Kerby Anderson

When I talk about the US national debt, often someone asks: Why can’t we just cancel the debt? People do this with bankruptcy. Why can’t the government do the same?

The US currently has a $35 trillion national debt plus $217 trillion in unfunded liabilities. Government debt is issued by the US Treasury, through what are called US Treasuries. When you purchase a T-bill, it shows up in your bank account or brokerage account as an asset. The US owes $6 trillion in T-bills, $14 trillion in T-notes, and $4.5 trillion in T-bonds.

Why not just cancel all debt? Debt is a liability that the US government owes someone. Your elderly parents or grandparents probably own some T-bills. This government debt is an asset for them.

If you cancel all the US government debt, then those T-bills would be worthless. They can’t buy groceries or pay for utilities or medical care. Cancelling US Government debt would instantly impoverish millions of Americans, most of whom are retired.

These treasuries also may be sitting on the balance sheet of an insurance company that will need the money to pay out future claims. They are also sitting on the balance sheet of other countries. For example, Japan has $1.1 trillion, and China has $768 billion.

Even if we could cancel the debt, it would have no impact on this country’s unfunded liabilities. These are future promises that will need to be paid out and will eventually convert into debt and be held on the US government’s balance sheet. That is additional debt dumped on future generations.

This is why we cannot cancel the US debt.