It’s been an interesting week for news. Yet, what always intrigues me is how what should be the biggest of big stories, like the U.S. debt, debt ceiling and federal budget deficit, somehow don’t get quite the coverage they’re due. This owing to stories that are supposedly more relatable, like when a person in power is caught up in scandal.
When it comes to all the debt stuff, I guess news editors feel they will lose our attention if they focus on the issue too much. However, the issue has gotten so big, whether we like it or not, plenty of news is headed our way about America’s debt challenges. Oh, and it’s not like the U.S. is alone.
If you are a misery loves company type, go look up what the debts of the U.K., France and Japan are. Either you will feel better America is not in this kind of mess alone or you will feel like much of the industrial world is in a self-constructed debtors prison.
There is so much debt, and seemingly such differing opinions in political-land about how to deal with it, it will be interesting to see how this stuff works out.
How will the U.S. deal with its debt?
Okay, let me start out by saying I am no expert, just a guy with an opinion. That said, here are some hypothetical things that might be done to cut down on the red ink:
1.) Cut back on government spending. It sounds easy. Lots of folks are for cutting whatever programs and services don’t affect them. The trouble is trying to cut services that people believe they should have, are actually owed, don’t want to give up or believe are essential for the nation.
2.) Raise taxes. Not terribly popular. I can’t see a ground swell of support for higher taxes with people taking to the streets protesting, “Tax me, tax me.” Then again, plenty of people don’t mind if taxes are raised, so long as it’s other folks who’ll have to pay those higher taxes.
3.) Cut some spending and raise some taxes. Politics being a game of compromises, I suspect this is what we’ll see when the smoke clears.
4.) Default on the debt. I cannot see the United States defaulting on all of its debt across the board, particularly debt held by Americans. However, if there were a way to restructure monies owed to foreign entities might the U.S. look for some kind of workout? I think it’s unlikely but you never know.
5.) Sell off government assets and or privatize certain institutions. The federal government owns lots of land. Some of it could be sold off. How much money would it raise? Well, some bucks might be better than no bucks at all. What about selling off or privatizing the postal system? Might we see a federal government fire sale? I think we may see some modest examples of this, but it will be nowhere near enough to save us from the debt hole we are in.
6.) Begin issuing a new class of bonds. The U.S. could start issuing perpetual bonds. In other words, the debt they represent would never be retired, unless it was in the government’s favor. How would that work? You buy a bond. It pays you a certain interest rate. You never get your principal back from the government, unless the government wants to pay it to you. Those bonds would likely trade and you could sell yours to someone else who wants it. The bonds could be made callable. That means the government could give you back your money anytime it wanted. Why would it do this? Because it was paying you too high an interest rate. Might this happen? Sheesh, I don’t know. But ideas are bound to creep up.
7.) Repeat World War II. Not very palatable, but history does have a way of repeating itself. Could even more widespread war than we are in be looked to, perhaps unwittingly, as a way to get us out of this deep debt hole? Gee, I hope not.
8.) Buy lottery tickets. The government could buy lots of lottery tickets and hope to get lucky. Okay, now I am just getting stupid.
9.) Congress could significantly cut its salary to prove it is going to lead by example when it comes to the deficit and debt. If I was being stupid before, now I am being a drooling moron. Please forgive me. Forget I mentioned this.
10.) The government could come up with a special program to hypnotize us into believing there is no debt or deficit, that all is well. This is another ridiculous idea, but it seems more realistic than number nine.
Like I said, I don’t know much about this stuff. I’d guess, though, that we will probably see number three, with maybe a bit of five and six mixed in down the road, as the most likely answer. That means we’d see cuts in spending and services, a rise in taxes, selling off of some government assets and privatization of some government services in the long run and maybe the issuance of new types of bonds at some point in time.
What affect will this have on economic recovery and growth? Watch me as I shrug my shoulders. Hopefully, it will stimulate confidence that people in power are prepared to meaningfully deal with the debt challenge. That alone would be a good thing.
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