“Government debt problems in Greece predictably have generated a great deal of domestic hand-wringing over nosebleed deficits and spending in the United States.
By now many people are familiar with what the experts say is ahead, including, but not limited to, a downgrade of U.S. debt, no more “kindness of strangers” as investors the world over turn their backs on a country lacking any spending discipline and, finally, skyrocketing interest rates as U.S. Treasury yields rise to match their well-earned junk reputation. To believe the experts, the U.S. is Greece, only larger, and the Titanic is nearing the iceberg.
Let’s hope. Indeed, rather than fear what some say is inevitable, anyway, it’s time we learn to love the idea of a U.S. default. Contrary to conventional wisdom, government spending is our economy’s crisis, while a default would be its cure.
[Lila: No. Stopping government spending and paying back legitimate borrowing is the cure. Default is just more of the irresponsible behavior].
For Americans to worry about a debt default is like the parent of a heroin addict fearing that his dealers will stop feeding the addiction. In truth, just as heroin withdrawals would mark the beginning of the addict’s recovery, so would a refusal by investors to funding more federal waste signal a United States on the mend.
The reason is basic. Government spending is the great, economy-sapping tax on the American people. Lacking any resources of its own, when our federal government spends, every dollar it consumes represents money that would have remained in the private sector were Washington more circumspect with other people’s money.
Simply put, dollars spent by Washington represent a near-commensurate reduction of U.S. wages in the for-profit sector of our economy. Governments, by definition, cannot be generous, because the money is not theirs.
Government waste for too long has served as the awesomely heavy anchor on U.S. economic growth. Government spending is our economy’s unspoken ill, and the day a default leads to the starvation of this economy-retarding beast is the day the U.S. economy really starts to boom.
At present our economy suffers the “seen” of the proverbial Bridges to Nowhere, earmarks for “essentials,” including a “Totally Teen Zone” in Georgia, and hundreds of billions to prop up the Fannie Maes and Freddie Macs of the world so that those who can’t afford homes can have them. Of course, the tragic “unseen” here is how many potential Googles, Microsofts and Ciscos never saw the light of day thanks to our allegedly benevolent overseers redistributing what is limited capital.
Federal pay presently exceeds private pay by 30 percent, according to some estimates; this despite the job security offered by federal work, not to mention the benefits. A default would mean that many government workers would have to join the productive sector of the economy, and their wages would match their output. Instead of harassing the productive, as so many government workers are presently paid to do, they’d soon be helping create real wealth.
The austerity forced on Washington might well lead to the closing of U.S. military bases globally so that other countries might start paying for their own defense. For the libertarians and liberals alike who desire a less interventionist military, spending limits wrought by a default may well lead our politicians in a more cautious direction when it comes to foreign invasions.
[Lila: foreign nations aren’t asking the US to defend them. The US wants a “defense” umbrella as an excuse for global surveillance to keep a thumb on the scales in favor of its own interests].
What about investors? Won’t they get burned? Yes they will, and this will be a good thing. Much as the alcoholic needs to be weaned off the Scotch, so do investors need the rough discipline of the markets to force them to cease doing what’s easy, as their safety is the taxpayer’s burden.
[Lila: By the same token, I should stop honoring my contracts to teach my associates the rough lesson they should never do business with me? ]
With the world’s alleged safe havens gone, a great deal of capital globally would be reoriented away from wasteful governments and into the hands of the responsible. If a U.S. default drives a rethinking of all investment in government debt, the world economy will thrive as limited capital flows to the enterprising instead of the profligate.[Lila: The moral position would be to pay back legitimate debt and repudiate illegitimate. That will mean austerity measures for the population as well as austerity for the elites. That means no more space and military boondoggles, no more pork, no more fanfare, no more nukes, no more business subsidies. That means a 50% or even confiscatory tax on the banks involved in the financial mess. Those are the people who need a lesson, not hapless and innocent investors all over the world who have little choice in most places except to hold US dollars and bonds]
Interest rates may rise, but this will serve as a long-term positive for true market forces setting the cost of newly free capital. Interest rates are the intersection of demand for, and supply of, money. The sooner market forces set these rates, the better. It’s a fair bet that capital soon would be plentiful at low rates for those possessing ideas actually meant to create wealth.
Somewhere in the not too distant past our leaders on the left and right became entranced by the false notion that pain, be it from bank failures, unemployment or government default, should be avoided at all costs. Nothing could be further from the truth. Pain, whether it’s the result of too much drinking, faulty lending, lax work habits or overspending, is the positive signal that healing is on the way.”
My Comment
Ah. I was wondering when I was going to see default by the US painted as the easy..and moral…way out. No mention anywhere in this piece that the US can pay its debt by reducing its military, getting rid of its bloated domestic programs, selling its assets, and growing its economy by bringing in skilled workers and entrepreneurs.
No. Instead, the author gives the easy way out. Stiff your creditors. Renege on your obligations. Dishonor your promises.
The only trouble with this is, reneging on your debt (by debasement of the currency) is precisely what encouraged the debt-aholism in the first place. It can’t be the solution too.
The first step for addicts is to face the truth. The second is to stop borrowing. The third is to pay back the people you injured through your addiction.
When you don’t do any of that and just renege on your debt, all you’re doing is what you’ve been doing all along….running away from reality, rewriting it to suit your convenience, and failing to honor your word.
The correct course of action isn’t hard to see:
- declare the bailouts illegal and jail those who were major actors in it
- seize the assets of the mega banks/financial institutions involved in manipulation and fraud under RICO
- retroactively impose a massive penalty on the New York financial industry for failure to self regulate and for damage to the world economy
- cut back on the military to the minimum needed for defense of the borders and coastal waters
- seize the assets of wartime contractors involved in fraud and over-billing
- close up most foreign bases, start reducing nuclear weapons, with a target of zero
- allow foreign creditors to purchase real assets in the US
- dismantle all federal programs (including business subsidies, think tanks, aid programs, private-public structures etc.)
- eliminate personal and corporate taxes completely
- undo licensing and regulations beyond the bare minimum to encourage competition
- encourage skilled (repeat, skilled) legal immigration to the fullest
- …and get out of the way…
Then watch capitalism do the trick. The best way to honor those who’ve fallen in the line of duty, as they saw it, is to honor the ideals that built this country.