With Biden saying "We have to spend or go bankrupt" I'm wondering what happens if we do go bankrupt?

What would physically happen is that the government would default on it's debts. More likely, it would first radically inflate the currency (even more than it is currently) in an attempt to reduce the impact of that debt.

The US government, unlike individual citizens, cannot just simply declare bankcrupsy and start with a clean slate. If the government defaults on its debt, ie. US treasuries, which are held directly or indirectly by virually every citizen and business in this country and foreign investors and governments, the damage to the reputation of and confidence in the US governent, the US economy and and economy of the world would be pretty extensive.

Most likely, like SDD stated, the government will end up having to severely cut back on all its programs, such education, health care and defense and worse, print money in order to meet its obligations, which as we have seen again and again, in the US and around world, currently and in the past, is a recipe for disaster. Here's a Wikipedia article on "hyperinflation in Zimbabwe", i'm sure you'll find it at least amusing.

http://en.wikipedia.org/wiki/Hyperinflation_in_Zim...

You're right about one thing, it would be much better to let the american car industry fail - propping it up is just distorting competition and wasting resources. Of course the job losses would be a strain on the government's finances, but in the long run resources would allocated more efficiently (globally).

But obviously the car industry has powerful lobby groups to make the government perform such an inefficient action?

We let some of the auto system go bankrupt. Most of the bailouts are going to banks, and people don't understand why saving banks are so important. The easiest way to think about it is that when banks fail you loose lending capacity and it becomes hard to find loans. So why is that important? Think about it for a second. You buy a house using a loan and make payments each month. Without this system there is no way you'd buy the house when you did. You'd have to save up for decades before affording one. So basically your transfering your future income from the present to buy a house. This system works beautifully as long as we have a good idea that you actually would have had that income (meaning you can pay off your loan). Now the problem with finance is that banks don't just lend to home owners or consumers. They do a lot more lending to companies and businesses. Businesses take out loans to pay for start up cost, or big costs during operations and just make enough revenue to cover there payment costs. Just like most people couldn't buy a house today without a loan, a business couldn't be in business today with out loan. Without having credit availible it becomes very hard for an economy to function. New businesses can't open their doors, old businesses which are still viable can't stay in businesses because theres not the credit availble to cover their cost. Now lending is still going on, but its very limited which means that their is a high cost of obtaining a loan (even though interest rates are low, its hard to get loans). Which isn't helping our economy.

In poor countries one of the biggest problems for businesses and people all together is a lack of access to any kind of credit. Naturally we don't want the problems that are associated with that in countries which can have credit.

Now you may have some other questions like how can people keep transferring money from the future to present (borrowing), you have to remember that each individual loan is something thats finite. You can borrow 50$ from someone and have to pay them back in two weeks, then borrow 50$ from someone else and pay them back again in two weeks. You pay them interest, and you spend today. For businesses this is easier because a viable business can stay in business for hundreds of years (Gibson guitars for example).

Now what would happen if america went bankrupt. Well interest rates would go up and government would have to cut back severely. There would be a mess in global financial and economic system because america is the largest economy and 25% of the world's economy. It also is the worlds biggest financial market, and controls 50% finance. People in china would probably start commiting suicide. You'd likely see a global depression. Now to see what would happen go look at california right now, they are having a huge budget crisis. Republican's are unwilling to raise taxes so they're public school system is facing huge budget cuts, followed by health care.

Now the chances of the u.s. going bankrupt aren't really high. It sounds that our governments horribly in debt, the truth is we're tad higher than average. Because the u.s. is the largest economy in the world any stimulus we have to do to make a difference sounds huge. Its not that big when you look at the economies size (its actually small in terms of a size thats supposed to make a difference, if you believe that fiscal expansion works at all. Some people don't. Some economist don't, but 5% of G.D.P (700 billion) is about the size needed if oyu want to try an economic stimulus package. Whats worrisome right now isn't the amount of debt. Its how quickly where taking on debt. Basiclaly because of bush (and now Obama running a stimulus) america has been charging its credit card like a single woman during post thanksgiving day sales. Now if we stop spending in a couple of years no one is going to care about the U.S. debt. Because its an amount that people think we can pay off.