How do you define bankruptcy ? To most people, that occurs when it becomes impossible to satisfy creditors - because income is less than the amount owing.
In that scenario - the United States of America is bankrupt - and has been for well over a decade.
This is not an unusual situation. At the end of the first world war Great Britain was bankrupt - and that became a well kept secret by the rest of the world right through the 1920's and 1930's.
International money trading is a matter of preserving the status quo. Treasurers and money men operate in a incestuous little world of secrecy, careful to use the right words whenever they speak publicly to avoid doing anything that may create a panic.
The public should have been alerted in 1933 when Great Britain dropped the " Gold Standard ". This was a mechanism used when the first paper currency was mooted. Many were skeptical about accepting paper in place of gold and silver coins, so the Bank of England made it's currency a promissory note.
Each one pound note carried a promise that - if presented to the bank - it would be immediately replaced with it's value in gold. To honour that promise, the bank guaranteed that for every paper note issued it would hold the value of those notes in it's vaults in gold. Thus was established " the Gold Standard " - and the division of the world's currencies into " convertible " and " non-convertible " segments.
It suited the world to ignore Great Britain's bankruptcy - just as it suits the world now to ignore America's. In that era Great Britain was reputed to be the richest country in the world. Any question of that status would have sent money markets into a spin - and provoked a world catastrophe of unimaginable context.
America replaced Great Britain as the world's premier nation during the second world war and afterwards used it's financial clout to rebuild Europe and create the greatest military empire the world has seen.
Trade in many commodities will continue to be made in American dollars because the essential for money markets is stability - but America would be well advised to grasp the nettle and exercise internal discipline to curb the tendency of the American people to spend beyond their means and accumulate ever increasing debt.
A dark shadow is waiting in the wings. China may appear to be a major trading partner, but the Chinese government is ambitious and has long coveted becoming the greatest financial and military power in the world. To achieve that, it has to replace the United States of America.
If America continues a course of serendipity then one day China may decide it will take the chance of a huge trade upheaval impacting on it's world trade - and call in it's American debts. Such a move would panic financial markets - and it could safely be assumed that such a panic would apply to the oil producing countries.
The mere suggestion of an American insolvency would cause them to demand up-front payments for oil - and without oil the American military machine would be crippled.
Such a move by China would be unlikely in the short term, but Chinese ambition should never be treated lightly - and now would be a good time for America to put it's house in order !
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