Is It Too Late To Attempt To Save the US From Financial Ruin?
Next Step?
- A number of our readers might disagree with our assertion that the US government has already passed the possibility of not going bankrupt.
- If so, what is the downside of having in place an immediate fallback position?
- Given that it will take a number of years to develop and put in place a fallback position, what is the downside of initiating a public review of the subject immediately?
- The CRE position is not to utilize deficit financing (printing more currency) in lieu of debt restructuring which we believe to be preferrable.
- The debit restructuring herein differs substantially from the version presently in use as a result of including:
(1) the mandatory inclusion of non-market benefits in the implementation of a debt restructuring program
(2) Notice and Comment Rulemaking.
The mere initiation of the above actions might induce some corrective actions the totality of which could reduce need to implement all of the aforementioned recommendations.
The bottom line is that the nation is at a crossroads; take no action which will result in the adoption of inflation to address their debts in lieu of adopting a modified debt structuring as defined herein. Both strategies are damaging to the nation but the former is the most deadly.
Lagniappe: The mere initiation of the above actions could induce some corrective action that could modify the need to proceed as described above.
II A Debt Restructuring Program
Section I (below) brings two concepts to the table which generally are not highlighted when addressing the potential participation of a federal entity in a banking transaction in which the beneficiaries are both US and foreign based (Background):
1. Debt Restructuring, including a mandatory consideration of non-market benefits
2. Notice and Comment rulemaking
DEBT RESTRUCTURING WHEN APPLIED TO THE FEDERAL GOVERNMENT
Strengths and Weaknesses
Examples of national governments successfully restructuring their debt include: Uruguay in 2003, Pakistan in 1999, Ukraine in 2000, Grenada in 2005, Belize in 2007, Seychelles in 2009, and Jamacia in 2020; in these cases, governments were able to negotiate with creditors to extend repayment periods, reduce interest rates, or implement debt-for-equity swaps, allowing them to regain access to international markets and manage their debt burdens more effectively.
Admittedly the above worked for small nations nothing the size of the United States. It is for this reason that the plan recommended herein includes: the two aforementioned conditions namely:
1. Debt Restructuring, including a mandatory consideration of non-market benefits
2. Notice and Comment rulemaking
Is the development and implementation of the above program easy, definitely not. Nonetheless it is considerably more favorable than instituting a policy based solely on increasingly the money supply, the inflation option. The implementation of a program that includes the two aforementioned conditions will take time and it is for this reason that work on the development and implementation should commence immediately.
IMF eLibrary
Recent case studies show that the negotiation process and the basic restructuring mechanics are very similar in a comparison of domestic debt restructurings to external debt restructurings (Sturzennegger and Zettelmeyer, 2006; and Erce, 2012). However, there are also important differences. One difference is that domestic debt is adjudicated domestically, often leaving litigation in domestic courts as the only recourse available to investors. A second difference is that investors in domestic instruments are normally mostly residents (i.e., domestic banks, insurance companies, and pension funds), in which case a restructuring of domestic debt instruments will directly affect the balance sheets of domestic financial institutions and can affect the country’s overall financial stability. Finally, exchange rate considerations and currency mismatches play a lesser role in domestic debt than in external debt restructurings.13
A Sidebar
Research on differential game strategy of debt restructuring supported by government
Debt Financing Relative to Increasing the Money Supply
“When addressing issues among nations, debt financing generally has the advantage of providing a more targeted and accountable way to allocate funds compared to increasing the money supply, which can lead to inflation and potential instability in the economy, while debt financing requires a commitment to repayment and can be structured to address specific needs.”
The Paris Club: A Prototype
The Paris Club is a group of creditor governments that work together to help debtor countries with payment difficulties. The club’s goal is to find sustainable solutions to debt problems through debt rescheduling.
About the Paris Club
Restructuring Bilateral Debt: the Paris Club
The Paris Club is the main institutional framework for restructuring external bilateral sovereign debt, that is, public and publicly guaranteed debt that debtor countries owe to other governments. In essence, the Paris Club is an informal group of creditors and an ad hoc negotiation forum. Like the Bank Advisory Committees (of the London Club; see next subsection), the Paris Club has neither legal status nor statutory rules of procedure. However, it has a small secretariat based in Paris and follows a set of established negotiation rules. The Paris Club members are the governments of 19 of the largest world economies, plus additional creditor governments that are invited to participate in the negotiations on a case-by-case basis, depending on whether they have relevant claims on the debtor in question.3
I DOGE Via OIRA
Is It Too Late To Attempt To Save the US From Financial Ruin?
It is the view of the Editor that even if one were to eliminate all of the ineffective programs of the government, however defined, one would not come close to solving the continued problem of deficit spending because of the presence of the “giveth” programs.
CRE Bottom Line
EXCERPTS
Recommended Next Steps
Appendix
A Library Of Pending Debt Default Strategies
We will leave it to each of our readers to make their own decision regarding the feasibility of using the bitcoin as a solution to our fiscal problems. However regarding the basic position set forth by Mr. Musk that the US is headed for bankruptcy we are in complete agreement. Furthermore we are equally concerned as to whether there is a solution to the problem. In a nutshell the procedures that govern the operations of the House and Senate reward those that sponsor spending funds and punish those that move to restrict spending. Consequently there is an informed basis for concluding that there is no lasting solution to the problem, as demonstrated by the continuous increase in the deficit, unless serious attention is given to the restructuring of the debt.
Pacesetting Reports
Periodic Updates Upon Request to CRE
12/19/2024 Who Wins From A US Debt Default? China Comment
12/18/2024 What Would Happen If The US Defaulted On Its Debt To China?
12/14/2024 Penn Wharton Budget Model Research
12/13/2024 Some Republicans fear a DOGE dilemma is setting in
12/09/2024 The View Of A Fiscal Contrarian Research 1 and Research 2 (Comment)
12/08/2024 Federal Bankruptcy: Implications for the Consumer Comment
12/05/2024 Will the US Government Harness Ballooning Debt? Research
11/29/2024 Musk’s Slashing of the Federal Budget Faces Big Hurdles INTRODUCTION
11/28/2024 How Elon Musk, Donald Trump And DOGE Will Take On The Federal Government
11/25/2024 Tesla CEO Elon Musk Warns U.S. Bankruptcy Is Coming
11/24/2024 Sunstein on DOGE
11/23/2024 Musk, Ramaswamy ‘DOGE’ confidence in Supreme Court may be tested
11/20/2024 Initial Concepts: Musk-(WSJ)
11/19/2024 DOGE Is a Great Idea (Newsweek)
11/18/2024 Is Trump’s DOGE Going to be a DOGD? (ITIF)
11/12/2024 So…. They Are Creating Another OIRA? (X)
Contact: The Center for Regulatory Effectiveness (CRE)
Jim Tozzi Center For Regulatory Effectiveness Third Party Recognition
