All Hat-No Cattle
Should CRE Explore The Possibility of Utilizing Bitcoin As A Hedge To US Bankruptcy?
A Federal Reserve Rescue Operation?
The Federal Reserve Board should have a far greater role than stabilizing the drift in a sinking ship. The United States journey to bankruptcy need not be taken as an end all event. Not to worry, the United States will merely be duplicating the experience of the Romans, Germans and Russians.
Instead the FRB should be tasked with the responsibility of assessing the strengths and weaknesses of Debt Restructuring. Debt Restructuring is a mechanism where there is a simultaneous examination of all creditors and reductions are made to maintain the economic presence of the debtor. Debt Restructuring is used in the private sector in the US and in the public sector (governmental agencies) abroad. That said, Debt Restructuring, as defined herein, is much broader than that used in the financial sector in that it borrows mechanisms from a range of disciplines including administrative law and welfare economics.
Not only is Debt Restructuring not used to address the nation’s deficit problem it is seldom-if ever—even mentioned. Those interested in examining the details of Debt Restructuring should review the material on the homepage of the website of the Center for Regulatory Effectiveness.
THE BOTTON LINE IS AS MENTIONED ABOVE: THE FRB SHOULD BE TASKED WITH THE RESPONSIBILITY OF EXAMINING AND PUBLISHING THE STRENGTHS AND WEAKNESSES OF A REVISED DEBT RESTRUCTURING AS DEFINED HEREIN TO THE US DEFICITS. This option allows the United States to examine immediately a full range of alternatives, some of which will vanish when the bankruptcy occurs.
A note from one of our followers concludes:
” The problem with “Debt Restructuring” is that it requires pain. Any effort to correct this problem will require significant economic pain. Americans refuse to accept economic pain, and they will vote out any politician that brings them pain, even if it poses well meaning pain aimed at eliminating the massive deficit and Fed balance sheet. This makes getting our fiscal house in order a political non-starter in Congress, where the action must take place. No cuts to Social Security or Medicare for these people. Most Americans would rather kick the can down the road, collect their government checks, and let future generations deal with their mess.”
Editor’s Note: Is there another “Greatest Generation” forthcoming? “The Greatest Generation” is a term used to describe those Americans who grew up during the Great Depression and fought in World War II, or whose labor helped win it.”
A Strategy for Addressing Federal Bankruptcy
Wall Street Is Sounding the Alarm on U.S. Debt. This Time, It’s Worth Listening
As a result of the efforts of the Wall Street Journal, Mr. Jamie Dimond and the participants in this discussion forum, decision-makers in the government have an excellent information base upon which to address one of the most significant issues of the day—the pending bankruptcy of the US government.
The resultant question is “what is the next step”? The Center for Regulatory Effectiveness has been addressing this issue for years, in part because some of its staff have worked in the White House Office of Management and Budget. Its website contains a detailed background for the following conclusions it has reached:
1 The Federal Reserve Board should prepare a report on the strengths and weaknesses of adopting an innovative debt restructuring program
2 An innovative debt restructuring program includes actions which address income inequality
3 The Unfunded Obligations in Social Security must be considered in an innovative debt restructuring program
One-page of links to key research documents is available by placing the following text into a Google search: CRE Current Events: Federal Bankruptcy
Third Party Support
CRE’s Resume
Who is in CRE’s Corner?
Income Inequality
Macro Strategy: Curtailing The United States Path To Bankruptcy
CRE Library: National Debt
Not Addressed: Unfunded Obligations
CRE Homepage
Present Status of the Inquiry
Income Inequality: What & When?
We are guided by an operating principle that emerges from the policy entrepreneur community, namely “ policy entrepreneurs specialize
in identifying established federal operating procedures and combing them into one coherent program to address a particular issue.”
Members of Center for Regulatory Effectiveness (CRE), who were essential in establishing both the benefit-cost analysis of regulations and the requirement for sending proposed regulations to the Executive Office of the President, fit the aforementioned mold. However the program we are promoting at this time- the establishment of a debt restructuring program in the US0– is a pathbreaking venture. In fact we are unaware of any other group who is promoting such an action at the federal level. Why then, are we pursuing this program? Simply stated because we believe it should be considered a serious contender because to take no action other than issue more currency is not in the best interests of the US. That said, central to our recommendation is that the Federal Reserve Board perform an analysis of the strengths and weaknesses of pursuing a debt restructuring program.
