Ask Chuck: Elon Musk says America is headed toward bankruptcy

Dear Chuck,

I am really concerned with what Elon Musk said about America heading toward bankruptcy. Do you think there is anything we need to do if he turns out to be correct?

Concerned American

Dear Concerned American,

Elon Musk has repeatedly said that the ever-expanding federal debt is leading America toward bankruptcy. I have linked here and here to some of the publications where he has been quoted about this concern. Here is an excerpt from his actual comments during a recent All-In Summit hosted by the All-In Podcast: 

“America is going bankrupt extremely quickly, and everyone seems to be sort of whistling past the graveyard on this one.”

My concern is not that Elon Musk said this or believes this. My concern and the concern for all Americans — and the rest of the world for that matter — should be that our elected officials are not making this their top priority to address and resolve. The vast majority of their time, attention, and energy is consumed by matters that will pale in comparison to the devastation to the global economy and world order should America indeed find itself unable to pay its debts.

The price of gold has risen dramatically in the past 12 months. I view this as an indication of the fear and uncertainty around our political and economic challenges. No doubt, we need the Lord’s wisdom to turn our fiscal ship in the right direction.

Modern monetary theory

I wrote in my book Seven Gray Swans that without ever taking a vote, our political leaders on both sides of the aisle, liberal and conservative alike, are practicing the nonsensical economic theory some call MMT or Modern Monetary Theory. Others have taken to calling it Magic Money Theory or even Monopoly Money Theory to criticize the premise that debt does not matter to a nation that prints its own currency because it can always print more money to pay its debts. Proponents cite the insulated and unlimited power of the “banker” in the game of Monopoly to support the concept. They also espouse that if an oversupply of money becomes inflationary, they can pull money out of the economy with higher taxes.

Well, we are not playing a game of Monopoly. In the real world, people expect to be paid back with sound money when they buy the debt (treasury bonds) issued by our government. If our government does not pay its debts (with sound money), then the good faith and credit of Uncle Sam will be destroyed. Also remember that the government, both federal and state combined, accounts for roughly 1/3 of the economic activity of our nation.

This danger is not new

President Lincoln warned, “You cannot keep out of trouble by spending more than you earn.” He also said you cannot:

●       Bring about prosperity by discouraging thrift.

●       Strengthen the weak by weakening the strong.

●       Lift the wage earner by pulling down the wage payer.

●       Build character and courage by taking away a man’s initiative and independence.

●       Help men permanently by doing for them what they could and should do for themselves.

Before him, Thomas Jefferson also warned, “I place economy among the first and most important of Republican virtues, and public debt as the greatest of the dangers to be feared. To preserve our independence, we must not let our rulers load us with perpetual debt.” Yet, today, government largesse and rampant overspending have ballooned to numbers once reserved for astronomy courses.

We are playing with fire, and we need our leaders to wake up. This June 9th article at GoBankingRates.com states:

“The government CAN pay their loans due to their unlimited ability to borrow — for now — or print more money, as long as other countries and investors will continue to buy our bonds,” says Les Rubin. “However, if someday the country cannot borrow money, we will have to default, leading to severe consequences. I think of the U.S. debt as a Ponzi scheme since there is no source to pay the principal on the debt and interest except to borrow more money. The Ponzi scheme will collapse when people won’t buy our debt. When this happens, we will face economic catastrophe.”

What can you and I do?

The government needs a massive reduction in spending, we need to live on a budget, and we need to concentrate on reducing our debts to reestablish confidence in our fiscal management of this nation's vast wealth. Essentially, we need our political leaders to become good stewards of our national resources. In my view, this is the foremost skill needed by a local, state, or national elected officeholder.

Elon Musk has also said he is willing to volunteer his help in reducing the bloated federal budget by as much as 1/3rd. While this may strike fear in some hearts, the alternative of doing nothing should be far more worrisome.

In my opinion, America will find a way to turn back from the current path of economic destruction that we are on, but it will not be without pain. Let’s pray for our nation to come to its senses, restore principles of sound money, and regain the trust of the world in the good faith and credit of Uncle Sam.

Next week, I will share what some experts are advising for personal preparation as we navigate the persistent pain of inflation.

I’d like to invite you to join a free Crown Bible study on the YouVersion app. We have several devotionals regarding money and stewardship that will provide encouragement by bringing God’s Word into your daily life.