American Debt: Who Will Get Stiffed?

The culture of debt in the USA (and the Western world generally) has gotten so far out of control that any realistic person knows the only way out of it will be a default. In any default, someone gets off the hook, and someone else gets stiffed. So the big question now is, “Who will do what to whom?”

Since 2008 the pattern has been bailouts, in which irresponsible banks have been allowed to offload their bad loans to the federal government. Individuals and businesses who took out loans they can’t pay back will get off the hook, but instead of the banks paying the price and getting stiffed as a result of their poor lending decisions, the taxpayer will. However, that is not the end of the story.

Now more people are waking up to the fact that Western governments can’t pay back their debts. Banks, foreign governments, and other institutions who hold government debt face the prospect of getting stiffed. So they call in the European Central Bank and International Monetary Fund. It’s happening in Europe already, and there is a growing realization that it may happen here, too. Once again, someone will get stiffed. Who?

This is a video of the former chairman of the Federal Reserve Bank of Cleveland who says we’ve been doing “bubble-nomics” in the USA the last few years. The latest phase has been replacing private debts with government debts. The silver lining here from the policymakers’ point of view may be that since so much treasury debt is held by foreign governments, we can stiff them in a default. The alternative is an default by inflation that will stiff anyone holding U.S. dollars.

Got some gold?

About Dr. J

I am Professor of Humanities at Faulkner University, where I chair the Department of Humanities and direct online M.A. and Ph.D. programs based on the Great Books of Western Civilization. I am also Associate Editor of the Journal of Faith and the Academy and a member of the faculty at Liberty Classroom.
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