What the Republicans Should Do

Declare that raising the U.S. debt ceiling is off the table. Present to the public a specific plan as to how the U.S. should prioritize spending of available cash: payments first for the military and veterans, then for Social Security and Medicare (but not Medicaid), then for creditors (except for hostile governments such as China and Russia). Tell the President that he must stop wasting his time thinking about a higher debt ceiling and that he must instead decide on his own plan for prioritizing spending. Acknowledge that the government has defaulted on its obligations many times in the past. Acknowledge that the government is bankrupt and cannot pay most of its obligations. Stop borrowing. Decide on an order of payment to creditors, and propose it to a bankruptcy court. Renounce and dismantle the welfare state, including Medicare, Medicaid, Obamacare, Social Security, food stamps, unemployment insurance, housing and housing loans, funding for education, funding for art and journalism, funding for science (other than for military purposes), minimum-wage and other labor laws, anti-trust laws, regulation of insurance, regulation of energy, regulation of transportation, FDA, SEC, NLRB, OSHA, EPA, etc.

Some critics of the Republicans claim that the Republicans must compromise, that they control only one half of one branch of government, and that therefore they cannot expect to have things all their way. But the whole purpose of America’s system of checks and balances is to make it possible for one part of one branch of government to say “No” and make it stick, and thereby put a halt to tyranny.

One of the better policies I have heard is this one from Rep. Steven King (R-IA), speaking about what would happen if the U.S. debt ceiling is not raised:

If Congress doesn’t put a prioritization bill on the President’s desk for him to sign, that—I will say in this order—pays the military first, services our debt second, Social Security third, and Medicare fourth, … then the President has two scenarios. One is he can do nothing and let all of his agencies do catch as catch can … which would be chaotic. The other thing he can do is set the priorities himself. And a responsible commander-in-chief sitting in the Oval Office would have by now assured the world financial markets and the domestic investors in American securities that he will service our debt and pay our troops. He’s not done that.

I would pay Social Security and Medicare before debt service, as I will explain later. More importantly, I would take Rep. King’s approach much further.

The Republican House of Representatives should declare that the debt ceiling will not be raised. It does no good to postpone the inevitable. The U.S. government is bankrupt. The official debt is more than $14 trillion dollars. But that debt is only a small part of the true debt. Unfunded liabilities for Medicare, Social Security, prescription drugs, etc. make the full debt more than $100 trillion. (See the U.S. Debt Clock.) That amount is roughly twice the total net worth of everyone in the country. Default is inevitable.

Some claim that the U.S. is solvent because of its ability to tax its citizens. The ability to tax citizens is not an asset; it is an M.O. (modus operandi). It is immoral to tax citizens in the present for the tyranny of the past.

Keep in mind that raising the retirement age for Social Security and/or Medicare is a default. Raising the retirement age from 65 to 70 is cutting the number of years of benefit payments from roughly 15 to roughly 10 (if people even manage to survive from age 65 to 70 without their Social Security and Medicare “benefits”); that’s a default of more than one third. Raising the retirement age is also increasing, by roughly 10%, the number of years that individuals must pay into the system. Finally, raising the retirement age is also delaying by five years the start of benefit payments. All of these defaults amount to a default on roughly half of the full promised payments; that is, these defaults are a “settlement” to pay out only 50 cents on the dollar.

Moreover, it is simply false that the U.S. government has never before defaulted on its credit obligations. (See A Short History of US Credit Defaults and All the Talk About Debt Default is Just Talk.) One egregious default, during the Administration of President Franklin Roosevelt, was the government’s default on allowing U.S. citizens to redeem their Liberty Bonds for gold at the rate of $20.67 per troy ounce.

In the past century, the government has debased the currency to the extent that one ounce of gold, which used to be equivalent to $20, now costs more than $1600. In effect, the government is paying out less than two cents on the original dollar.

Debasing the currency is a kind of default that is worse than a default on repaying a loan. At least a lender knows that he is incurring a risk, and a lender can choose not to make the loan in the first place. Debasing the currency is outright fraud and theft; it is defaulting on the promise merely to be a storage facility for citizens’ money, that is, for citizens’ gold.

