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No, iceland did not go bankrupt paying themselves, they contracted large foreign debts to support large investments in foreign financial assets as financial intermediaries. The value of the assets they invested in fell while their liabilities remained at full value, and that forced default. It was precisely the fact that the sums involved were 10 times the scale of the actual iceland economy and in no way connected to it, that made it difficult for the country to make up the shortfall out of its existing capital. Nothing remotely of the kind is happening here, and can't in the nature of the case, for a single economy that is a quarter of the entire world's.

And no, benefits are not going to foreign anyone. Our external trade relations are determined purely by the domestic savings rate and whether it suffices to finance our rate of capital investment. When we do run an external deficit, the sole question determining whether it enriches us or not is whether the cost to service that capital is higher or lower than the returns we get from the extra capital investment it allows us to make, beyond our own savings.

If we invest at a loss, even the 2-3% we pay today can exceed such returns, but if we invest in a businesslike rational manner and earn businesslike 10% returns on capital, borrowing modestly to support investment here is not going to impoverish us. If instead we save it ourselves, then we earn that 2-3% initial bit as well. If this strikes you as a great deal then run out and save all you can at 2-3%. If that seems a tad low and you think you can do better anywhere, then it isn't so bad a deal to borrow at it.

Get rid of one entry accounting. There is no such thing as a net debt. Debt is not net worth and does not mean it is negative. By all means, let's reduce wasteful spending, stop growing an inefficient welfare state, and pay for the services we actually use. But the reason to do all of these things is to have decks clear for whatever comes and our options open, and not because we will be ruined by paying 3% interest rates.

And no, benefits are not going to foreign anyone.

You can't make a living moving money from one pocket to another. Once the government is involved, it's costing you money just to do that.

By all means, let's reduce wasteful spending, stop growing an inefficient welfare state, and pay for the services we actually use.

Why? How can it be a "wasteful spending" if it's going to Americans? By your logic, there's no net loss in that equation. Where's the "waste"? If we're paying for stuff we aren't actually using, it's all good as long as we're buying it from ouselves, right?