A Chilling Scenario of the End of America?

Senator Tom Coburn creates a chilling “end of the world as we know it” scenario in his recent book The Debt Bomb (Thomas Nelson 2012, 349 pages, indexed). The CIA should take note. Maybe it already has.

I’ll synopsize Senator Coburn’s fictional crisis that begins on August 4, 2014 in Tokyo where a large mutual fund is holding a meeting there along with dozens of private funds and representatives from foreign governments. The mutual fund is a large buyer of U.S. Treasury Bills that fund U.S. debt spending.

The Japanese mutual fund, frustrated that the U.S. has failed to cut spending, fears the Federal Reserve will print more money to inflate itself out of repaying its debts in full to holders of its IOUs (U.S. T-bills). The head of the Japanese mutual fund openly espouses a sell-off of U.S. Treasury Bills “before the Americans have a chance to devalue their currency any further.”

Recognizing some of the smartest investors in America had also declined to buy U.S. Treasury bills, the Japanese mutual fund officially votes to sell off its T-bills, which makes the newswires that morning in Asia.

The initial response is calm. But then another large fund in Asia also sells its holding in U.S. T-bills and by that afternoon Singapore releases its holdings as well. By then the European markets open and every major private firm is in a frenzy to unload their T-bills. Japan itself, the second largest holder of U.S debt, unloads its T-bills while China elects to wait it out.

In the dark of night, U.S. officials are awakened to a financial crash of unprecedented proportion. The newly elected Republican President, awakened at his vacation home, emphatically responds: “there will be no bailouts on my watch.”

Americans arise to a day more memorable than the JFK assassination or the 911 terrorist attacks--everything they own has now lost a third of its value compared to other currencies.

At a White House press conference the President says the fundamentals of the U.S. economy remain strong and everything will be all right. Then the Wall Street markets open and the Dow loses 10 percent of its value in minutes, so trading is halted for an hour. When trading resumes the Dow falls another 20 percent, prompting Americans to head for ATM machines. Bank websites begin to crash, and an orderly coast-to-coast bank run is in progress.

A week into the crisis the dollar loses 50% of its value and oil rises from $80 to $240 a barrel.

With rumors of mass layoffs, anguished American workers take to the streets and reach for matches. Whole city blocks are now going up in flames from city to city. The National Guard is called into action to restore order.

The immediate problem that confronts government is that tax receipts to the Treasury plummet and with a government already operating on borrowed money, largely from Japan and China, there aren’t sufficient reserves to issue Social Security pension checks, make Medicare payments and pay for all the other federal entitlements.

The international community offers loans but only under the condition that reforms be immediately put into place. The great and mighty United States of America is now taking orders from overseas to put reforms into practice it had resisted for many years. The U.S. becomes Greece II. Retirement age will immediately begin at age 72. Social Security taxes will double.

The American economy drags along for three more years, with unemployment hitting a high of 24%.

Two years later the People’s Republic of China, staging a naval exercise in the Taiwan Strait, suddenly heads directly for Taiwan. The U.S. threatens military action but the Chinese respond they will dump our T-bills if we interfere.

Senator Tom Coburn’s scenario reveals how the most advanced country in the world can be brought to its knees by debt. Senator Coburn quotes Admiral Mike Mullen who says: “Our national debt is our biggest national security threat.”