A government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the one we have today, can produce claims without limit.
America has far too much debt at 100 percent of Gross Domestic Product. That debt draws down prosperity from the future. America faces a gigantic black hole between federal spending and revenues with deficits exceeding $1 trillion for four years in a row. This year despite Washington's machinations, the deficit will be the highest than in any year since 1946. But how to bring the trillion dollar deficits and $16.4 trillion public debt under control?
As usual politics ahead of economics. In the United States, like Europe, the government's insatiable appetite for revenues was an opportunity to both raise revenues and for a bit of social engineering by taxing the rich in an effort to close the wealth gap. For the first time in two decades, Congress actually raised taxes. Despite the rhetoric, a sliver of taxpayers cannot pay for everything. The experience of other countries suggests that isn't enough. Despite revenue hikes in the New Year's deal, cuts to spending were put off to later. The most urgent priority then is to reduce the scale of spending. Easier said than done. In the New Year's deal, the deficit would only shrink by $60 billion or 0.06 percent.
American has an unsustainable debt problem because they have a spending problem. Not included are the big three unfunded entitlement programs such as Social Security, Medicare and Medicaid whose billowing costs have been bloated by bureaucracies, litigation and extraordinary expensive healthcare. America should start with the President's own bipartisan Bowles-Simpson Commission ...