Can We Privatize the National Debt?
Our national debt is at $13.5 trillion and growing. At current Treasury rates of around 2%, each billion dollars of debt costs around $20 million in annual interest payments. That means taxpayers are on the hook for $270 billion each year, with no reduction in principal.
With Treasury bonds paying only 2% interest, how do you suppose we are going to be able to attract buyers for all of our Treasury bonds? Obama’s answer is to “monetize” the debt — have the Federal Reserve buy Treasury bonds on the open market. But where does the Federal Reserve get its funds? They print it.
Simply printing money is only a short-term solution. Eventually, most of the foreign owners of our bonds are going to start noticing that the value of our inflated dollars are sinking faster than the 2% interest being paid. Pretty soon, the market is going to demand higher and higher interest rates in order to attract investors to our devaluating paper promises. And what do you think the cost to taxpayers will be when interest rates return to their historic rates of 4% to 6%? Suddenly that cost to taxpayers could easily become a trillion dollars each year.
Is there an alternative solution? Yes, and it’s exactly what a GOP candidate in South Carolina’s 6th Congressional District is proposing.
Instead of creating a VAT tax, or raising the rates on “the rich,” or simply ignoring the problem and following the historic path of places like Argentina, where it took a grocery sack full of cash to buy a Big Mac, why not simply eliminate the government’s debt obligation?
Why not do what real family households do when they are asset rich and cash-flow poor? Why not simply sell off some assets and pay down the debt? We all can banter back and forth over how much the national debt is, but does anyone have any idea what the nation’s assets are worth?
In 1995, the Claremont and Cato Institutes estimated the nation’s asset value at around $55 trillion. That was 15 years ago, when there were far fewer dollars in circulation diluting asset value. If we can assume a current asset value of, say, $60 trillion, then resolving a $10 or $12 trillion debt shouldn’t be that difficult.
Recall the S&L banking failure of the early 1990s. The Fed created the Resolution Trust Corporation (RTC) to liquidate billions in bank REO assets and was wildly successful.
What if we had a congressional “BRAC-” like committee that was given the task of selecting which military bases to close after the collapse of the former Soviet Union? Our new “BRAC” could choose one dollar out of every six dollars worth of federal assets and have Congress approve the sale and let a new RTC handle the liquidation.
Since there isn’t enough cash in M-1 or M-3 to facilitate the sale of that size, why not simply allow the “seller” to finance the sales of these assets? That way, in banking terms, we would convert the government’s “non-performing” assets into mortgages which could then be used to collateralize securities that are then exchanged or swapped for our outstanding Treasury bond instruments.
For example: I buy a federal office building for $5,000,000. I put, say, 10% down, and the seller (the Fed) finances the remaining $4,500,000 balance at a point above current Treasury bond rates.
Sell national assets to the highest bidder? I have an issue with this plan. Are we just giving the Chinese a way to buy even more of America? There may be a trade-off due to the values of the respective currencies, but that can hurt both ways.
Then again, maybe the controlled Forex status of China is an advantage. We can’t afford to invest, they can, but only because of artificially inflated Chinese money.
Two main questions remain:
1) What happens if the dollar goes up
2) what happens if th yuan does not.
I didn’t see any reference to selling to non-Americans. That does present some problems, and I checked to make sure about that, but he doesn’t seem to be suggesting sale to non-citizens.
Yes, there are many billions just sitting on the sidelines, and the left huffs and puffs about why the “fat cats” won’t invest it. They won’t invest it with so much uncertainty, and I don’t blame them. But if sale of government assets could be worked out as described . . .
I really like this privatization idea!
Well, one thing we could do would be to sell all the stuff to foreign investors then nationalize it like some of the other countries have done.
“Are we just giving the Chinese a way to buy even more of America? ”
They can’t pack up a building and ship it to China.
I think this article missed the part about Privatizing.
Zak-D: “I think this article missed the part about Privatizing.”
Zak… Think of it this way. Right now, you, me and every other taxpayer is on the hook for servicing the interest payments due on our accrued national debt.
As stated in the article, the annual interest payment is $20 Million for each and every BILLION of debt. If federal assets (as selected by a new BRAC like committee) were sold and financed by the Fed, the buyers of each asset would be making their mortgage payments directly to Washington.
