The Bankrupt Superpower

Published on Sep 12, 2006 in the Business Line

The accounting system followed by the US Government is so flawed (cash accounting as opposed to accrual-based accounting as companies usually do) that had it been a company instead of a Government, they would have been forced to recognize their liabilities on the books and consequently would have had to file for Chapter 11 by now. This is besides all the off-balance sheet liabilities that do not even make it into the already flawed cash accounting system. On it's part, being a country rather than a company allows the US Government some options i.e. instead of legitimately trying to get the books back on track, they are likely to try and print their way out of trouble. This however would lead to a massive debasement of the US Dollar in the decade ahead.

Using a Fiat currency, the US Government is today running the biggest Ponzi scheme ever attempted on this Planet . While this could be true for a lot of countries today, what makes the situation particular precarious for the US is it's relative size and the act of other central banks in holding up the Dollar instead of allowing market forces that would cause the dollar to plunge.

The $65trillion gap referred to in the article is a bit dated. Current estimates put the gap at between $75 to $90trillion. These numbers are so huge that it really doesn't matter eitherway. The lesson to learn is that in a democracy dictated monetary policy (I hope Readers do not still believe that the Central Bankers are Independent), the ultimate destination is Inflation. So all paper currencies will sink over time (against the only non-inflatable currency which is precious metals like Gold & Silver).. only that some will sink faster than others.