Cryptocurrency: The World's People Benefit When Its Governments Default

[grarpamp]

Would Americans Benefit From A Government Default?

https://mises.org/wire/why-americans-would-benefit-government-default

https://cryptoeconomy.substack.com/p/what-if-the-us-defaults-next-week
https://mises.org/library/forgotten-depression-1920
https://en.wikipedia.org/wiki/Nixon_shock
https://cryptoeconomy.substack.com/p/fiat-turns-government-from-parasite
https://mises.org/library/lower-debt-ceiling
https://mises.org/daily/4797/The-Real-Reason-for-FDRs-Popularity
https://en.wikipedia.org/wiki/Strategic_Petroleum_Reserve_(United_States)

The Biden administration's rhetoric on the debt ceiling has become
nothing short of apocalyptic.

The Treasury Department has announced that a failure to increase the
debt ceiling "would have catastrophic economic consequences" and
would, as NBC news claims, constitute a "doomsday scenario" that would
"spark a financial crisis and plunge the economy into recession."

Apparently, the memo went out to the debt peddlers that they are not
to hold back when sowing maximum fear over the thought that the US
might government might pause its incessant debt accumulation even for
a few days.

The reality, however, is quite something else.  While a failure to
raise the debt ceiling would no doubt cause short-term disruptions,
the fact is the medium- and long-term effects would prove beneficial
by reining in the regime's chokehold on the American economy and
financial system.

This is explained in a recent column by Peter St. Onge in which he
examines just how much of a problem default really is:

    In 2021 the US government plans to spend $6.8 trillion. Of which
about half is borrowed -- $3 trillion. So if they can’t raise the
ceiling, they’d have to cut that $3 trillion.

    Mainstream media, naturally, claims this is the end of the world.
CBS estimates it would cost 6 million jobs and $15 trillion in lost
wealth—comparable to the 2008 crisis, which was also caused by the
federal government. CNN, more colorfully, claims cascading job losses
and “a near-freeze in credit markets.” They conclude, falsely, that
“No one would be spared.”

    Considering the source, we can guess these predictions are
overblown. So what would happen?

    Well, $3 trillion is a lot of money—roughly 15% of America’s GDP.
But we have to remember where that $3 trillion came from. The
government, after all, doesn’t actually create anything, every dollar
it spends came out of somebody else’s pocket. Whose pocket? Part of
the $3 trillion was bid away from private borrowers like businesses,
and the rest was siphoned from peoples’ savings by the Federal Reserve
creating new money.

    This means that, yes, GDP would decline sharply. But wealth would
actually grow, perhaps substantially. The businesses would be able to
buy things they need, while the savers keep their money that was doing
useful things like paying their retirement.

    So GDP drops, wealth soars.

    Now, there will be near-term pain, simply because the GDP drop
comes before the private borrowing ramps up, while those retirement
savings are no longer being siphoned to pay for parties at strip clubs
or, say, another trillion for farting cows.

    So, yes, it will be a sharp drop in GDP. But so long as government
stays out of the way, choosing the prudent 1920 response of doing
nothing, the recovery will be very rapid. Why would they do nothing?
After all, governments don’t like staying out of the way these days.
Because a government that suddenly loses half it’s budget is going to
find a lot of things not worth doing. Given a choice between defunding
government workers’ pensions or defunding economy-crushing Green New
Deals, governments will choose their own.

    So that’s short-term: pain, but less than it seems. And that’s
where the magic begins. Because ending deficits fundamentally reduces
governments’ long-term ability to prey on the people’s wealth.

    This is because debt and money printers are much less obvious than
taxes, which are painful and make more enemies. So a default becomes a
“back door” to move government back towards its traditional “parasite”
role rather than the “predator” role it’s taken on since Nixon
unleashed the money printers. Especially since Covid-19, when
lockdowns were bought with fresh money and deficits. I wrote about
this predatory evolution a few months ago, but the bottom line is
government default is a tremendous investment in our future
prosperity.

Ultimately, when a media pundit or Janet Yellen predicts the end of
the world if debt doesn't continue to skyrocket ever upward, they are
simply calling for a continuation of the status quo.

And what does the status quo mean? It means a world in which the US
government continues to spent trillions of dollars it doesn't have,
made possible through monetizing massive amounts of debt and forcing
taxpayers to devote ever more of their own wealth and income to paying
off an ever-more-huge chunk of interest.

It also means more government spending, which—regardless of whether
it's funded by debt or by taxes—causes malinvestment and, through the
redistribution of wealth, rewards the politically powerful at the
expense of everyone else. In other words, its keeps Pentagon generals
and Big Pharma executives living in luxury while the taxpayers are
lectured about the need to "pay America's bills."

Rather, as Mark Thornton noted in  2011, the right thing to do is
lower the debt ceiling. Thornton explains the many benefits, ranging
from effective deregulation to freeing up capital for the private
sector:

    If Congress passed legislation that systematically reduced the
debt ceiling over time, the economy could be rebuilt on a solid
foundation. Entrepreneurs in the productive sectors would realize that
an ever-increasing proportion of resources (land, labor, and capital)
would be at their disposal, while companies that capitalized on the
federal budget would have an ever-declining share of such resources.

    Congress would have to cut the pay and benefits of its employees
(FDR cut them by 25 percent in the depths of the Great Depression) as
well as the number of such employees. Real wage rates would decline,
allowing entrepreneurs to hire more employees to produce
consumer-valued goods.

    Congress would have to cut back on its far-flung regulatory
operations, which are in fact one of the biggest drags on the economy
due to the burden and uncertainty that Obama and Congress have created
in terms of healthcare, financial-market, and environmental
regulations. A recent study by the Phoenix Center found that even a
small reduction of 5 percent, or $2.8 billion, in the federal
regulatory budget would result in about $75 billion in increased
private-sector GDP each year and the addition of 1.2 million jobs
annually. Eliminating the job of even a single regulator grows the
American economy by $6.2 million and creates nearly 100 private-sector
jobs annually.

    Under a reduced debt ceiling, the federal government would also
have to sell off some of its resources. It has tens of thousands of
buildings that are no longer in use and tens of thousands of buildings
that are significantly underused—about 75,000 buildings in total. It
also controls over 400 million acres of land, or over 20 percent of
all land outside of Alaska, which is almost wholly owned by the
government. There is also the Strategic Petroleum Reserve and many
other assets that could be sold off to cover short-term budget
shortfalls.

    Of course, reducing the debt ceiling would force the government to
stop borrowing so much money from credit markets. This would leave
significantly more credit available for the private sector. The
shortage of capital is one of the most often cited reasons for the
failure of the economy to recover.

    Lowering the debt ceiling would force federal-government budget
cutting on a large scale, and this would free up resources (labor,
land, and capital) and force a cutback in the federal government's
regulatory apparatus. This would put Americans back to work producing
consumer-valued goods.

Unfortunately, the public has been fed a steady diet of rhetoric in
which any reduction in government spending will bring economic
Armageddon. But it's all based on economic myths, and Thornton
concludes:

    Passing an increase in the debt ceiling merely perpetuates the
myth that there is any ceiling or control or limit on the government's
ability to waste resources in the short run and its willingness to
pass the burden of this squander onto future generations.