Now, what if your retirement pension fund owned (using the example in the article) $4.5 Million in Treasury Bonds. Your Pension fund would be receiving interest payments totalling $90,000 each year. Those interest payments would come from taxpayers, via the federal government.
If the Fed took that $4.5 million mortgage that they are holding and traded it for the $4.5m in Treasury Bonds in your pension fund, you STILL would have $4.5m worth of assets, only the interest income now comes from the buyer of the asset (not the Fed or the taxpayers)… hence, as the interest payments are no longer an obligation of the taxpayer, we’ve now “privatized” that portion of the national debt!
As someone else posted here, the Federal government owns about three out of every ten acres of land in the U.S. It also owns other tangible assets like aircraft, ships and equipment. It also owns billions of dollars worth of intangible stuff like drilling rights, air rights, broadcast rights, etc, etc… So this isn’t rocket science. Its just “common sense”.
And since there’s a lack of that commodity in our current congress, you need to log onto Pratt’s website and send him a few bucks so that he can implement his novel proposal and save us all billions in interest payments that taxpayers are shelling out each and every day.
Great idea. We could also sell the Interstate highway system for over $1 trillion to investers who would charge tolls. The US can also sell the USPS and Amtrak, although the proceeds would not be very much. At least the losses would stop. Uncle Sam owns about 30% of the land in this country so there has to be trillions in potential RE sales there. The big remaining problems will be in unfunded liabilities – Social Security and Medicare. The SS liabilities can be almost eliminated by increasing the retirement age to 70 but we are still left with about 70 trillion in unfunded Medicare liabilities. Short of “death panels”, an idea I find unacceptable, I can’t think of too many good ideas. We could outsource some medical care to cheaper countries. I heard that the United Kingdom has sent some patients to India for surgery.
It is inevitable that medicare will be converted into a voucher system. The vouchers will have to be used to buy Health Insurance. (I believe this is essentially Paul Ryan’s proposal.)
The current Medicare system has a fundamental and nation killing flaw, which is that the ‘benefits’ are unlimited. It simply cannot stand without destroying the economy. What if a procedure is invented that adds a decade to everybody’s life, but it costs $1 billion per life? This is why there is so much talk of rationing. Rationing has to happen.
The beauty of vouchers is that it lets markets solve the problem. And markets are the only mechanism capable of solving it. People will choose the insurance solutions that work best. The solutions will not be eternal life (as Medicare essentially commits to), but the solutions will allow the country to survive economically.
In your example, one thing is missing. Why do I want to purchase a Federal Building? Do I want to use it for some new purpose? What is the driver behind the new purpose? I miss the motivation required to create something new.
OR
Do I want to continue using it for it’s current purpose and collect rent from the government(read me the taxpayer).
Lots of office space, or maybe the location is good. Perhaps you just want to tear it down and build something else. Somebody will find a use for it, even if you can’t see it.
Money is just a communication device. The problems start when people start seeing the communication being offered as bulls***. The money then becomes worth less than literal bulls*** which in a literal sense still has some value as fertilizer.
I really don’t think Obama, or any Democrat, understands this, nor do a lot of Republicans.
What an interesting and original idea! But I would like to hear more about what the assets are that would be privatized (sold).
Good idea,but I have a more radical idea.Let’s We The People forgive We The People’s national debt,and never again deficit spend.If you find yourself in a hole.STOP DIGGING.
ethanthom: “We The People forgive We The People’s national debt”
Okay, tell that to all the retirees living on the interest income from the treasury bonds that their retirement savings are invested in. All the folks that didn’t trust the stock market because U.S. Government Treasury Bonds are “SAFE”…
At least this way, they still have their interest (and principal) paid to them along with the same US Government guarantee of safety, only the payment isn’t coming from taxpayers via spend-happy politicians.
…but you know that if we instituted a system like that, as soon as the Dems are back in charge (which will eventually happen) they’ll spend $2 for every one they’re now taking in. The debt would increase, and eventually there’ll be nothing left to sell off.
