archives.nysed.gov/a/research/res_topics_mi_revwar_claims.shtml