National Debt

Issue

The national debt in America is the largest in the world with future generations expected to deal with the problem.

Not only is it irresponsible for government officials to accumulate that much debt over the years, it is also unrealistic for the future to pay for it. The international community should classify the passing of debt obligations to future generations as a violation of human rights since people of the future don't have a say on whether they agree to pay for it or not.

For example, suppose you gave some money to a government official and then asked when will you be paid back. If the official said, "I'm not going to pay you back, but people of the future will." Well, it's your fault for agreeing to such an arrangement because future generations never gave their consent to repay such debt, which violates their human rights. Both parties of this arrangement (government officials and bondholders) should be ashamed of themselves since both are working together to benefit from establishing nonconsensual debt, which constitutes as fraud and misconduct. So, if repayment is decided by the nation then it will be a courtesy, not an obligation.

At the very least, bondholders should forfeit interest as a compromise, or repayment may not occur for them. Especially after considering that taxpayers of today may not earn as much interest on their very own deposits (e.g., 0.01% interest on a savings account compared to paying 6% interest on EE bonds). So, why would anyone agree to pay higher interest than what they are earning themselves, for something that they never gave consent to in the first place? The forfeiture of interest may also apply retroactively for those who have already redeemed their bonds to repay the interest that they had collected over the years. A pure democracy which is no longer affected by corrupt officials will decide how to handle the situation.

So, the national debt problem and its repayment may be more in a dire situation than people realize. The U.S. Debt Clock shows that the amount expected to be paid by every taxpayer in America is nearly $265,000, though that amount increases every day. Not everyone has that much in savings to pay the government. That means that over a 50-year period, people would have to pay $5,300 every year in addition to their taxes. That decline in purchasing power would result in a 50-year economic contraction for the country.

Solution

If the nation wishes to become debt free, the first step towards that effort would be to no longer offer government bonds so that the national debt remains frozen at present levels. Once the nation stops accumulating debt then several options will need to be considered in order to resolve the problem.

The most obvious despite violating human rights to repay the nonconsensual debt would be to have taxpayers bear the full brunt of repaying the debt themselves. As mentioned above, the $265,000 taxpayer obligation if paid in 50 years would result in an annual payment of $5,300. Which is steep and unrealistic not to mention that it would result in a period of economic contraction for the country.

Another option would be to split the debt between multiple parties to ease the burden for each:
(1) businesses that benefited the most from government spending should pay their portion, (2) taxpayers who have also benefited should pay their portion, and (3) bondholders, who by purchasing bonds, should take their responsibility for repaying the debt as well (since by buying bonds, bondholders are just as responsible as government officials for increasing the national debt to its current size).

Splitting the debt three ways results in $11.3 trillion per party. Businesses and taxpayers will pay their share with future taxes over a period of years. Bondholders will take a corresponding loss in their investment such as only being able to claim a portion of their original principal as their responsibility. The advantage of splitting the debt three ways is that taxpayers would only be responsible for one-third the total amount, which comes out to a more affordable and realistic $1,766 per year (than $5,300).

Another option that may be considered is that approximately 30% of the debt is foreign-owned (government) who may be able to wait longer than 50 years to be reimbursed. That means a sizeable portion of the repayment effort could be delayed in order to further ease the burden. Combined with the above approach of splitting the debt three ways, the amount would be reduced to just $1,236 per year for taxpayers.

Another option to consider is to have businesses pay the entire amount with taxpayers and bondholders having zero liability. The justification for this is that since businesses benefited the most from government spending, they should be the principal party to repay the debt.

According to the U.S. Census Bureau, there are approximately 20,000 large-sized companies (500+ employees) which could be assigned the responsibility of repaying $25 trillion of the debt over a 50-year period (approx. $25 million per year). Medium-sized companies (100-499 employees) that number 93,000 could be assigned $8 trillion of debt (approx. $1.7 million per year). Smaller-sized companies (<100 employees) that number over 6 million could be responsible for the remaining $1 trillion (approx. $3,300 per year). Or, some other allocation may be determined for each group.

So, there may be a number of ways to ease the burden of repaying the massive national debt. However, if there is no public interest in repaying the debt at all, the final option to consider is to declare the national debt as a violation of human rights. In that, the past attempted to bestow a financial burden upon future generations without their consent. If so, then such debt obligations become null and void in value, and would not have to be repaid at all.

In this case, bondholders would assume a total loss on their investment with no party being held responsible for repayment. Bondholders may complain about this option, but investing in government bonds is not a 100% guarantee to get the money back so there is risk associated with such an investment (due diligence).

