NOT TECHNICALLY BANKRUPT, BUT ECONOMICALLY BANKRUPT

"...The US government sets a political limit on the amount of government issued debt which is called the “debt ceiling” (see here for a more in-depth discussion). This is entirely political. There is NOTHING operationally that constrains the USA’s debt issuance. The USA issues its own currency and has no foreign denominated debt. There is simply no such thing as the USA “running out of money”. In this regard, they are never revenue constrained and the only thing stopping the US government from spending money is the willingness of politicians to vote on these changes. This is nothing like a household, business, US state or European nation – all of whom are revenue constrained. The real bogey with regards to government spending is inflation and the effects of this spending via mal-investment, spending in excess of productive capacity and the resulting lower standard of living. There is simply no such thing as a traditional US government “default” – as in, not having enough money to meet your obligations.

The USA could suffer a form of insolvency in the name of hyperinflation, but there is almost nothing about the current state of the US economy that is consistent with past cases of hyperinflation. More importantly though, there are no signs that markets are even remotely concerned about a US insolvency (even if you were silly enough to believe it could happen). Both USA credit default swaps and US government bond rates are among the lowest in the entire world. And the myth of a potential surge in interest rates is sheer nonsense as the Federal Reserve controls the yield curve via the monetary policy that serves ZERO funding purpose and only helps to drain reserves while targeting the Fed Funds rate.

In short, these politicians have absolutely zero clue how the US monetary system actually functions. They have failed to properly diagnose our problems (a balance sheet recession) and are now implementing policy that will prove destructive. All in the name of a bankruptcy that can only happen if they decide to let it happen! So buckle up America. In their fight for power the politicians are about to “help” us avoid a technical bankruptcy while bankrupting us economically..."

at http://pragcap.com/not-technically-bankrupt-but-economically-bankrupt