Javin as far I can figure there are only 3 ways to make a substantial dent in our 15 trillion dollars of debt.
1.) We pay it off. This is not a viable option since the debt is so huge and since we are STILL spending way more than we collect each year. There is no way to pay off that much debt, period.
2.) We default on the debt and give the bond holders 20 cents on the dollar. This is what usually happens in a business bankruptcy and what the Greeks did. Problem is the rich investors and banks HATE to take a loss and since they control the money that keeps us going, defaulting on the debt seems unlikely to me. I hate taking a loss too (I’ve had my share), but if you’re going to invest in something that is clearly insolvent, then you better expect some negative consequences at some point.
3.) The FED goes on a money printing spree (via their QE programs or other means) and devalues the dollar so that each new dollar is only worth 50 cents of the old dollar. We would still have 15 trillion “dollars” to pay off, but since we would now be paying that with new dollars that are only worth 50% of the old dollars, the debt burden would effectively be cut in half. This is probably the option that hurts the most people and hence that is what will probably happen (old Wall Street axiom there). The bankers and investors take a loss on their bonds and the rest of the country gets hit with much higher prices on the things we buy. How does $8 gasoline sound? $6 milk? On the other hand, people underwater on their mortgages may see a windfall.
Options 1 and 2 would require the Congress to do something, so those won’t happen. Option 3 in under the control of the Federal Reserve and they can and will act so I suspect that is what will happen….at some point.