This might be one for the economists, but does anybody know what would happen if the government's debtors decided that they no longer had confidence in the ability to pay it back and simply stopped lending us the money?
Right now, the government is operating at an ANNUAL deficit of 500 Billion dollars. That is half a trillion, folks. The DEBT, which is what we owe from past years of deficit spending, is now $7.3 Trillion. That how much we owe now, $7.3 Trillion. If the budget was balanced tomorrow, we would still owe that amount. The only way to pay that off is to operate at a huge surplus for a long period of time. Instead, because of the deficit, the $7.3 T is going up by a half a trillion per year. So it will be 7.8 T next year and so on.
The only way that the government can function under these circumstances, that is, pay its bills, is if people keep buying government bonds or other "debt instruments". The demand for this is not unlimited. At some point, these bonds are going to become "junk bonds" in people's minds, though probably not officially, and they will stop giving us money. The government could only raise the interest rate it pays to borrowers as an enticement by a certain amount, before it would turn into a "ponzi scheme" type situation.
If that happens, the U. S. government, and hence the U. S. nation, will fall apart. That's what happened to the Soviet Union. It was never militarily defeated. It fell apart under the weight of its own debt and financial mismanagement. It no longer exists. As far as I know, there is no reason why that could not happen here. In fact, there's no reason why that could not happen RIGHT NOW. I'm not saying it will, but I am saying that there is no reason why it couldn't.
If you've followed this so far, please weigh in on how likely this is to happen at some point and, if so, how soon or far in the future that there is a reasonable possibility that it could happen. I have heard estimates that, if Bush gets reelected and we continue on this path, it would likely happen sometime in 2011 or 2012, regardless of who wins in 2008. (because it would be too late for that person to turn things around at that point). But even those estimators acknowledge that it could happen tomorrow.