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What Happens if the U.S. Government Goes Broke?

May 11th, 2010

What happens to investors if the U.S. government goes broke? With the condition of Greece, Spain, Portugal, Italy, Great Britain and yes, the U.S., this is a question any prudent investor must ask. No, I don’t have a crystal ball, but we can look at the broad picture and analyze the situation.

Unfortunately, if you’re crazy enough to loan the U.S. government money; i.e., to purchase U.S. government bonds at this point, you’re out of luck. If the government goes broke, they’ll default on their bonds and you’ll be paid less than a dollar on the dollar.

What’s perhaps more likely is that the U.S. government will inflate its way out of debt by simply printing more money and thus devaluing everyone’s cash. This will, in all likelihood, create rampant inflation, thus devaluing all bonds and creating the same effect as the U.S. government defaulting on their debt. The only difference is that they take all bonds down with them in this case.

But what about stock investors? Fortunately, even if the U.S. government goes broke, I believe people will continue to drink Coke, go to McDonald’s, purchase gas, buy Proctor & Gamble toothpaste, wear out their tires and do most of the “normal” things they do in their daily lives. Hence, corporations will continue to retain monetary value.

Yes, I believe that inflation will hurt the stock market and yes, I believe there will be riots in the streets if the U.S. government goes broke. However, I also believe that people around the world (remember that most of our companies are global) will continue to go about their daily lives as best they can.

Ultimately, the U.S. will go the way of the Roman Empire. We don’t know when or how fast, but one constant in world history is that nations rise and fall. But I believe that mankind, and thus the global economy, will continue to march forward. We don’t sail around the world in wood ships anymore. And likewise, with or without the U.S. government, I believe the global economy will continue to march forward.

What do you think?



7 Responses to “What Happens if the U.S. Government Goes Broke?”

  1. Rob Northrup says:


    I am in agreement that the US is headed the way of the Roman Empire, and the debt situation is basically already beyond the point of return.

    Forget about the National Debt which is at $12.9 Trillion…

    The basic issue that overwhelms all other issues is how will the US deal with the fact that we have promised approximately $100 Trillion (give or take $10 Trillion) in FUTURE payments to our retired (and many not retired) citizens (and probably illegal aliens too before it is all over) through Social Security and Medicare.

    Now we add Obamacare to the mountain of debt.

    The money to fulfill these commitments does not exist, and it will not exist… the sums are too huge.

    We will not be able to borrow that amount of money and we will not be able to confiscate it from the productive members of the private sector through increased taxation…

    These programs will not be able to pay out as the Government has promised. There will have to be radical changes. The politicians know this but they are afraid to tell us the truth.

    Alert citizens know this, but they are drowned out by the people with their fingers in their ears saying Na-na-na-na-na, I can’t hear you…

    We are seeing the early stages of this play out in Greece, and it is spreading towards Spain, Portugal and Italy… When and how it happens here is still unknown.

    I have hopes that this November will see a wave of fiscal conservatism take over DC as we have never seen. This will halt the Obama socialist agenda, and possibly we can take some small steps back in the right direction. Then 2012 is the most critical election in the history of this Republic. We need a leader who is a rock-solid fiscal conservative who is dedicated to rolling back the Fed Gov to Constitutional levels.

    We need to find that leader and we need to defend him or her against the smear machine of the Main Stream Media who will use every trisk to mock and belittle them (like they did Palin).

    One final point, Inflation or Hyper-Inflation does not solve the US debt problem because both Social Security and Medicare, and the interest on the existing debt are indexed to inflation, so the debts grow in step with inflation.

    Sorry to be so long, but I am passionate about this topic.

    Everyone needs to get prepared.

    Seize the Day,

    Simple Family Survival Tips For Disasters and Emergencies

  2. Rod says:


    Thank you for your response and don’t worry about it being longer than normal. I think you were just thorough, which is good.

    In general, and even most of the specifics, I agree with all that you’re saying.

    It’s great to hear from you, and please stay in touch.


  3. Dan Gwinn says:

    US needs to sell California to China for 20 trillion to get us out of debt.

  4. Hello, I have family in Houston. You are doing such an awesome work. I understand the good content on your site. I like it so much. It is very informative. I want to Congrats you.

  5. Blessed are the young, for they shall inherit the national debt. ~Herbert Hoover, attributed

  6. Geld Schnell says:

    There are so many men who can figure costs, and so few who can measure values. ~Author Unknown

  7. Rod says:


    I think you have a great idea, as it would turn a major liability into a major asset.



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