I’m reminded of a story I once heard about the Russian navy selling off ships’ fire extinguishers to pay for diesel fuel to keep the ships running after the coup. Not sure how true it is, but the metaphor hold.
Still…I’d much rather see this than simply monetizing the debt, which would unquestionably lead to hyperinflation.
The debt question is similar to the immigration question in that whatever solution is found, it needs to come with safeguards and mechanics to prevent it from ever happening again – like a gold-convertable currency/balanced budget amendment/fair tax combination…
A chance worth taking. After all, not only would we be selling off assets, but those assets would then be incapable of being used by the Federal government for other purposes. So not only would we take in money, but we’d also ditch the capacity of government to operate out of bounds.
Great article! The more you think about it, the more plausable it seems….
Actually, if everyone will push that change, the next logical step would be to pass a balanced budget amendment. We can then privatize the bureaucracy, one department at a time…..Shrink the enormous, king-like power of the presidency by turning each department into a ‘think-tank’ with the enforcement power returned to the individual states.
If we can shrink the federal government one department at a time, think of the future as a return to freedom….
For example: I for one believe the only answer to the Department of Education is privatization and competition. Monopolies NEVER work for the good of the individual customer. Haven’t we read history? Don’t we remember the slothful arrogance of the telephone company when they had a monopoly? Now, with competition, we get RESPECT, RESULTS, and BETTER SERVICE.
Thanks for this article as it opens up a whole new direction which is practical and achievable.
I have long supported the liquidation of surplus “federal assets”. I don’t think that such assets are truly constitutional, unless the ownership is directly related to enumerated powers, such as national defense, court houses, etc. The beggaring of the States and municipalities, by having the surplus assets off the local property tax roles, beggars every other private property owner in the nation.
While I’d love to see Pratt remove Clyburn, it seems from the gerrymandered reality that it is unlikely. (Gerrymandering itself should be illegal, IMHO!) But this is an idea whose time is coming, whether Pratt is enbled by electionn to lead the charge or not.
I think you miss the point here, Mr. Pratt.
It has taken the government 25 years to ‘transfer’ some of these assets OUT of the public sector into administrative authorities like the Bureau of Indian Affairs, Bureau of Land Management, Department of the Interior and others using legislation, regulation, codification and bureaucratic thuggery to achieve their desires.
I’m all for using this smart approach, the problem comes in when government sells for a deeply discounted price to foreign interests and the balance ends up on the tax payers balance sheet, again. You see, honor and integrity, they don’t go hand in hand with government or big business any more. And frequently aren’t found in the common populace these days.
How nice. Corporate america puts 10% down on a $5mil purchase. The obligation in the retirement program now relies on the business to make payments. Just like any business, they can walk away if it doesn’t produce income and now the feds… taxpayers are on the hook for that retirement program. “Instantly, the principal [and interest] payments due on that $4.5m [now become] a federal government obligation.” I thought the right was all about being against entitlement programs.
We have seen how corporate america is concerned about the peasants that support this country. Now after moving production and jobs overseas and raping this country in the process of greedily amassing wealth you want us to believe in a scam like this? This only assumes there is value in such a purchase and will satisfy the necessary profit potential of such a transaction but hey… it’s a win win for the corporation that can just quit if it has to.
This would be another corporate gamble with no downside for the corporation if it doesn’t work. The potential loss to them is nothing. Even the assumption of profit here is suspect. Apparently entitlements are only evil when applied to the left.
The goal needs to be to get this government out of the hands of corporations. They are plundering the assets of this nation and destroying families and society in general.
If they walk away, we foreclose and sell the property to somebody else with the same deal.
The seller keeps the down payment and gets the asset back again .
Therefor if the down payment is sufficiently large then the buyer will not walk away of their own volition. At least that is how things work on this planet.
This idea really needs to be explored.
Selling foreign assets might lower the deficit but still misses on how it got up so high in the first place.and national parks need to be kept animal have just as much right to live here as we humans do how long will we survive if we drive animals into exciton? hard to say. it’s like nuclear weapon to terrorist
Arnold,
Re: Selling national parks… please google “Conservation Easements” and read about how the easement remains in perpetuity with the land regardless of ownership, for ever protecting the property from adverse development. The national parks could easily sell, subject to conservation easements that would mandate perpetual protection. Currently there is millions of dollars worth of private lands subject to conservation easements that forbid developers from building beyond that which was specified in the original easement. Please do a little research on the subject.
