When the emperor sold Alaska for $7.2MM they did not knew that Alaska has huge oil and gas reserves. Now Alaska must be worth lot more.
The most amazing thing about all these silly discussions of the overwhelming deficit, the runaway spending, and insane schemes to raise more tax funds from the 'wealthy' is the general confusion about what is important when you have a insolvent situation. Popular pundit blogger 'faux' savants lay out the false choice that the only solution to the excess debt problem is outright default or default through inflation. The counter argument is that the problem can be managed by dramatic spending cuts or by raising taxes on high earners. Everybody forgets the only true axiom that indicates the way to solve the problem. Perhaps the axiom is too obvious for those who pass as well educated. In any case, the true axiom is: "The only way to solve an excess debt problem is with income" Someone who has really dealt with an insolvency problem will tell you that the first thing you do is identify your income, protect your income from waste and consider what can be done to increase your income. Once you have that under control then you break you debt apart from the aggregate and deal with each class of debt priority sepreately. Some you offer to pay and some you plan to cram down. In the end you use your income to do what you can do to acheive an orderly reorganization that recognizes the legal and practical priority relationships and leaves the creditors getting what they can get, not necesarily what they are owed. Now, these issues that are understand in the context of insolvency of an enterprise are only somewhat analogous to the insolvency of a sovereign but the principles are the same. The first issue is income. Income for a sovereign needs to be measured in terms of a percentage of GDP and not just as a raw number of money received historically or as a simple rate of taxation. When a sovereign considers its potential collection of revenue it is important to consider the strategy of obtaining both the numerator and the denominator in the objective of revenue maximization. Certainly the denominator is the most important part of the equation. The higher the denominator (GDP), then the higher the nominal revenue collection can be. If you understand this you will realize that taxes, 'qua taxes,' rather than social policy, need to be constructed so that they do not reduce GDP. I will not explain that here, let it just sit that there are taxes that do not materially hinder GDP expansion and there are taxes that do cause material long term GDP decline. This is where the national debate should be. How do we collect taxes and still foster growth in GDP? How much tax can we collect without causing GDP to decline? What taxes are the most effective at raising revenue? What taxes are the most destructive in terms of GDP growth. Clearly, monetary policy cannot get this job done. This is not to say that we should not cut government spending, that needs to be done too...in the same spirit as protecting and increasing revenue. You make cuts that have positive impact on GDP long term, or at least do not materially cause GDP to decline on a long term basis. You look at your government spending infrastructure. What spending is efficient and dedicated to supporting growth in GDP and what spending is really preference that adds a cost drag reducing other private factors that would otherwise add to GDP. This is the kind of thinking that needs to be done if anyone really intends to pay off sovereign guaranteed debt and come to some acceptable resoluton of sovereign contract and entitlement obligations where something that can be paid will be better than nothing.
It's this kind of thinking that got us to where we are now. There is always an excuse, during the good times and the bad times, to continue spending more.
You misunderstood. I don't advocate deficit spending. I say gut the budget, eliminate the income tax, and let the system purge itself. That's the best option, imo.
Putting aside issues on whether or not GDP is the right metric (whichever metric is chosen, the principle is the same) I more or less agree with this. The problem with having "the" currency is you can avoid that hard debate for a long, long time. However, at this point it is exceedingly likely that the "correct" amount of sovereign revenue will not be sufficient to finance all the obligations, so a default of some proportion is likely unavoidable. Given that likely reality, IMO it makes sense to do a pre-emptive default while economic strength remains relatively high.
Random.C , agree with your comment...I would be very happy to have a better metric that GDP which is as you likely realize a metric of consumption and so not really measuring 'growth' that can be used to pay debt...but hey I don't have time to invent the right metric for this discourse...I'm just trying to communicate an idea. I agree with the rest of your comment too, which is why I attacked Koltlikoff's aggregation of debt in my earlier comment in this thread. We have to pay our sovereign debt, our Treasury Debt, without default...otherwise we will collapse our currency and the world financial system and all the other obligations and entitlements won't matter. So, we still have the opportunity to address our income as it relates to and interacts with our ability to grow and increase income. With intelligent spending cuts we can perform our sovereign debt obligations. That leaves entitlements, State debt, municpal debt, and contract-pension obligations. State debt should be up front reorganized with the Fed acting only as lender to debtor in possession. States should reorgainze municipal debts becuase the municipalities are creatures of the state. States can allow municipalities to go through bankruptcy proceedures under the proper chapter designed for that...its an appropriate form of reorganization. Pension obligations should be renegotiated and reduced to a level that can be performed. Social Security should be reorganized and privatized for those under 50 and performed with some benefit reorgainzation for those over 50...there any many models for a viable privatization of Social Security...see Chile. Medicare needs to be privatized and renegoriated in a simiar way. With a focus on revenue as a function of growth none of this is insurmountable.
There's no way America can "grow" itself out of it's debt. Do the math. In order to keep pace with the deficit, GDP would have to expand by >10%, YOY. What growth industries America had was exported to Chindia.
Ach...all you heard was 'growth'...which appears to be a perjorative for you...you could have read my comment as dramatically increasing revenue while dramatically reducing spending at the same time.
Not at all. I'd love to see America reemerge from it's debt crisis as the worlds dominant economic power. That Government revenue and spending can be increased without a commensurate offset in private consumption, is really financial alchemy. Incomes are fixed in the short-term. When Government increases taxation, disposable incomes are proportionately reduced. Six, or one half dozen. Granted, some modes of taxation are destructive, where others are relatively stimulative. If you'd like to sketch it out, I'd be interested.
Ach,...in the quote above I meant to say increased revenue and reduced spending...so, I edited it and you will see it is now changed from what you properly quoted...I don't for a minute thing we can afford to increase spending...or even maintain the current level of spending. With regard to parsing out a proper scientific tax policy designed to maximize revenues realized in a sustainable way....I am not doing that here on these pages...not taking the time...its an invitation for others to think about it...I think there were relevant papers written on 'scientifc taxation' during the 1920's...its not like this stuff isn't well known.