We have two paths that we can take in addressing USAPonzi: Hyperinflation or Austerity.
Since it is clear to me that we have ever expanding financial commitments due to Government overcommitting and overspending, the path of no action by Washington will by default take us to the hyperinflation route and since we can print money very easily that is what we are doing. But that leads to a devaluation of the currency as experienced by the Roman Empire and the Weimar Republic. Over the last few years the wages for the typical American have been declining in current dollars. If we continue to print money at the rate necessary to keep up with the overspending by our Federal Government then the purchasing power of the dollar will decline at what I predict to be about 5% per year (see Devaluing the Dollar). This will of course lower the average American's standard of living by 1) the reduction of dollars of income, 2) the impact of the CPI induced inflation, AND 3) the 5% devaluation of the dollar each year that this Ponzi scheme continues!
The other option is austerity which is just another word for "living within your means". This means that Government spending would have to be curtailed to the level affordable, using GAAP-basis accounting, by our tax revenues. This means that entitlements will have to be dramatically cut. Many people that are expecting lifetime pensions will only get paid a portion of their expected payouts. Many people that are on or about to be on Social Security will receive smaller checks from the Government or become eligible for these checks at a more advanced age. Healthcare services will be gated by the Government's (and the person's) ability to pay for these services.
The implications of this dilemma are being tested in the courts right now with the bankruptcy of the city of Stockton, California. The question is who gets paid when a government does not have the funds to pay both their bondholders and their pensioners. Do the bondholders take the hit first or do the pensioners take the hit. This is especially a dilemma for the state of California since the California State Employees Pension plan (CALPERS) is one of the large holders of the city of Stockton Bonds. So the choice is which of the two; the city employees or the state employees are to get short changed.
Living within our means (austerity) should reduce the devaluation of the dollar to a more tolerable level (essentially to a more normal CPI rate) but it will mean that Congress will have to decide how they want to spend our tax dollars rather than the current approach of spending without consideration of how they are going to pay for their purchases. The hyperinflation model results from the typical issue that Ponzi schemes encounter when inflows of new money cannot meet the need for outflows. The Ponzi-master has to resort to unusual tactics to keep the Ponzi scheme going. In this case, when the U.S. Government runs out of money they sell treasuries and/or just ask the Fed to print some more dollars.
Next page: Devaluing the Dollar!