Recently by Richard Russell: Forget Hope

Is the US’s financial position hopeless? I’ve studied the US finances backwards and forwards, and as I see it the US’s financial position most definitely is hopeless.

The actual posted national debt of the US is $14.1 trillion. However, the US reports its finances on a cash basis while omitting its unfunded obligations in such items as Social Security, Medicare and Medicaid and various other entitlements. If the entitlements are included, the total national debt including unfunded obligations would be over $100 trillion.

Wait, it gets worse. Entitlements, defense and interest on the national debt takes up 80% of the entire budget of the US. That leaves just 20% that can be sliced away if the US wants to actually cut into its deficits. So what’s left to cut? Actually, nothing that’s politically feasible.

To make the picture even more grotesque, the first group of baby boomers is now reaching the retirement age of 65. As they leave the nation’s work force, the problem of financing Social Security becomes more difficult if not impossible.

So what in God’s name is the answer to all this? How will the US’s finances be handled? There are only two ways that I can come up with:

The first is – to default, just declare that the nation is dead broke and it can’t meet its obligations. That would be tantamount to admitting that the US is less than a third-rate power, a dying banana republic. Unthinkable.

The second way would be to devalue the currency to the point where obligatory dollar debts would be financed or paid off with dollars equal to pennies or nickels.

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