Besides, who do you really think would be a better steward of… say…Yellowstone National Park, The Government’s park service or BLM that allows fires to burn millions of $$ worth of homes each year? Or sell the property to an entity like Disney that would have a vested interest in preserving the property.
Jim Pratt has exactly zero chance at winning. Clyburn is guaranteed a seat in this district because of the Voting Rights Act. No Republican has any chance whatsoever of winning the seat. Moreover, the story say that the GOP has distanced themselves from Pratt because of his tea part connections. That isn’t true. Anyone who knows SC politics knows that you don’t want ANY republican running in the 6th because all it does is increase turnout for Clyburn, thus making it harder for conservatives to win statewide in South Carolina. The best thing conservatives could have is an unopposed Jim Clyburn. It keeps Clyburn’s supporters home in a midterm. The second best thing for conservatives in South Carolina is to have a weak useless candidate in the 6th. The worst thing for conservatives statewide is for a strong vocal conservative candidate in the 6th who will have zero chance of winning because the way the district is drawn. It increases left wing turnout making it harder for conservatives to win statewide, or for local offices.
There is a very serious problem with this idea.
Unless fool-proof brakes are put on our political criminals, the debt could be retired by selling off national assets……..and the problem will re-occur in a few years!!
The real problem isn’t the debt, it’s the politicians.
Frankly, I think it is irresponsible to even propose the idea before a mechanism is derived to block the bandits. And many are going to have to be imprisoned or perhaps executed before that will happen.
The brakes you speak of already exist, it is voting. It has to be the voting of an engaged electorate, that is paying attention and throwing the bums out, like what we have now. The right kind of candidates have to be stepping forward, also, another sign of an engaged electorate, and we do see that now.
“Fool-proof”? I think we are back to “eternal vigilance” on this one.
This idea gives me hope. I used to try to think of how we could up our production of value in this country enough to prevent our next generations from being debt slaves? Infrastructure, power plants? How about returning what the government has plundered from the tax paying public for so long? Brilliant.
Pete Morici, Professor and Economist from the University of Maryland, has written articles about this but his conclusions are not very cheery. I don’t know the subject like this man does but he referenced the Japanese Yen crash in the 80′s and how the Japanese being both a savings and regimented society used their savings to invest in their government debt. 1. The Japanese government stopped deficit spending long before the interest overwhelmed them. 2. The Japanese save maybe 7% of their income each year? Not sure of the exact numbers but is is far more than us. 3. The Japanese are regimented in their thinking and ideology. They are a nationalistic and if you don’t believe drive around Tokyo and look for the Chevrolet, Ford or Hyundai logo on cars. Dob’t see any? No surprise. We are that way only when there is an outside aggressor. The U.S. Congress and the president are an inside aggressor so those that didn’t vote for them that still have some money left are going to resist.
Or you can just get rid of the Agencies involved and have the GAO liquidate the assets.
That works extremely well as you get rid of the need to fund the agency (Agriculture, Energy, Education, HUD… plus things like Fannie, Freddie, Ginnie and Sallie), the stuff is sold to private hands and the Treasury gets income from the sales.
Its a two-fer without requiring anything more than shutting down useless agencies that drain money, increase the bureaucracy and have grown continually even during economic downturns. No more outgo for lots of new regulations and regulators, and real income from the shed physical assets of agencies that have not demonstrated their worth.
Having worked as a buyer in the federal government I can vouch for the fact that there is a lot of stupid regulations in place to control who gets to bid on contracts and who we had to go to for purchases. The Federal Acquisition Regulations (FAR) filled a set of binders 3 feet thick. Then there are the Defense Department Supplement to the FAR, known as the DFARS which added another foot in thickness, then the Air Force FAR Supplement which added another 6 inches or so and the Command supplement and the base supplements. All these had to be followed in order to make a purchase of an item or service at the Air Force Base where I worked. Each level had to add its own little bit to the pile in order to control some portion of what they were buying to keep the base running. The FAR has a section (look up part 19 to see) that describes a “small” business and when they get priority. About 4 to 5 inches thick. See it here.
https://www.acquisition.gov/far/current/html/FARTOCP19.html
Just an example of the wasted time that makes everything purchased by the government more expensive.
