May Ron Paul be Giving an Inaccurate Bankruptcy Information
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Ron Paul Giving Inaccurate Bankruptcy Information?

December 21, 2011

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Republican presidential hopeful Ron Paul has called the United States "bankrupt," and, as a recent article in the Washington Post points out, Paul’s use of the word could be considered inaccurate and may amount to misinformation about bankruptcy.  This could serve to further tarnish the reputation of an institution that is already poorly understood by many Americans.

According to the Washington Post, being in bankruptcy (i.e. being bankrupt) indicates that a person, business entity, or governmental organization either cannot pay its debts or has debts that are no longer worth paying (as in the case of American Airlines, which recently filed for bankruptcy protection with more than $4 billion in the bank).

Individuals and companies enter bankruptcy protection voluntarily and consciously, which the United States has clearly not yet done. Further, despite the country’s admittedly high debt (which can be calculated as 68 percent of the GDP or as 99 percent, depending on whether a person looks at gross debt), it continues to pay its creditors.

Other countries reportedly still eagerly buy U.S. debt because it remains one of the surest bets on the market, especially in light of the financial turmoil currently rocking the Euro zone. If the United States stopped repaying its debts, it would lose this “rock star” status among investors and would likely be unable to borrow money or conduct other business transactions with its global neighbors. This seemingly indicates that continuing payments on debts makes financial sense for the nation.

Bankruptcy’s Historically Bad Reputation

While Paul’s comments about the nation’s current relationship to bankruptcy protection may not be accurate, they are not entirely surprising, either. Despite the benefits bankruptcy can bring to individuals and businesses, bankruptcy is often maligned by the media and individuals who don’t understand how it works.

Many businesses that have reorganized under bankruptcy have often emerged as stronger, sleeker, and better operations. The bankruptcy court allows them to continue serving customers and to contribute to the overall economy in the U.S.

Americans who have the safety net of personal bankruptcy available to them may be more free to innovate and take risks than those citizens in countries where bankruptcy protection is more limiting.


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