This is especially true when considering the immorality of their expectations, and of past officials, making future generations pay for such obligations without their consent. Which is a clear violation of human rights. So, a bondholder's "unspoken arrangement" for future generations to repay such obligations may be legally terminated at any time, and for any reason, based upon this justification.

As mentioned earlier, if repayment is decided by the nation then it will be a courtesy, not an obligation. If no repayment is decided by voters then bondholders should consider that they gave the country a charitable donation, of which the nation is thankful.

If I were President and was given the task of handling the massive debt problem, these would be the options that I would present to the nation (after freezing the bond market to prevent further accumulation, and require forfeit of interest to encourage repayment by the public):

Option A: (individual taxpayers pay 100%)
$5,300/yr for 50 years

Option B: (businesses/excise/customs duties pay 100%)
$500 billion/yr for 68 years

Option C: (combined approach with 3-way split and delayed foreign-owned as noted above)
$1,236 [individuals] + $159 billion [businesses] for 50+ years

Option D: (no reimbursement, 0% liability due to violating human rights)
100% loss for bondholders
[$2 trillion payment will be necessary to clear bank deposits from gov't. bonds]

Option E: (debt resolved entirely through spending cuts, taxes remain at present levels)
$3 trillion annual surplus for 11 years
$400 billion-sized skeleton gov't. until debt free then taxes drop to 5% skeleton rate

Even though Option D (no reimbursement) may become popular since it is respectful of human rights to not repay such nonconsensual debt, there may be some question over the nation being subject to repossession (which may or may not apply). Normally, when a business declares bankruptcy and is unable (or unwilling) to pay its debt, assets are clearly defined for repossession and given to debtors as part of the recovery process.

However, if a nation refuses to pay its debt for any reason, the recovery process becomes more complex where it has to be determined how the money was spent since the funds were mixed with taxpayer money at the time of the purchase. Not to mention the further complication involving the illegality of government officials and bondholders that violated the human rights of others, which provides the justification to deny the repossession in its entirety.

So, rather than getting involved with a complex recovery process (if one should even be given) of the nation forfeiting products/services to debtors (e.g., military equipment being sent to a foreign country, or transfer ownership of medical services-hospitals, transportation-bridges, or however the debt was spent over the past 200 years in America), it may be better to consider one of the other alternatives instead even though the no repayment option is still a legitimate one for voters to consider.

If voters decide upon Option B (businesses pay everything), individuals pay $0 that is respectful of human rights to not repay the nonconsensual debt, while at the same time allowing creditors repayment. Which is a near perfect solution considering the circumstances of the situation. However, this option will take 68 years for the nation to become debt free. Some will say that waiting nearly 70 years before they may redeem their bonds will take too long, but this may not be the case if the repayment effort is prioritized properly.

For example, without including additional spending cuts or other measures, a sample breakdown may be as follows (with the first decade or so being more people-oriented):

Years 1-4 : pay off depository institutions ($1.81 trillion) to access our bank accounts
Years 5 : pay off U.S. savings bonds ($160 billion) + insurance annuities ($368 billion)
Years 6-7 : pay off pension funds ($1.15 trillion)
Years 8-13 : pay off mutual funds ($2.84 trillion)
Years 14-16 : pay off state and local gov’t. ($1.55 trillion)
Years 17-41 : pay off federal gov’t. accounts ($12.26 trillion)
Years 42-56 : pay off foreign ($7.43 trillion)
Years 57-68 : pay off other ($6.43 trillion)

However, the issue with this option is that it will negatively impact the workforce since businesses will be required to pay an elevated 30% tax rate over an extended 70-year period (5% base skeleton tax + 25% debt repayment tax). This will significantly deter job growth and lower income for the workforce over a rather lengthy period (e.g., lower pay raises, reduced profit sharing, etc.).

On the other hand, if voters choose Option E (skeleton-sized gov't. but pay current tax rate), the nation would become debt free in the fastest way possible, while minimizing any negative effects on the economy. An important factor with this option is that the $3 trillion annual surplus for repayment will be reintroduced back into the economy to some degree providing an economic stimulus. For example, at the midway point (6 years), an enormous $18 trillion will be reintroduced back into the economy over a very short period of time. This may provide the necessary incentive for voters to repay the nonconsensual debt despite violating human rights for the sake of becoming debt free in just about 10 years.

So, voters of a pure democracy will need to consider all of the above when deciding which option is best for the nation to become debt free. Moving forward, using the new project-oriented P-series bond (c.f. Skeleton Government) will prevent the nation from going into nonconsensual debt in the first place.