Debt problems are not new. The United States is not the first nation to rack up debts that cannot possibly be paid back through taxation. This is an ancient dilemma, with ancient “solutions”. A government can deal with a debt problems in one of two ways: 1) Bankruptcy. 2) Inflation. As you will see, the latter is the most common resolution, historically, and quite likely the future of the United States of America.
There is a lively debate among in-the-know economists and investors as to the outcome of the United States debt bubble, arguably the largest debt bubble in the history of the world: will this end in inflation or deflation? Everybody can agree that this will end badly, but the fundamental question of which direction the bad ending will go is very much up in the air.
Every American knows that the US government has a debt problem. Most can quote the $19 trillion debt number. Many know the estimates of unfunded liabilities of $100 trillion or more. Some even understand the use of fiscal gap accounting that shows the government is actually in the hole by $210 trillion in terms of present-value of future deficits and debt. But what does all this actually mean? How bad is it, really?