The U.S.A. is Bankrupt

The fact is, America faces national bankruptcy

Handle the reality of insolvency, or suffer the consequences.

[Update 1-31-2009: It's funny. When I first posted this, it was on top of all the search engines for a whole bunch of terms like "Is the United States Bankrupt?" and "American Bankruptcy" and those sorts of things. Now it's not even on the front page. The reason? Lots more competition for those search terms. I suspect that by the end of 2009, permutations of the phrase "U.S.A. Bankrupt" will be commonly heard.]

The prognosticators and pundits studiously avoid two words when discussing the financial meltdown: The "b" word and the "n" word. I'll tread where they dare not: The United States of America is bankrupt and will have to nationalize a good deal of its financial infrastructure, at least temporarily.

Bankruptcy of the United States of America is inevitable

It doesn't matter how we got here (tax cuts for the rich plus an idiotic war that needn't have been fought plus lax regulation), but here we are.

Before this mess, we Americans were already in the red by a staggering $9.67 trillion. That's $9,670,000,000,000 and change. It works out to about $32,233 for every man, woman, and child. Every family of four owes $129,000 and change. Add that debt -- even on 30-year terms -- to most families' budgets, and most would be forced to declare bankruptcy. The proposed economic bailout adds another $3,000 for each member of your family. The national debt is only going up, and the rate is accelerating with record deficits.

But the national debt is only one small piece of the debt picture. Our mind-boggling current account deficit of about $500 billion a year adds to the misery. Over the past ten years, American consumers and producers have borrowed a cool $5 trillion from overseas producers.

We're barely even getting started. Let's talk about direct personal debt such as credit cards and personal loans. U.S. consumers owed a staggering $2 trillion (as of 2003 -- it's undoubtedly more now), not including mortgage debt which as we all know, is also tragically beyond the ability of many to pay.

All told, back-of-the-envelope calculations indicate about $20 trillion in debt, not even including corporate debt. Our GDP is about $14 trillion (or so "they" tell us). If you made $140,000 a year but owed $200,000 (not including your mortgage), you'd be broke as a joke, and your attorney and accountant would likely advise bankruptcy. It would be stupid to move your family into a studio apartment and spend 20 years paying off your debt when bankruptcy exists as an option.

I advise the same thing for the United States of America: Hit the reset button. (More on how that might work here.)

On Nationalization

Uber-capitalists dare not utter this word. It scares them. They do not want us to even consider it. Every capitalist knows that nationalization is bad, they just can't tell you why in non-ideological terms because in the real world, nationalization works pretty well in many cases. The Korea Development Bank, which backed out of buying out Lehman Brothers, is a nationalized bank. European countries have wonderful nationalized train systems. Venezuela manages to deliver a lot of oil from a nationalized oil company. China's 300,000 state-owned enterprises, employing nearly 75 million people, drive China's economic growth. Every other industrialized country in the world enjoys better aggregate health care than the U.S. because they have national health care plans.

Hyper-capitalist aversion to nationalization is knee-jerk, hysterical and irrational. The fact of the matter is that publicly owned enterprises can and do deliver excellent results. I'll tell you a dirty little secret: private enterprises often perform poorly. Organizational success is determined by the competence of management, not whether or not profits flow to the public or private sector.

Don't get me wrong: I'm not a communist. The free market delivers superlative results in consumer goods, creative enterprises, publishing, and small-scale day-to-day services. There's a reason that the iPod wasn't invented and brilliantly marketed by a Chinese SOE. There's a reason that Titanic wasn't produced by the Cuban propaganda ministry.

That said, certain large-scale projects and essential services are best executed by publicly owned enterprises. Why? Because everybody needs these things, and maximizing profits inherently entails giving less and charging more. Ameliorating our current financial crisis and avoiding a total economic meltdown qualifies as both large-scale and essential, and it will not happen profitably; therefore, nationalization will be part of the solution.

Anyway, the U.S. is bankrupt. The sooner we approach the financial crisis from the standpoint of this reality, the better.