Many of us wonder what will happen when the government runs out of money.
In California, we are seeing cities run out of money, with three entering bankruptcy in little more than a month. Those cases may offer some insight into what happens when the U.S. hits the point where the federal government can’t borrow enough money to meet all the promises politicians have made.
The first action we see in these and others cities under financial pressure is a cut back on basic services. Cutting police and fire protection seems to take precedence over eliminating waste or privatizing nonessential services, for example. Pension cuts are also a standard tool these cities employ, making it clear that promised benefits should never be fully counted on.
The state of California is already following the lead of these bankrupt cities. A balanced budget this year depends on voter approval of a large tax hike in November. Governor Jerry Brown is warning of deep cuts in education, a basic service, if voters don’t cooperate with him and give the government more of their money.
State officials must be hoping that voters fail to notice the tax hike covers the amount provided to begin construction on the high-speed train to nowhere, a nonessential service that will probably never be fully funded.
Faced with a budget shortfall, the federal government has also chosen to cut basic services first. The Defense Department and Border Patrol are seeing cuts while arguably nonessential services like food stamps and student loan programs grow.
Of course, the U.S. will print whatever money it needs in the end. But there will have to be cutbacks at some point or hyperinflation will follow. It is likely that when cuts become painfully necessary, if California is a guide, the cuts will be in necessary functions and public safety will suffer.
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