There is no component of the debt restructuring program that is any more controversial than is the income inequality component. Why? Because in part CRE is inhabited by classical, free market economists who some say are deaf to income inequality considerations. To address these concerns we issued the following statements in a QUORA publication.
“The Center for Regulatory Effectiveness has concluded that the United States government is on an irreversible path to bankruptcy.
In its opinion the primary choice is whether the nation adopts the conventional policy of printing more currency which leads to hyper-inflation or instead takes immediate steps to develop an action plan for restructuring the US national debt.
In doing so special recognition should be accorded to the degee of income inequality in the US. We finally identified a study published nearly three decades ago which addresses our concern in that it concludes: “Our most striking finding is that higher income inequality is a significant predictor of a higher probability of debt rescheduling in a cross section of middle-income countries.””
Summary Statement
The following post was made in the Wall Street Journal on 05/22/2025
The FRB should have a backup plan other than issuing more currency when the US Government goes bankrupt.
Unfortunately, we have arrived at the point where we have reached an irreversible path to a national bankruptcy. We have two options, initiate the development and implementation of a debt restructuring program or rely on the traditional solution of issuing more currency with the resultant massive inflation. The challenge is that the development of a debt restructuring plan is a lengthy process and should begin immediately. The website of the Center for Regulatory Effectiveness contains a library dedicated to debt restructuring and those interested in furthering the cause should contact the Center.
Consequently, the appropriate steps should be taken to have a study conducted by the FRB to address the strengths and weaknesses of initiating a debt restructuring program.
One Bottom Line for Addressing Federal Bankruptcy
The public debate on the increasingly greater federal deficit has been underway for years; that said, the public debt is becoming so large that it is very difficult to ignore. Discussions such as this one is of increasingly greater importance and kudos are due to the WSJ for sponsoring such an activity. Nonetheless, progress comes slowly. Forums such as this are increasing in number however while considerable progress is being made on publicizing the problem very little is being done to develop a workable solution.
Analysts at the Center for Regulatory Effectiveness are of the opinion that US bankruptcy is inevitable due to the myriad of political constraints placed on the budget process. History shows that any number of organizations have perished as a result of their failure to act on out of control spending. The most common solution is to simply issue an increasing greater amount of currency which results in hyper-inflation.
However, there is another alternative that should be explored, namely an expanded version of conventional debt restructuring. Rest assured successfully implementing the aforementioned program is no cakewalk. It is for that reason we have recommended, as noted below, that the Federal Reserve Board release a report on their analysis of the proposal. The utilization of debt restructuring to address the pending national deficiency will require the development of innovation procedures. The expanded version includes:
Offsets
Reducing the debt load of a debtor participant to capture the previous provision of non-market goods and services such as military and environmental protection.
Income Inequality
Having spoken with a number of groups, this issue is the highest priority to a substantial number of groups.
Notice and Comment Rulemaking
A number of interested parties argue that the deliberative process must be governed by established rules.
Unfunded Obligations
Technically unfunded obligations are not covered by the term “debt”. But their presence will have to be discussed. Social Security has some 22 trillion in unfunded
obligations and Medicare as approximately 53 trillion. These programs dwarf a national debt of 36 trillion.
IOU’s
The implementation of a debt restructuring for a nation the size of the United States will require ingenuity several magnitudes greater than that usually utilized in such endeavors. Work will have to be done to explore the use of IOU’s which will put a lien on the future earnings of debtor nation borrowing.
Additional details regarding the program outlined above are available by visiting the Center for Regulatory Effectiveness website. The controlling recommendation
The Federal Reserve Board should prepare a report on the strengths and weaknesses of adopting an innovative debt restructuring program.
NB A page of links to key research documents is available by placing the following text into a Google search:
CRE Current Events: Federal Bankruptcy
BTW My ancestors ruled the world for centuries; if their paramount influence could vanish so might that of the United States.
Debt Restructuring: A Salient History
CRE sees three types of Debt Restructuring:
1. Conventional—When two private (non-government) parties agree to revise a contract to make it easier for the borrower to fulfill the financial obligations of a contract.