Proreason makes an important point. Selling stuff to get out of debt is a good move, but first we must change the bad habits that put us in this position. Spending is out of control. Unless spending is brought under control first, selling off of assets will make the situation even worse. Yes, selling to pay on debt is a good idea. But it is even more important to cut spending. There is no painless way out of this situation. Let’s prioritize spending, make some hard choices and stop spending like a drunken sailor.
As much as I’d like to buy a few National Forests there is a problem with this idea. A nation’s bonds are backed by that nation’s assets. Sell the assets backing the bonds and the value of the bonds will drop. Even now it’s questionable that current US bonds are fully backed by current US assets. So I think this idea might degrade the value of US bonds.
It’s better to fix the US cash flow and unfunded liability problems directly rather than to start selling granny’s jewels.
Of course, if you have a National Forest in Washington State or Oregon for sale, please give me a call.
“majority African-American, especially since it was our state’s GOP legislators that carefully gerrymandered the district so as to separate black and white families that live in the same neighborhoods, just so they can preserve their surrounding Republican congressional districts.”
I would respectfully remind you that the NAACP has spent years advocating and litigating to create “majority-minority” districts as way to ensure Black representation in Congress. The conservative Supreme Court justices have been the most critical of this approach. https://secure.wikimedia.org/wikipedia/en/wiki/Bush_v._Vera
Were GOP to oppose the creation of districts carefully designed to ensure the election of a Black congressman, they would, once again, be vilified as racists.
And when Blacks see their unemployment rates explode from less than 7% to a range of 16%-20% for the counties in James Clyburn’s District, and when they see their High Schools graduating less than 40% of their students, and when they see the few children that do make it through college leave the district to seek opportunity elsewhere… what are they to do? Should they continue voting for the failed policies of their NINE Term incumbent? Or should they vote to replace him with the other guy who lives & works in the district, has inovative ideas, like FairTax, Privatize vs Monitize the Debt, Provide young workers with their own Social Security Accounts… but happens to be of a color that the Legislature and SCOTUS didn’t want? I live in SC’s 1st Congressional District while my African-American Neighbor next door is in Jim Clyburn’s district. The district map of our street looks like a saw tooth instead of a straight line. How about we focus on having every IDEA represented instead of having every “COLOR” equally represented.
This could only work if we first eliminate a bunch of agencies and fired hundreds of thousands of federal employees and cut spending by reforming or eliminating entitlement programs. I wouldn’t object to either of those happening, but only when we prove that we’re committed to a smaller, limited government can we accomplish anything by selling assets, because the Congress and unreformed spenders in Washington will only run up the debt again.
Interesting thought. I’d support leasing for say ten years rather than outright sale.
Given how many of our resources cannot be developed because of bureaucrats and the environmental extremist lobby, we could get two birds with one stone here. Three birds, actually: we could require that the development be performed by American companies, though not under our government’s jurisdiction.
As a matter of fact, I was just idly wondering if the USA would be better off if Mexico ran California. There would still be corruption and incompetence, but in contrast to the situation under American governance, the state’s resources would be utilized. (The problem is how to prevent an exodus of Californian “progressives” who would do to the rest of the country what they’ve done to the Golden State.)
The problem will not go away by changing the creditor or changing the owner of property. The taxpayer will still be expected to pay someone for the use of whatever changes hands. The only thing that will fix the problem is to eliminate interest from the debt. This could be done with the stoke of a pen by changing treasury bonds into non interest bearing notes. A bit of a downer for retirement funds who are counting on collecting all the loot from taxpayers but people would get their money back without interest. Another more gradual approach would be to have a world dollar printed which could be interest free because it would be the property of the world bank which would have a pegged value to every other currency. The wealthy can hang onto their own money for as long as they can, but creditors would want the world dollar because they could afford to pay it back.
