A Modest Proposal to Fix the Debt Ceiling: Strategic Default

by Jeff Reeves | July 13, 2011 12:01 am

It is a sad situation when hard-working CEOs and money managers who make this country great must watch a bloated federal budget waste our hard-earned money.

Millions of Americans claim they are old, sick or laid off – and, instead of working for an honest livelihood, employ all their time begging for a government handout. They drive up the national debt with their dependence, and are responsible for the current budget mess we are in.

I think it is agreed by all parties that this prodigious spending is deplorable. So amid the current debate over the debt ceiling, I feel compelled to offer my modest proposal to fix our free-spending ways: a strategic default on our debt. It’s a strategy employed by many homeowners underwater on their five-bedroom homes in Las Vegas, and it’s one we should put to use on a national scale. It’s time we put an end to criticism for our past behavior and not allow ourselves to be held hostage by creditors.

America, it is time we just walk away.

Politicking over the debt ceiling has brought the chance of a default into the forefront. But even if Congress could reach a compromise before the August 2 deadline, this would be the wrong decision. Like a homeowner who must bend over backwards to pay a mortgage on a home worth a fraction of the original loan, it’s simply not worth the effort.

It is better to simply wash our hands of this mess, suffer the short-term pain and come out a better nation on the other side. As you’ll see, there are clear benefits of a strategic default on our national debt and a decision to simply stop paying the bills.

The end of the welfare state

The shutdown of government spending will serve both short-term needs in balancing the budget but address long-term budget problems we face due to the Nanny State mentality in Washington.

Take Medicare, one of the biggest causes of our current budget trouble. If we slash spending dramatically, we will not only eliminate one of the biggest drains on the U.S. Treasury, but we will also fix the nagging demographic problem caused by Baby Boomers living longer and clogging Social Security roles.

Without healthcare, surely few of our seniors will survive into old age. This will dramatically reduce both future Medicare and Social Security payouts.

These socialist programs are part of the problem. It’s time to make them part of the solution.

The restoration of free markets

[2]Even worse than these big-ticket programs are the money-wasting programs that actively undermine our free-market system.

For instance, why do we dish out $12 billion for the Department of the Interior? It’s time for Uncle Sam to get the sticky fingers of regulators off trees and rocks once and for all. They exist in nature just fine on their own – and if parks can’t compete in a digital age, they have no one to blame but themselves. When an agile and innovative timber company pulls into town, the market should decide who succeeds or fails.

And that’s just for starters. Most galling is the $78 billion for Health and Human Services — a heavy-handed, meddlesome department if there ever was one. FDA regulators tell us what we can and can’t eat, and which drugs we can take. The CDC makes outrageous demands that food service workers wash their hands. Where’s the personal freedom? Where’s the ability for illness and immune systems to compete on an even playing field as God intended, without regulators interfering?

It’s time we stopped this appalling creep of government, and reinstate truly free markets that are allowed regulate themselves in the way capitalism works best.


The end of pork once and for all

pork spending[3]Another note on wasteful spending: There are many earmarks and pork barrel projects that are not part of an insidious agenda but simply a way to curry favor by wasting taxpayer dollars on pet projects with no impact on the greater good of the nation.

Consider the thousands of “roads to nowhere” in Wyoming. The state has just 550,000 residents yet over 900 interstate miles – while Rhode island has over 1 million residents and a mere 70 interstate miles! Wyoming’s greed is unconscionable.

It is patently unfair that the taxpayers in Rhode island must subsidized so-called “regional needs” of Wyoming. A shutdown in spending would ensure once and for all that money stays put and that a corrupt Department of Transportation doesn’t send it halfway around the country to states that don’t know how to build an efficient road system.

No spending means no wasteful spending for elitist, well-connected enclaves like Wyoming. It’s as simple as that.

Soldiers and public servants can prove their patriotism

uncle samHere’s another advantage of America ceasing paying its bills: Checks for government workers and vendors would be withheld. This would prove once and for all whether the men and women of our armed forces and so-called public servants are truly the noble workers we believe they are.

If our soldiers are indeed patriotic, if our police are committed to protect and serve, if our mail carriers are dedicated to their appointed rounds, then they can prove so by working without pay.

Those who gripe over a paycheck clearly have their own self-interest at heart and don’t really care about this great nation. Those sad folks are not the heroes we made them out to be, and shouldn’t be serving anyway. America deserves better than that.

Lenders will learn their lesson

angry chinesePerhaps the most compelling argument to make a strategic default on our federal debt is that it’s not our fault in the first place. China probably holds around $2 trillion in U.S. debt right now – what the heck were they thinking? Clearly we were spending beyond our means, and Asian investors who extended loans to America have no one to blame but themselves.

Translate this, Beijing: Caveat emptor. Buyer beware.

If we learned anything from the subprime mortgage market and resulting economic crisis, it’s that folks who lend money to irresponsible borrowers deserve what they get. In this 21st century economy, it’s survival of the fittest.

Take the financial crisis as proof.  Smart homeowners bit off more than they could chew and passed the balance on to the banks via strategic defaults just like the one I’m proposing. Savvy banks passed toxic loans on via securitization and derivatives. Investment banks that took big risks were bailed out by the government. At each step, the smartest people found a way to make the situation someone else’s problem. They passed the buck and escaped without a scratch.

Now it’s Uncle Sam’s turn. China and other global investors were foolish enough to lend to us, and now they’re going to get what they deserve and take the blame.

I could go on about the benefits of a strategic default by America – for the benefits are many, and should be obvious to all. Spending will never increase. Taxes can be slashed since the government has weeded out its most expensive programs. Prosperity and wealth will surely follow.

a modest proposalIn closing I profess, in the sincerity of my heart, that I have not the least personal interest in endeavoring to promote this necessary plan, having no other motive than the public good of my country. Walking away from our debt will, in the long term, advance our trade, provide for infants, relieve the poor and give some pleasure to the rich.

Full disclosure: I have no influence in the broader economy or the government, keeping mostly to myself in a bunker stocked with canned goods, small arms and the essays of Jonathan Swift to see me through.

Jeff Reeves is editor of InvestorPlace.com.  Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.

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  1. Could a GOP president fix the economy?: https://investorplace.com/48865/gop-president-fix-the-economy-2012/
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