Is The Country Bankrupt?

: Chris Lee Law Firm

  Filed under: Bankruptcy

Depending on who you ask, the answer to this question could be “yes” or “no”. Regardless of which side you are on politically, we can consider this question by looking simply at the definition of “bankrupt”.

In general, the term “bankrupt” refers to the status of being legally declared financially insolvent. Meaning, the entity or person cannot afford to pay its debts to creditors.

america bankrupt

A Deeper Look

To consider whether the country is bankrupt, we should look at what that would mean in terms of the national debt and our creditors.

Firstly, the U.S. government has not filed for bankruptcy through a court of law; therefore, it has not been declared unable to repay its debts. Whether the government will, in the future, be able to pay its debt is a separate issue. For instance, many people are assuming that the downgrade in the U.S. credit rating suggests we will not be able to pay back what we have borrowed.

In fact, the credit downgrade refers only to the credit “score” of the government; more specifically, we have missed a payment or two but are still making the majority of our payments on time. The drop from AAA credit rating of “extremely strong capacity to meet its financial commitments” to a AA credit rating simply shows that we now have a “very strong capacity to meet its financial commitments”. The only difference is between having an “extremely strong “ to a “very strong” capacity, simple a matter of wording. In short, this shows the U.S. government is still more than capable of paying its debts.

A Comparison

Similar to the average individual, the U.S. government is experiencing the effects of more expenses than income. Many people are living check-to-check each month to cover their bills and may use a credit card to cover expenses that the paycheck does not.

Does this mean they are bankrupt? Most certainly not, but it does mean they should be taking a good look at their debt to income ratio and making some important decisions to balance out their budget each month. The same is true of the U.S. government. They are paying their bills and borrowing here and there to cover the costs of some of their expenses; but all in all, they are maintaining fairly well during these times.

 

 


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