“This could be done with the stoke of a pen by changing treasury bonds into non interest bearing notes. A bit of a downer for retirement funds who are counting on collecting all the loot from taxpayers but people would get their money back without interest.”
If we’re going to break a contract with a “stroke of the pen”, why not really break it and refuse to pay the principle too? Why not just stroke that pen again and take money directly from people’s bank accounts?
What an absurdly short sighted and economically ignorant idea.
Flooding America with property would exacerbate the collapse of housing and commercial real-estate prices. Fannie, Freddie and commercial banks backed by real-estate would be even more insolvent. The potential value of federal property up for sale would plummet along with the property tax revenue anticipated following the sales. Furthermore, potential buyers would recognize that they’re being set up as cash cows with questionable property rights.
I’m not surprised that some goober proposed this garbage. Candidates suggest stupider things daily. What I’m surprised at is that after 2 days and 25 post, not a single Pajamas Media reader smelled the oder.
re. Bill Carlson. I’m not sure it is so economically ignorant. The market was not permanently flooded by the RTC sell off and some folks got sweet deals which were economically beneficial to them and the community as a whole. It didn’t hurt the market in the long run. It is refreshing to see a new idea being proffered now and then. The same old stale stuff makes for a bland political dinner. We need to think outside the box. By the way “oder” is actually spelled ODOR. You may want to spell check your zinger line. Just sayin’.
“The market was not permanently flooded by the RTC”
Brian, the market was not not in this severe of a decline and there was not 13 trillion in assets to sale/revenue to raise. And your right, spelling will be the death of me. I can’t do it to save my life.
While candidate Jim Pratt is proposing to sell federal lands, Congressman Gohmert warns us that a portion of the Consolidated Land, Energy and Aquatic Resources Act (CLEAR Act) of 2009 (HR-3534) contains a provision for the federal government to spend $900 million a year to purchase private land over the next 30 years, for a grand total of $27 billion dollars over 3 decades.
Gohmert noted that the federal government already owns or manages about 30% of the land in America, most of it in the western states. He said that the federal government has failed to maintain the federal and national parks that it already controls and is $3.7 billion behind in basic maintenance costs, according to one report. When land is federalized, it is taken off of the tax payroll. Note that this bill passed in the House with 209 to 193. I’m sorry to say, both South Carolina Democrat congresscritters (John Spratt & Jim Clyburn) voted in favor if this bill.
The foreign debt is now running at 12 trillion. I don’t think that there will be too much appetite for more.
When Mark Sanford first became governor of South Carolina (back before he discovered the “Appalachian Trail”) he looked at our state’s budget deficit and then he looked at the state’s substantial assets. He immediately started a program of selling off select un-used assets, like the 2.5 acres of state owned land next to the I-526 intersection with U.S. Hwy 17, or the 20-25 acres at the former State Port docks in Port Royal, and put them up for sale. These two assets alone gleened over $10 million for the state, which the governor used to reduce our state’s debt obligation. At 3% interest, that $10 million reduced the taxpayers obligation to pay out $300,000 in interest payments each and every year. Over the past 8 years, our wondering governor has quietly gone about selling off other unused state owned assets that further reduced our state’s debt obligations saving taxpayers from having to shell out hundreds of thousands in interest payments.
In a micro-scale, Sanford has done exactly what Jim Pratt is proposing that the federal gov’t should do. When the new federal court house was built in Columbia several years ago, the old court house was left vacant and is still that way today. That building has to be worth several million dollars. If it were on Richland County’s tax rolls, it would be generating over $72,000 in local property taxes for our schools, police and fire departments that desparately need funding. But since the fed owns it, our county infrastructure gains nothing and taxpayers are shelling out between $120k to $150k each year in Treasury Bond interest that otherwise would have been paid off with the sale of this building. So our local county gets screwed and our nation’s taxpayers are screwed…and local property owners get screwed because they have to make up for the lost property tax revenue that government property doesn’t pay. All because our federal government owns a building they abandoned 8 or 10 years ago and hasn’t done anything with it since. I think Pratt’s idea is just the ticket for at least paying down our nat’l debt. Even though I live in Joe Wilson’s district, I sent Pratt $25 so he can have a better shot at beating ol’ “Elephant Dung” Clyburn.
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