In these turbulent times, the phrase “May you live in interesting times,” often considered an ancient Chinese curse, holds true. Each day brings shocking revelations as we witness a troubling descent into chaos and absurdity in our society.
<p>Recent events exemplify this. This week, U.S. Representative Maxine Waters <a onclick="javascript:pageTracker._trackPageview('/outgoing/twitter.com/MaxineWaters/status/844170858159636480');" href="http://twitter.com/MaxineWaters/status/844170858159636480">tweeted</a>, "Get ready for impeachment," seemingly aimed at President Trump. However, her vague statement left many questions unanswered. What exactly should he do to prepare?</p>
<p>Should he pack his belongings? Tie his shoelaces tighter? Say a prayer?</p>
<p>Ultimately, the details seem irrelevant in today's environment where style often triumphs over substance. This is why Waters, despite her lack of insight, continues to be prominent in the diminished republic of the early 21st century.</p>
<p>Moreover, individual voices are increasingly overshadowed by aggregated data. Economists present figures like the unemployment rate as though they have substantial meaning, only for politicians like Waters to parrot them without question.<span id="more-5433"/> Yet, amid all this noise, our leaders remain largely unaware that the U.S. government may be only months away from a potential default.</p>
<h3><strong>The Dutch Experience</strong></h3>
<p>Recently, through our associates at <a onclick="javascript:pageTracker._trackPageview('/outgoing/www.zerohedge.com/news/2017-03-13/us-government-now-has-less-cash-google');" href="http://www.zerohedge.com/news/2017-03-13/us-government-now-has-less-cash-google">Zero Hedge</a>, we came across an article by Simon Black from <a onclick="javascript:pageTracker._trackPageview('/outgoing/www.sovereignman.com/trends/the-us-government-now-has-less-cash-than-google-21175/');" href="http://www.sovereignman.com/trends/the-us-government-now-has-less-cash-than-google-21175/">Sovereign Man</a> titled *The U.S. Government Now Has Less Cash Than Google*. In this piece, Black examines the origin of government bonds in 1517 Amsterdam and their long-term implications for the Dutch government.</p>
<p>“It started slowly, but eventually, government bonds became an attractive asset class. Secondary markets emerged where bondholders could sell to other investors. Even humble coffee shops transformed into financial exchanges where bonds were bought and sold. Over time, the Dutch government understood that its creditworthiness was critical, and they built a reputation as a reliable investment.</p>
<p>“This concept spread globally. Investors from England purchased French bonds, French investors acquired Dutch bonds, and Dutch investors invested in American bonds. By 1803, Dutch investors owned 25 percent of U.S. federal debt, whereas today, the Chinese hold approximately 5.5 percent.</p>
<p>“As debt levels climbed, the Dutch government used bonds to finance a lavish lifestyle—funding wars, infrastructure, and extravagant spending. Yet, the demand for these bonds persisted, as people believed the Dutch would never default.</p>
<p>“The idea of a Dutch government default became unthinkable. Ironically, despite the escalating debt levels, by the early 1800s, the government was expending 68 percent of its tax revenue just to service the interest on that debt.</p>
<p>“Then in 1814, the unthinkable happened: the Dutch government defaulted, and the consequences were catastrophic.</p>
<p>“In their influential book *The First Modern Economy*, financial historians Jan De Vries and Ad Van der Woude estimate that this default wiped out between one-third and one-half of the nation’s wealth.</p>
<p>“This serves as just one instance; history is peppered with events deemed improbable, yet they occurred. In hindsight, these moments always seem so obvious.”</p>
<h3><strong>March to Default</strong></h3>
<p>Today, much like the Dutch centuries ago, many believe the U.S. government is immune to defaulting on its debt. U.S. Treasuries are viewed as the safest investment globally.</p>
<p>Nevertheless, a series of rapid developments are approaching that could overwhelm Washington's capabilities. Before Congress recognizes the urgency, significant damage to the government’s financial integrity may already be done.</p>
<p>Perhaps the most critical narrative of our times—one that remains largely unrecognized—is the growing risk that the U.S. government could default on its obligations before the year concludes. While this may not be an absolute certainty, by drawing a few connections, a plausible scenario emerges.</p>
<p>Currently, the <a onclick="javascript:pageTracker._trackPageview('/outgoing/www.usdebtclock.org/');" href="http://www.usdebtclock.org/">national debt</a> exceeds $19.8 trillion, with the $20.1 trillion debt ceiling set to be breached in the second quarter. After this point, Treasury Secretary Steven Mnuchin will have no choice but to implement extraordinary measures to avert a default.</p>
<p>However, such measures are only a temporary fix. By the end of summer, Congress will need to either raise the borrowing limit or face a default.</p>
<p>History suggests that Congress will procrastinate until the last moment, as it often has. Yet this time, due to its profound dysfunction, Congress may fail to act in time.</p>
<p>Just yesterday, a vote to repeal and replace Obamacare was postponed while Republicans regrouped. Today, the effort will be renewed. Regardless of the outcome, this illustrates Congress's struggle to increase the debt ceiling due to the prevailing animosity that hampers cooperation.</p>
<p>Ultimately, the most expedient way to diminish government size might be to cut off its funding. Here at Economic Prism, we advocate for less government and greater personal freedom; therefore, a default could be seen as a necessary step.</p>
<p>However, the road to default is far from easy. The impending turbulence in financial markets, the economy, and beyond promises to be merciless.</p>
<p>Sincerely,</p>
<p><a href="https://economicprism.com/category/mn-gordon/">MN Gordon</a><br/>for Economic Prism</p>
<p><a href="https://economicprism.com/">Return from March to Default to Economic Prism</a></p>
