18A008 How to Repay a $20T Loan by Jim Davies, 2/20/2018    

Actually it's $20.6 trillion today, and by the time you read this, a bit more yet. But who's counting? The question is, how can it ever be repaid; and in fact, need it ever be repaid?

It's the FedGov's debt, often disguised as the "National" debt; and is the sum total of all the overspending it has committed since the racket began. A hefty portion of the loan was made by the government's own Federal Reserve Bank, which exists to obey orders just as if it were a central bank, which in fact it is in all but name; but other lenders include large pension funds, several foreign governments including China, companies and some wealthy individuals needing to park their money for a while. All those folk loaned money to the FedGov because it was as safe as houses. Safer, some say, for its security rests on the FedGov's power to tax. And that power is as basic as its power to go on existing.

A great power, for sure; but it rests on the willingness of people to work for it. And that's where we ZGBloggers come in; for we intend to show everyone, via TOLFA, why they should quit all government employ. So in the last analysis, those loans are not really safe at all. Houses will last far longer.

In a recent forum post, I suggested it's impossible for the FedGov to repay this $20.6 trillion. My reason was that to do so would mean slashing the rest of what it spends by a large fraction and that voters would not tolerate such a wholesale removal of goodies from what they expect for their votes. But, later I wondered. Perhaps it can be done!

Method #1 would be to treat it like a home mortgage, and set about paying down the principal and interest. Interest rates have somehow been forced down since 2008 to close to zero; presently the lenders of that $20.6T are being paid only $283B a year, or 1.4%. Let's assume that over a 30-year period that un-natural rate is raised (by worldwide competition among borrowers) to 3% in real terms or, say, 5% to include a 2% inflation rate. In that case the annual cost would be $1.33 trillion, which is a third of all the present FedGov's spending.

Would voters tolerate a 33% cut in all the benefits they expect, just so that the books can be rightly balanced? I don't think so, but could be wrong. Voters tolerate all manner of fraud and deprivation today, so who can be sure of what they will stomach tomorrow? Hear H L Mencken: "No one... has ever lost money by underestimating the intelligence of the great masses of the plain people. Nor has anyone ever lost public office thereby."

Provided their eyes can be kept from the TOLFA site, that crass stupidity may continue. Then, this massive debt could indeed be retired.

Method #2 would be simply to abrogate the debt. If you or I were to do that with a home mortgage, we'd soon be out on the street; the lender would repo the house and have us ejected. But who, exactly, would eject the FedGov from its comfy lair?

There are some positive things to say about this option. The debt would vanish, along with the interest payments. The trustworthiness of the FedGov would plunge to its proper and natural level, namely zero; nobody would ever again lend it money and so it would be obliged to live within its means, just like real people. That would be an improvement! Additionally, as the holder of the largest single portion of the $20.6T "mortgage", the Federal Reserve would presumably go belly-up, to the cheers of Ron Paul and all who sail with him; however we can't be certain of that, for Congress will not allow the Fed to be audited. Nobody knows what its account books contain.

There is also a bunch of negatives that would result, for all the lenders would be stiffed. Fine by me as far as the Federal Reserve goes, but what about the individuals and companies that were so foolish as to buy those T-bills? It would be a shame to put otherwise productive firms out of business. And what of the millions of elderly people whose pensions would vanish? Then there are foreign governments, who bought US debt in good faith, however idiotic it will then seem. Might some of them wage war so as to grab what assets they can from the bankrupt FedGov?

They might, if this option were too long delayed; for time is on the side of China's military power. So if 'twere done, ’twere well it were done quickly.

Method #3 would be to hold a Grand Fire Sale. That is, the FedGov would liquidate its assets - put them up for auction - so as to pay off the holders of this $20.6T debt with the proceeds. This was the suggestion Harry Browne put forward in 1996, in his Why Government Doesn't Work. Such a sale would have succeeded then, but I'm not sure if it would now. The big uncertainty was and is, how much would the assets fetch? How would those prices depend on the speed with which the auction was run?

There's also a big moral issue: a good portion of the FedGov's saleable assets are in the form of weapons of destruction; killing machines. Is it really honorable to sell those to other governments, who will use them to take innocent lives? Other assets however consist of buildings and land, all of which have a value. Its primary asset is the power to tax, and that will expire to zero value on E-Day, but still the others may suffice to pay off a good portion of this debt.

My Prediction is that none of the three solutions above will be used until government no longer has any option - that is, when its miserable existence is drawing to a close; and at that time, there will be some mix of Methods 2 and 3 taking place. Why not sooner? - because any of the three would need government to behave in an honest and responsible manner, and those two attributes are excluded from the political arena by its very nature - which is to lie, deceive, murder and rule.

What, then, can be done in the meantime? - not much. As in every other kind of interaction with government, keep a low profile, out of its way, and do nothing to feed the beast. In this context, that means NOT to buy any government bonds, for that helps prolong its existence as well as running a serious risk of loss.

And of course, find one friend a year to take the freedom course in TOLFA. Nothing more is needed, nothing less will do.