The bankruptcy warning signs for America are the same as for individuals or small businesses
December 7, 2012 Leave a comment
Ever see ‘Flight of the Phoenix”? I mean the original version of the movie with Jimmy Stewart. It was a great movie about a plane load of people who crash-land during a sandstorm in an Sahara desert. Most of the passengers survive the crash and they realize quickly that they will not be rescued and thus they must rely on themselves to stay alive and to find a way out of the desert without outside help.
A German engineer comes up with an ingenious plan. He says that they can build a new aircraft with one of the engines from the old aircraft but this would require to attach parts of the wings from the old aircraft to this engine. This would require a significant amount of work and re-design but the German engineer (played by Hardy Kruger) informs the others that he builds aircraft and that it indeed can be done. After an intense debate session the survivors decide that they have few other choices so they go ahead with the project.
They work diligently, mostly at night to avoid the heat, and they fight a great deal throughout the process. Most of the movie is about their struggles during this aircraft conversion process. Hardy creates more dissention as he takes extra rations of water for himself during the airplane conversion and several of the group die during this time. When the aircraft is finally complete and ready to fly someone finally decides to ask Hardy Kruger what kind of airplanes he designed.
Hardy tells him proudly that he designs small model aircraft and that the largest one was may 3 feet wide. The others are shocked but Hardy assures them that the mechanics are the same no matter how large or small the aircraft is. He is proven right after the re-designed full-sized aircraft does indeed fly the crew to safety.
I would argue that we bankruptcy attorneys who deal with bankrupt individuals, couples, and small businesses every day can spot bankruptcy warning signs even if it is for something as large as the federal government. We attorneys are just like the character Hardy Kruger played in Flight of the Phoenix. We work on smaller bankruptcies everyday but the warning signs are the same for our clients as they are for the feds.
They federal government has been borrowing and spending money to finance a lifestyle they cannot afford for some time now. We have 16 trillion in debt and we will have 20 trillion in four years. We keep spending and borrowing and we fail to cut our spending to equal what we get in revenue. The interest on this debt is growing every day and if the interest rates rise then the interest alone will be beyond our ability to pay.
This is really the sign of bankruptcy for individuals, businesses, or municipalities. And the signs are the same for the small entities and the large ones. We attorneys deal with small entities but just like Hardy Kruger we realize that the dynamics are the same big or small. Hardy’s plane flew and our government is bankrupt.
This is what Peter Schiff concludes in his new book, “The Real Crash: America’s coming Bankruptcy”. He argues that the crash is coming due to the government’s continual lowering of interest rates that creates all of these bubbles; the dot-com, the housing, and now the government spending bubble. The government will eventually have to raise interest rates to attract investment and when they do the interest we pay on our national debt could consume all of our revenue. We would then be unable to function as a country.
Another book about the coming bankruptcy for America is “America’s Ticking Bankruptcy Bomb” by Peter Ferrara which appears to say virtually the same thing about our massive debt problem and what it will lead to. Also there is the book by Senator Tom Coburn “The Debt Bomb: A Bold Plan To Stop Washington From Bankrupting America”.
Though these books so far are written primarily by conservatives I believe that everyone will agree that the debt belongs to all of us regardless of who got us there. America must own the problem now and something must be done to avert the potential problems that the debt will create.
Forget for a moment that America as a sovereign cannot declare bankruptcy. There is no higher governing authority than the nation-state at this point to oversee a bankruptcy of a country. We must print money to inflate our way out of debt which could lead to something like the Weimar Republic with hyper-inflation or we must default. If we default and just refuse to pay the debt then we will have extreme trouble in getting anyone to lend us money again without exorbitant interest rates.
But I am seeing a greater and greater number of authors, commentators, and others using the word bankruptcy in relation to America without knowing the warning signs as well as we bankruptcy attorneys do. I agree with these people about the bankruptcy danger in America. America seems to be headed in the direction of bankruptcy even though the federal government cannot actually file for bankruptcy.
We are spending and borrowing, spending and borrowing without a pause. We are time and again failing to match our spending with our “revenue” and even if we do we have to somehow pay back all of the money we borrowed previously. In the meantime we have to service the debt. Our interest rates are low but our interest payments increase each year because we borrow more and we will have an impossible time paying back the debt we already owe, just like my clients.
I am a San Diego bankruptcy attorney. For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com. Or call my office for a free consultation or for any other advice about bankruptcy or debt at (619) 702-5015. Call now for free credit report and analysis!
For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at firstname.lastname@example.org.
USA photo courtesy of Kevin Hutchinson.