What Will happen when Federal Entitlements Implode?
The main options I see are:

1. Imposition of marshall law by a highly centralized and dictatorial federal government that will ration resources as it sees fit, or
2. The abdictation of responsibility by the federal government and return of all welfare entitlements and associated taxes to the states, where this constitutionally belongs.

The first option might be violent and involve deprivation of life and liberty. The second option might be more peaceful and without deprivation of liberty, but force burdens to be met at lower levels of society with the end result that individuals and communities would be forced to care for themselves in more responsible ways.

I was involved in organizing a major international conference in Geneva, Switzerland in 1985 that asked similar questions of the Soviet Union, because at that time it was feared the impending collapse might result in nuclear war. The objective of the conference was to help create scenarios for a peaceful collapse that did not result in war, violence, or bloodshed. Someone in the CIA later told me that the conference helped everyone to think about fresh ways to bring about a peaceful transition of the Soviet Empire, and that it likely helped to collapse to become as peaceful as it was.

Based on simple mathematics, a similar collapse is destined to happen in the United States. We either have to face this head on and stop it, or we have to plan for ways the collapse can occur peacefully.

Solving the Problem
In 1985, the Military junta blessed by the United States that had ruled Brazil since a coup d’etat in 1964 abdicated because it could not repay the loans it had acquired from the world bank and IMF and stuffed in the Swiss bank accounts of the ruling elite. At that point the president essentially abdicated by “declaring democracy,” leaving repayment of the debt to those that followed. It was a fiscal shock to the people, but Brazil eventually recovered. It was essentially a peaceful process, although most of the money the regime had fraudulently acquired was never recovered.

The collapse of the Soviet Union was similar except the ruling elite in the Communist Party became the owners of state industries turned private, in an attempt to preserve themselves at the expense of those who had no access to state property. Following the collapse greater anarchy followed and then the rise of the Russian mafia.

In the United States, one way to end the crisis would be to devolve entitlement programs in apportioned manner to the states, devolving taxes as well as responsibilities. It would be a method of declaring mea culpa and getting out of power before being run out of power by angry mobs.

However, the elite nomenklatura of the United States does not have as much state property that it can appropriate for itself, as their counterparts did in the Soviet Union. They may feel they have no safe place to land. South Africa addressed this problem by offering white leaders in government sufficient retirement packages from government not to become indigent or foment further revolution. This strategy might be something to consider when wondering what to do with U.S. bureaucrats that would lose jobs if they could not transition to managing programs for less money at the state level.