Can you envision it? Is this something that regular folks like you and me can grasp? Could America go bankrupt?

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We look at our country’s debt, which has tripled in the last sixteen years and while it is huge, it doesn’t seem to matter.  Our nation moves along like usual. Some of our legislators in Washington, D.C. say little or nothing about it. A few are running around like their hair is on fire, warning of impending doom. Who is right?

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I wrote this book for me as much as anyone.  I wanted to see what people from different walks of life and different periods of their lives might experience, personally, if the United States of America went bankrupt.

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This introduction is very real.  The data described is from reliable sources. However, the chapters that follow are fiction.  Each section is my description of how an economic collapse could happen and what a normal American family would feel. The young single, the young professional family, the single mom. What about the empty nesters and the retirees?

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To understand these vignettes, it is important to cover some basic elements of the situation that our country faces. Don’t worry, this part is short, and it’s simplified. Everyone can understand it.

 

About our Debt

Since the beginning of 2008, the national debt of the United States has grown from $9.4 trillion to $36.2 trillion at the end of 2024.  Yes, the Covid crisis added about $3 trillion but the trend was there long before and continues long after the Covid response ended.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

​​So what,’ we might say.  ‘We’re a big country. We’re the wealthiest and most powerful country in the world!’

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It’s true, everything is relative. The most common means of grasping the significance of a country’s debt is to show it in relation to the country’s gross domestic product (GDP).  The GDP is the total value of all goods and services produced by all people and companies in the country in a year. In 2024 the GDP of the United States was $29.72 trillion. So, the debt-to-GDP ratio was 121.8% in the fourth quarter of 2024. This means that if every penny earned within our economy was applied to our national debt, it would take about 14 and a half months to pay it off.  No wages paid.  Companies could not pay any bills. Every cent would have to be used to pay off debt. Of course, in such an extreme case, nobody would have money to buy anything so the GDP would plunge and there would be nothing to pay toward the debt.

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You might ask, “Can’t the country just print dollars to pay off debt?” Yes, it can and it does.  In cases where countries have done that in a big way, the result was runaway inflation.  There are many examples of this in history but here are just a few:

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Austria

Between 1919 and 1922 Austria’s government spending was out of control.  About 50% of every dollar spent was borrowed. The debt was covered by printing money.  The Austrian inflation rate rose 6,990% in 11 months.  At the start of 1919, the exchange rate of the crown was 17 to one U.S. dollar.  In December of 1922, the rate was 71,000 crowns to the dollar.

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Germany

During the same period, in Germany, 88% of the nation’s expenses were paid with borrowed dollars. Instead of borrowing more money, they put the printing presses to work.  In 1921 there were 67-million-mark notes in circulation.  By December of 1923, that number rose to 496 billion. The result was hyperinflation. Prices increased by 1.02 trillion percent. A loaf of rye bread rose from .67 marks to 1200 marks by the summer of 1923. By November of 1923, that loaf of bread cost 428 billion marks.

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Others

In 1985, Bolivia’s inflation rate was 11,749%, Argentina’s was 672% and Brazil’s was 227%.

Some readers might remember in 1980, the United States’ inflation rate was almost 14%. Younger readers will have felt the sting of the 8% inflation rate in the U.S. in 2022.

Can you imagine trying to feed your family with 200% inflation or higher?

 

So, we keep borrowing, right?

The higher a country’s debt-to-GDP ratio is, the more difficult it is to borrow money. Lenders look at that debt and begin to wonder if it can be paid back.  At some point, borrowers may say, “It’s not worth it. I won’t invest in that country.” If the country wants to continue borrowing, it will have to offer higher interest rates to attract lenders. As the interest rate rises, the amount of interest that a country must pay each year rises. In 2024, the United States paid $882 billion in interest alone. If we had to offer even a 1% higher interest rate to borrowers, our annual interest payments would soar into the trillions of dollars.

 

Who are our lenders

There are two types of lenders.  Intra-governmental lenders and private lenders.

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Intra-governmental Lenders

How can the government lend money to itself, you ask?  First, through retirement systems.  Any money that the Social Security system takes in that is not sent back out in immediate social security payments is loaned to the United States for ongoing operations. Likewise, the federal employee retirement system loans accumulated funds to the government.  Intra-governmental loans made up about $7.4 trillion at the end of 2024.

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Private Lenders

The Federal Reserve Bank is the largest single holder of U.S. Government debt.  The Federal Reserve Bank has no money of its own. It loans money to the Federal Government by printing new money.  This has been done in the U.S. in recent years and given the term quantitative easing. At the end of 2024, the Federal Reserve owned $4.6 trillion of the government’s debt.

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Other private investors hold $24.6 trillion of the government debt. These are government securities (bonds) purchased on the open market by domestic and foreign investors. These may include mutual funds, individual investors, foreign governments, foreign investors, etc. U.S.-based investors owned about $16 trillion of the debt and foreign investors own about $8.5 trillion of the debt at the end of 2024.

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Very simply stated, a significant portion of America’s debt is owned by YOU, through the money you have put into Social Security, your vested share of your company’s pension holdings, your IRAs, 401Ks, and other savings.

 

That wasn’t too painful, was it? 

Now you have a basic understanding of our government’s more than $36 trillion in government debt.  Oh, just one more thing. Because the government continues to spend more than it takes in, it is adding new debt all the time. In fact, in the time it has taken you to read this introduction, let’s say 10 minutes, the debt has gone up $16.7 million.

 

So, what would happen if the government really did go bankrupt? Believe me, you would feel the impact and it would be devastating…

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Historical information: Harry E. Figgie, Jr, Bankruptcy 1995, Little, Brown and Company, 1992.

Current Data: Federal Reserve Bank of St. Louis, FRED Economic Data Website.