2. International—Same as Conventional with the exception that all parties are governmental bodies.
3 Macro: International plus the incorporation of a wider range of parties each of which could have a demonstrable impact on the resolution of a capital shortage among participants.
Background Documents
What sets the Macro group apart from the International group is that the former has a wide range of participants far beyond the strict definition of classes used by the economics profession.
Here are a few of the aforementioned classes:
Unfunded Obligations
Technically unfunded obligations are not covered by the term : “debt” But their presence will have to be discussed. Social Security has some 22 trillion in unfunded obligations and Medicare has approximately 53 trillion. These programs dwarf a debt of 36 billion. [ Third-party verification of data needed.]
IOU’s
The implementation of a debt restructuring for a nation the size of the United States will require ingenuity several magnitudes greater than that usually utilized in such endeavors. Work will have to be done to explore the use of IOU’s which will put a lien on the future earnings of debtor nation borrowing.
The above an other concepts for the Macro class are described in detail on the homepage of the Center for Regulatory Effectiveness;
Is it possible for the USA to go bankrupt?
Current Events: Federal Bankruptcy
Other reference libraries on the CRE website
Macro Strategy: Curtailing The United States Path To Bankruptcy
Foreign Government Use Debt Restructuring
International Monetary Fund
The IMF is one of the most dedicated promoters of Debt Restructuring:
Sovereign Debt Restructuring Process Is Improving Amid Cooperation and Reform
Individual Countries
- Ghana:
Ghana secured a $3 billion agreement with the IMF contingent on successful debt restructuring.
- Ethiopia, Zambia, Chad:
These countries have requested debt restructuring under the G20 Common Framework, according to the International Monetary Fund.
- Kenya, Pakistan, Egypt:
The IMF has provided financing to these countries, which are considered at high risk of default and may require debt restructuring.
Sri Lanka has also experienced a significant debt crisis and is in the process of restructuring its debt.
- Argentina:
Argentina has been involved in debt restructurings, including a recent exchange offer in 2020 that was ultimately rejected by bondholders before a mutually acceptable deal was reached.
- Suriname:
Suriname is also in debt restructuring talks with its bondholder committee.
“Macro” Debt Restructuring
The term “Macro” is CRE nomenclature. We use this term because the debt restructuring we envision could address a very wide range of
controversial control mechanisms including:
Offsets
Reducing the debt load of a debtor participant to capture the previous provision of non-market goods and services such as military and environmental protections.
Income Inequality
Having spoken with a number of groups , this issue is the highest priority to a substantial number of groups.
Notice and Comment Rulemaking
A number of interested parties argue that the deliberative process must be governed by established rules.
Unfunded Obligations
Technically unfunded obligations are not covered by the term : “debt” But their presence will have to be discussed. Social Security has some 22 trillion in unfunded obligations and Medicare has approximately 53 trillion. These programs dwarf a debt of 36 billion. [ Third-party verification of data needed.]
IOU’s
The implementation of a debt restructuring for a nation the size of the United States will require ingenuity several magnitudes greater than that usually utilized in such endeavors. Work will have to be done to explore the use of IOU’s which will put a lien on the future earnings of debtor nation borrowing.
Clearly the above list is “Macro” in that it is much broader than any alternative developed to date. The thrust of the idea is that before the US throws in the towel by resorting to the inflation alternative that it examine the above list and (1) make a determination as to which of the events are going to be pursued, and (2) develop a process for doing so..
We are on the road to severe social unrest unless the public is assured that its government is addressing their issues.
Bottom Line
We find it troubling that the alternative given the most serious attention in the US is the do nothing alternative, namely when short of funds simply issue more currency and live with the attendant inflation. Nonetheless progress is being made, in the recent year our citizens have become more involved in the diagnosis of the issue but not its treatment.
Regarding treatment, the Macro strategy is in its infancy. It will take time to develop and cannot be developed at the last minute; work needs to begin immediately.
Having the Federal Reserve Board address the strengths and weaknesses of Debt Restructuring is a good start.
A LINK TO THE CRE LIBRARY ON DEBT RESTRUCTURING
Appendix
-
CRE does not disclose neither the names nor the text of those commenting to CRE or those to whom CRE submitted a comment.
-
CRE works with all Administrations; it works for no Administration.
-
A Library of CRE statements and publications by date.
Lagniappe
