Today, I'd like to consider the word "bankruptcy". From dictionary.com we get the following definition:
Definition (1) includes the concept of being legally bankrupt and I can imagine that is what comes to mind when CFOs hear the word. Definition (2) is pretty broad and allows "bankruptcy" and "bankrupt" to be used correctly in a much wider variety of contexts.
In a recent post by the "Skeptical Optimist", Steve Conover asks:
Next time we hear anyone warning us of impending "bankruptcy," let's interrupt and ask, "Wait, don't you mean 'hyperinflation' instead of 'bankruptcy'?"”But isn't 'hyperinflation' virtually synonymous with "utter ruin"? Has there ever been a hyperinflation that didn't leave an economic system in shambles? Certainly a hyperinflation represents some sort of "failure", no? Thus, I think that if one means 'hyperinflation' it would also be correct for one to say 'bankruptcy'.
Steve asks us to reread the following sentence:
In any scenario short of hyperinflation, it is impossible for the federal government of the USA to become incapable of paying its obligations in money backed by the federal government of the USA.While I agree that it's unlikely, it's definitely not impossible. For example, Mexico became "incapable of paying its obligations" on its debt in the early 1980s, but there was no associated hyperinflation.
If the United States takes on obligations that aren't specified in dollars, is it possible that it will be unable to meet those obligations. For example, if medical breakthroughs push average life spans to 200 years, and most people continue to retire in their sixties, it is possible, perhaps even likely, that the United States may not be able to meet both its Social Security and Medicare obligations given the current relevant legislation. Would the United States hyperinflate, or default, or change the program, or do something else because it can't meet its obligations? Who knows, but in each case, the entitlement would face "failure" and "depletion".
In other words, the programs would be bankrupt.