I have a radical idea for you: The US should default on its debt. Not just the bits and pieces that will come calling in August, but all the bits and pieces before and after that. All 11 trillion of it. Many people will be very unhappy about this, but I suggest that the balancing finger be the middlemost one.
Under this scheme, government would continue all functioning, or malfunctioning as the case may be, paying out promises such as medicare and social security and salaries, but setting debts as the lowest possible priority.
The budget would need to be instantly balanced, possibly by dramatic cuts in services (possibly a contradiction of my earlier "paying out promises such as medicare and social security" which needs to be resolved) and certainly with substantial increases in taxes and reductions in loopholes and exemptions. Why? Because after this there's little chance that anyone would loan money except at unacceptable interest rates. The US would have to balance the budget, even without a so-called balanced budget amendment (which is a stupid idea anyway), due to the high cost of borrowing. On the other hand, a fresh balance sheet could mean a possibility of being able to pay off any new debts, so maybe it would be less dire than I expect. The process of balancing would be made significantly easier by not needing to pay interest on the debt.
If somehow there remain money in the budget it would go to debtors, but in a certain order. Foreign debtors would have the absolute lowest priority. Semi-national, such as debt held by multi-national corporations, would be next lowest. Next would be debts to national banks or other holders. The highest priority would be individuals, in reverse order of the size of the debt they hold, meaning that the smallest debts are paid back first.
This order is not arbitrary. It is instead structured to serve the dueling needs of national interest and social need. Paying foreign citizens or companies while allowing our own to be shortchanged makes no sense from a nationalist perspective. Then the goal is to pay back those who are in most need of money, most likely those with the fewest holdings, since it's logical that someone breaking even in their budgeting will not be buying up much debt whereas the well-off can afford the temporary loss.
I see only one minor problem with this idea. That is that it would possibly destroy the world economy. Currently Treasury bonds are the safe bet. Everyone buys them if they want a safe place to put money. They're as good as gold, except possibly better because they don't have dim-witted hacks shilling them on TV to scared sheep (BUY GOLD NOW!!!). A complete default and refusal to pay any debt would be the end of that.
Beside potentially destroying the world, I don't see many downsides to this idea.
P.S. In regard to taxing the rich, is it really accurate to call them the "job creators" when they're clearly not doing so? Might as well call me a job creator.
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That "plan" relies a lot on the "what are they gonna do about it?" assumption. While true for most countries, it's near-certain that such a course would make specifically China extraordinarily unhappy to the extent of allowing us to experience the (post-)apocalyptic world as described in literature, film and games.
"The US should default on its debt." Are you shorting US bonds then? Just to walk the talk so to speak...
Well, that and you might well want to borrow money again at some point. Oddly enough, folks who might otherwise buy bonds will be more reluctant to do so in the future if you make it clear that you aren't going to pay them back.
@Rem: China is in a really bad position with regard to the US. As unhappy as they might be, a significant portion of their economy is based on us destroying our own economy by depending on their economy instead.
They really need us to continue buying their shit.
@Kleps: Job creation is the sole purview of John Galt - if you know where he is.
-Ben
When you owe the bank 100,000 dollars, the bank owns you. When you owe the bank 100,000,000 dollars, you own the bank.
China will never go to war with us for that reason, but we can never default on the debt for the same reason.
Wow, that lined up nicely; it didn't look like that in the text box (;
@Rem: Good luck for us, we spent all that money they gave us on military!
@Andrei: Investors bet on what they think will happen, not on what should happen. Note the difference.
@Anonymous: I have a solution to that: make it mandatory that all wars are paid for, either by taxes or pillaging.
@Ben: Who is John Galt?
@Stubborn: We're bribing them to not attack us by... taking their money? This is why finance makes no sense. :P
Perhaps more important is that the US is much too powerful relative to its natural resources. We do have oil, coal, and other mineral wealth, but we'd be too much work to subdue to be worth fighting for it. It's more cost-effective to go after any other country. That, or use multi-national corporations and hope we never notice that we sold out our country.
Calling the rich job creators drives me nuts. Most jobs are created by small business and with the top tax bracket in the US being over $250k, I can't think of many small business owners I know who would be particularly concerned.
The story appears to be: big bank makes terrible decisions to maximize short term profits so that CEOs get big bonuses, big bank fails when financial downturn hits, US government gives big bank billions to cover their losses, big bank CEO cuts himself another $100M check, congress in the pocket of big bank cry poor on behalf of CEO because the US government - who basically gave him his salary for nothing in the first place - wants to tax him $31M instead of $30M.
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