The American Federal Government 21st Bankruptcy Show
The US Treasury press release announced the federal government will not meet the next scheduled interest payments on US government issued bonds and they declared a sovereign nation debt default on known federal debt of $36 trillion as of April 2025 according to the US national debt tracker website. Going forward, bond debt repayments will be negotiated with the bond holders. This default has not happened as of this article’s writing and the reality is here. Here is one possible scenario.
The US Federal Reserve Bank (Fed), European Central Bank (ECB), many nation’s central banks, many sovereign wealth funds, pension systems, mutual funds, etc. are not surprised by this announcement.
The federal government funders see the severe addiction to uncontrolled money printing, lack of discipline on federal spending, the fallacy of fiat money, no motivation to cut spending in any form, and the enticement of entitlement programs for their constituents must be addressed.
Worldwide, bond and stock markets have been volatile for weeks pricing assets in anticipation of this US federal government debt default. Many bond mutual funds, nations central banks and wealth managers holding US government bonds sold them off in the weeks before this announcement to avoid financial losses.
The federal government collected $4.92 trillion in total tax revenue, which is about $13.48 billion per day in fiscal year (FY) 2024. They collected $4.57 trillion in total tax revenue averaging about $12.52 billion per day in FY 2023. They spent $18 billion per day and a total of $6.75 trillion in FY 2024. They spent $17.3 billion per day and a total of $6.31 trillion in FY 2023. They spent $4.52 billion more per day in FY 2024 and spent $4.8 billion more per day in FY 2023 more than they took in total tax revenues.
The Fed sees their US government bond debt-buying days are done and their bond debt values are decimated. Central banks around the world see the US debt addiction reality and are burning and expunging US dollar holdings. Central banks will not buy any more US government bond debt.
The World Bank and International Monetary Fund (IMF)—each headquartered in Washington, DC—cannot loan money to rescue the US government default. The IMF and World Bank were each established in 1944 as part of the Bretton Woods agreement with the close of World War II. Each receives part of their annual funding from the US taxpayer.
A debt default resolution committee created by the lenders to manage and resolve the US government debt default are the Fed, ECB, the Bank of Japan, and Norway’s sovereign wealth fund. They elect a chairman and set to work renegotiating US government bond debt payments, purchase plans and lasting federal budget cuts. Their decisions overrule any actions taken by the US House and US Senate.
Federal fiscal spending discipline begins on default day one. The next monthly Social Security payments will be reduced by approximately 27 percent as these taxes are collected. A note in your projected annual Social Security statement states this benefit reduction happens if Social Security underfunding occurs. Many retired Americans only have Social Security for income and take an immediate 27 percent income reduction.
Medicare continues to be paid at a reduced rate as these taxes continue to the US Treasury. Supplemental Nutrition Assistance Program (SNAP) recipients in many states will have their Electronic Benefits Transfer (EBT) cards invalidated due to insufficient funds. Section 8 housing assistance funds dry up. The federal money recipients list goes on.
The US dollar status as the global reserve currency takes a severe hit from the declared debt default and never recovers. Many nations’ central banks were selling US dollar holdings seeing the default storm clouds. The dollar as the medium of exchange within the US continues.
Fitch, Moody’s, and Standard & Poors bond rating agencies change their US federal government bond ratings to junk status. Any future US government issued bond debt must be issued at higher interest rates to attract any buyers or suckers. How high should this future interest rate be?
Federal government spending is cut, entitlement programs like Medicaid, Medicare, and Social Security are forcibly downsized, Department of Defense bases outside the US are closed, the Pentagon building is sold to Amazon for their new East Coast headquarters, employees laid off, federal owned office buildings sold, federally-owned land in many states west of the Mississippi River sold, etc.
Bankruptcy in the short term is painful. In the long term, it is cleansing decades of poor federal government choices. Permanent reforms are made to prevent its future occurrence and local, state, and private responsibility for its citizens can begin without free federal fiat money. The uniparty members of the US House and Senate are flustered by the US government debt default, unaware their lack of will to cut spending and debt addiction was one cause of the debt default.