Overview
“Insoluble insolvency” refers to a state where a sovereign entity’s long-term fiscal obligations—such as entitlements and debt—cannot be resolved through conventional means like tax increases or spending cuts. Coined by Dr. Jim Tozzi, this concept describes a systemic, mathematically unsolvable condition where a government’s liabilities exceed its assets without fundamental structural change.
Key Aspects of Insoluble Insolvency:
- Definition: Unlike standard insolvency, which is a temporary or rectifiable inability to pay debts, insoluble insolvency is a condition in which an entity’s intertemporal budget constraint cannot be satisfied.
- Context: It is often used to describe severe, long-term fiscal imbalances, particularly regarding the U.S. government’s financial obligations.
- Distinction: While corporate insolvency is usually managed through restructuring or bankruptcy, “insoluble” insolvency implies that standard, or even extraordinary, economic adjustments cannot resolve the structural debt problem.
- Origin: The term is associated with Dr. Jim Tozzi and the Center for Regulatory Effectiveness (CRE), often appearing in analyses of sovereign debt and long-term fiscal policy.
Background Information:
- Insolvency generally means an entity’s total liabilities exceed its assets.
- This specific term, “insoluble insolvency,” is not typical in standard economic or legal literature but is used in debates over sovereign debt, as seen in publications from TheCRE.com and discussed in forums on TheCRE.com.
For more context, see the original definition from TheCRE.com or the discussion on the origin of the term on TheCRE.com.