Since default is inevitable, the government must decide three things:
1. What real assets does the government have that can be used to make partial payment to creditors?
2. What is the most ethical order of payment to creditors?
3. What should the government do to continue the government after default?

1. The main real, saleable asset in the possession of the federal government, as far as I know, is land. The federal government “owns” roughly one third of the land in the United States. This situation is a disgrace for a country based on the idea of property rights. The government should immediately begin selling all of this land, except for the land needed for national defense. The cash realized from the sale of this land should go into a fund for paying creditors, in the order described below.

2. The most ethical order of payment of past obligation is as follows. First is payment to veterans. Once this obligation is covered fully, the next in line are Social Security and Medicare. At the same time, all withholdings for Social Security and Medicare should halt immediately. Needless to say, no new obligations for Social Security or Medicare should be incurred. Once the fund for paying creditors is exhausted, Social Security and Medicare benefits should come to an end. I do not know how long the money from land sales can keep such benefits going, whether for one year or ten years. But whatever the duration, that should be that.

What debt should come next, if any money from land sales is left over? Next in line should be holders of formal debt instruments (such as Treasury bonds), except for hostile governments such as China, Russia, and Islamist governments (and government officials) such as Saudi Arabia. But the question is probably moot, because I doubt that there would be money left over for repaying any formal debt instruments.

Why should Social Security and Medicare recipients come before holders of debt instruments? Social Security and Medicare recipients were forced to pay into the system. They had no choice. Holders of debt instruments chose to lend money to the government.

3. If the government defaulted on its debt instruments, how would it be able to borrow again, and wouldn’t the interest rates charged to the government be sky-high? The answer is that the government would not be able to borrow again (for a long time), and would not have to borrow again; both of these things would be good.

What would the elderly do without Social Security and Medicare? I have good news for the elderly. Their children and grandchildren would no longer have to pay roughly 15% of their income into these fraudulent, tyrannical systems, and would therefore have more money with which to help their parents and grandparents if necessary. Social Security and Medicare do not change the mix of young and old; they merely force the young to pay for old strangers. What about the elderly who have no children? They probably had more opportunity to save (since they had no children to raise), but they also can rely on the charity of millions of Obama supporters, many of whom are very wealthy.

What about recipients of Medicaid, food stamps, unemployment payments, and other welfare programs? These people should continue to receive benefits—in the form of loans, not outright payments—for a few weeks or so, and then they should be permanently cut off, cold turkey. And they should not be allowed to vote again until they pay back the loans, with interest. These recipients paid nothing into the system (except for some small payments for unemployment insurance), and deserve nothing out of it. But I have good news for these people. With the repeal of minimum-wage laws, these people would no longer be prevented from earning an honest living merely because of having low earning power; they would be free to start at the bottom and work their way up. And with the repeal of regulations against business, these people would have much more opportunity for honest work. Freedom is worth far more than government handouts.

What about holders of worthless Treasury bonds? I have good news for them. There would be no more income tax, either on individuals or corporations. With the end to the welfare state, the government would need only one quarter of the revenue it takes from citizens today. And there would be no more fascist regulation of business. Freedom is worth far more than Treasury bonds.

What about China and Russia? I have good news for them. They can turn over their nuclear arsenals and weapons programs to the U.S., and think of all the money they would save.

What about Islamist states holding U.S. debt instruments? I have good news for them. They can drop dead and be with Allah.

7/30/2011: For the moral issue underlying the debt-ceiling conflict, see these recent posts:
Shared Sacrifice
“The Despoiling of Ability”
On the Backs of the Productive

One thought on “What the Republicans Should Do

  1. It’s seems a little funny to take money from a creditor and then to turn around and say, “I’m not going to pay you back because you’re hostile.” In what sense is China any more hostile now than it was when America started borrowing money from it? You can’t have your cake and eat it, too. If you deal with the mafia, then you deal with the consequences of dealing with the mafia.

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