Eventually, debts will be called in. No business can run properly when all of its business is in I.O.U.s. A country is the same way. What will happen when the world calls in their debts?

The future does not look bright. Several economists anticipate the US will default on its debt if the country does not change its fiscal policies.

Two major factors are driving this conclusion. The first is the size of the US debt. According to economists, the government has been misleading the public on the size of the debt through poor accounting practices and using misleading terminology in certain fiscal activities. In 2013 the debt was at least 91 trillion.

The second factor is that the US will never be able to repay the staggering debt because of changing demographics. The American population is aging, and most economists agree this will have a deleterious effect on the economy. Decades of abortion and birth control is resulting in increasingly smaller numbers of working age people. Consequently, the government will collect much less revenue from income taxes. Meanwhile, the dependence on the government for medical care and Social Security will continue to grow. Most other developed countries are in the same situation – staggering debt and decreasing numbers of working age people. If the US significantly defaults on its sovereign debt, a worldwide depression is very possible since national economies of the modern world are complexly interconnected. Regardless if the US defaults or not though, we can expect higher taxation, loss of government services, higher inflation, and slower future economic growth. In my estimation, the best way to prepare for all this will be for people manage their finances so they can pay their bills and survive with income from minimum wage jobs. The future economy of the US is almost guaranteed to be poor.

How bad is the risk of economic collapse?
There are two obstacles currently preventing the calamity. The first is the ability of payroll taxes to fund Social Security and health care programs (Medicare Part A). When the trust funds for these programs are deleted and payroll taxes can no longer fund them, the government will have to obtain money from other areas. At this point, investors will begin to require a risk premium on Treasury Bills, and the cost for the US government to borrow money will increase. This will exacerbate the government’s financial situation and cause investors to require even more risk premium. The second obstacle is between currency and debt repayment. Experts believe the government will allow inflation to depreciate the value of currency until it reaches a tipping point when the government will have to choose between allowing currency become almost worthless and defaulting on its debt. The US will likely choose to default. Part of this reasoning comes from history. Experts suggest America will do what the former Soviet Union did in the 1990s which was to choose a partial repudiation of its debt. The default will be rapid when the US reaches its tipping point – very much like the speed at which the Soviet Union defaulted.

Publications and opinions from other economists support this contention. Gokhale supports this conclusion in his monograph, The Government Debt Iceberg. In the forward to it, Phillip Booth, the Program Director of the Institute of Economic Affairs, states that if no adjustments to the current fiscal situation are made, then “sovereign defaults on explicit (Treasury) debt and implicit pension liabilities must ensue.” Kotlikoff testified that to prevent the default, the government must immediately and permanently raise income taxes by 60% or cut spending by 40%. Most would agree this is politically unimaginable. Consequently, Kotlikoff believes that it is not a question of if the system will collapse but when. The idea that the US will default on its debt comes from several well-respected economists.

What would a default mean?
The first and worst consequence would be a worldwide depression and unemployment as financial shock-waves spread through the economy. Second, there would be a massive sell-off of the dollar causing prices to rise on everything from groceries to gas. Interest rates would rise and decrease the ability to borrow. Third, US equities would lose value causing 401k values to drop. Fourth, Social Security payments would cease. The fifth impact is banks would freeze operations. According to NBC News, trillions in bank equity would be wiped out. Banks would not roll over loans and would demand immediate loan repayments. Since most small businesses pay their employees with rotating credit, many would not be able to retain their employees. Sixth, Money Market funds would lose billions of dollars. Every Money Market fund would be impacted. And seventh, the global markets would see major disruptions. Simon Johnson, former chief economist for the IMF, believes that no company in the US would be unaffected by a default. In an article in Slate, he wrote that the country would see massive unemployment and bank runs along with depleted savings and refusal to issue credit. Typically, news agencies try to dramatize news in order to attract viewers, and these opinions may be exaggerated. Even if they are only half-true, a default would be devastating. It would be a calamity.

So what will the future be like?
All economists agree that no one really knows, but there is strong probability of a few things. We can expect high inflation. Governments create inflation when they print more money to pay down debt. Both Kotlikoff and Hummel agree that the government will not be able to significantly repay debt through inflation. Hyperinflation is not likely. Hyperinflation historically has been the result of a combination of a sudden expansion of the money supply and a weak central government which cannot collect taxes or make budgetary reforms. It is associated with war, deep civil unrest and civil war. The US government certainly has no problems collecting taxes, and there are no economists currently predicting hyperinflation; however, Kotlikoff commented in a television interview that the groundwork prepared for it. We can expect increased taxation to pay for entitlements. We can expect cuts in government services and loss of government jobs.

So how do you prepare for economic collapse?
In my opinion you have to be financially capable to live on a minimum wage job. You have to be able to survive if you lose your job and can’t find anything better than a minimum wage job. If you find yourself living under a bridge and foraging for food in the woods, it will most likely be because you lost your job and couldn’t make ends meet and pay your rent, mortgage, or property taxes with a job that pays $8.00/hr. If you are able to get by on so little, then you will weather the coming economic storm better than those who are living above their means and lose their jobs. It would be wise to reduce your personal debt. It would eliminate concern about creditors repossessing your property. It will give you more ability to apply money towards other things. Relocating to a part of the country with a strong and diverse economy would be optimal. Diversity is important because when one financial sector is doing poor, another is usually doing well. You can further reduce your need for income by growing your own food. I would liquidate your IRA. I don’t think they will be there after economic chaos, inflation, and taxation ruin them. My wife and I liquidated our IRAs and applied the funds against our mortgage. Property, like precious metals, will keep value. I would be prepared to have family members move in with you. They will need help and may be able to provide help in weathering the storm.

Not a pretty picture. There isn't much we can do as individuals to help the overall situation of our country; all we can do is lessen its effect on ourselves. One important thing you can do now to lessen the effect on you in the future is to invest in gold and other precious metals.

The reason for this is that, for all of history, precious metals have always held their value in the face of economic catastrophe. Like the article says, the best thing you can do is to work on erasing your debts. Do this now and there won't be anything for the bank to call in when their own debts get singled out.

If you want to learn more about this phenomenon and what you can do to reduce the blowback to your own finances, read more at The Prepper Journal.