11A109 Rocks & Hard Places by Jim Davies, 4/22/2011    

The FedGov is in a bind, and it couldn't happen to more deserving people.

That isn't new news, it's discussed quite widely: over time by grossly irresponsible overspending to capture votes, it has built up an unsustainable debt of about $14 trillion, coincidentally close to what its bean-counters say our economy produces each year (see The Dead Hand for why they are wrong) and the Pols can ill afford to repay it. That ought not to matter a whole lot, except that the various notes (T-bills) come due all the time and if they don't repay them nobody would buy any fresh ones and then they would have to do what they should have done in the first place, namely to live within their means, and they really don't want to do that. Hey, are they not the most powerful government in the world? Can't they do anything they want?

Their remaining options are to slash spending (on votes), to raise taxes, or to print more money. The first two of those are extremely dangerous politically, sure-fire vote losers, so they will try to avoid them like the plague. The third has already been used extensively, and has had the effect of paying back lenders with bits of paper worth less than what was borrowed; if you were a lender, you might accept that (having little other option) but again, you'd never make them any fresh loans. In addition, diluting (inflating) the currency makes everything more expensive, which is also a strong potential vote-loser. So that option too is highly indigestible in D.C. and taken together, the four of them inspired the title of today's ZGBlog.

Might there be a fifth option: to sell assets?

This is something the late Harry Browne looked at when running for President in 1996, and is a theme in his campaign book, Why Government Doesn't Work. It so happens I played a small part in examining that option (I was slightly political in those days) as he was kind enough to acknowledge. We found that with a stretch, it might be possible (then, at least) to imagine the Feds selling off stuff so as to balance its books as it wound down its operations, under Harry's leadership, by 93% in eight years. Had he been elected, that would have been completed by 2004 and the present mess would be hard even to imagine; but the voters weren't that smart. Voters usually aren't.

It was, even so, a hazardous prediction. What assests does government actually and truly own? - none at all, for everything to which it lays claim, it stole! In 1996 we rather skated over that. Then, assuming that pesky fact wasn't there, what price might government "assets" fetch? That's really tough, because one can get a much higher price by waiting for the right buyer, than one can in a fire sale. 80 million Americans may own homes "worth" $250,000 each, total "value" $20 trillion, but if everyone tried to sell at once, who would buy, what money would they buy with, and where would the sellers live afterwards anyway? Tricky. Even trickier when the assets are of doubtful value, like aircraft carriers, fighter jets, nuclear missiles and ugly buildings. So while Harry - who held very high moral standards - might have crossed his fingers a little about that prediction, that fifth option now looks decidely shaky.

The only real asset government ever has is its power to tax. As I show in Transition to Liberty, as its employees quit that power will erode at an exponentially rising rate until it disappears altogether and a zero government society begins. Those who have loaned it money will lose the lot, which is not at all unfair because when they made the loan they knew full well that payment of both interest and principal could be made only by acts of grand theft, euphemized as "tax." Not only will the dilemma of our title be resolved, but also there will be no call for "living within its means" because the means will have evaporated too

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