Recently, Veronique De Rugy at National Review Online noted that Bill Gross of Pimco (who recently dumped all holdings of US Government debt) believes that there is no way out for US deficit spending. The amount of money needed to service the debt will explode, as long term rates go up and up to reflect the risk of (very likely) not getting repaid and (printing money making the dollar worth less every year). Helicopter Ben Bernanke thinks inflation is well tamed, while Gross, who has actual money in the game, dumped Treasuries because inflation is eating away at US productivity, and high inflation means less in taxes in real terms, choking off any recovery let alone growth.
This is basically the “No Way Out” scenario of a death debt spiral. Japan would seem to be in the same boat. Yet its bonds while under stress (debt service for Japanese government bonds is considerable) have held up better than US Treasuries. Why?
Silly! Its the Demographics. Japan is an aging society that while incurring health care costs, will have low costs for education, low costs for childhood health care, low costs for immigrants (because they have in effect, none). Japan may be a declining nation demographically, but they are still about a 130 million or so crowded into the size of the Atlantic Seaboard. While producing valuable products and creating wealth. Japan’s bonds will not all mature tomorrow. There is time and space for them to pay them off, still despite the considerable burden they create, because their social spending needs are modest.
BECAUSE THEY DID NOT IMPORT MASSES OF DESPERATELY POOR PEOPLE IN POPULATION REPLACEMENT. Yes it is that simple.
So what is the way out for America?
Simple. First, deport all illegals, their children (regardless of pro-forma citizenship status), and probably the grandchildren of illegal aliens. Call it Survivor Economics. Outwit, Outlast, Outplay. Win by voting other (poorer) people off the island. Literally.
Removing the Hispanic exodus into the US would reduce K-12, Welfare, and Health Care on massive levels. Some small amount of taxes would be lost (not much — poor people don’t pay much taxes). But the offsetting reductions in mandatory spending on health care (for the ninos of desperately poor Mexicans), education (for those ninos who are often illiterate, speak little to no English, and require extensive special help), and welfare (for desperately poor people who are in fact, poor) would be substantial.
Enough to devote far more cash to paying down the debt.
The other means at hand is good, old fashioned, and proven to work. Imperialism! Latin America is filled with weak nations that have sent their poor to us. It is time the US returned the favor, and simply ran those rich in resources, particularly silver, gold, and oil, to pay off the debt. The militaries and populace of the vast part of Latin America is not particularly adept at fighting, and while oil facilities are fragile, silver and gold open pit mines are not. Mexico and Peru in particular are tempting targets. Amass enough gold and silver, to convert into US Dollars, and instead of “devaluing” US currency, adopt a bi-metallic, or even simply silver based standard, for the US dollar. Suddenly, the US dollar buys more, is stronger, based on proven silver/gold reserves held by the US, “stolen” from Mexico and Peru, and mined or believed to be mined in the US.
No, this is not particularly moral, nice, friendly, or likely to impress “important people” in Davos and other world stages. It does however, have the ability to work, while not destroying world financial markets and the US government ability to borrow for important things like future wars, or disaster recovery, and the like.
America could simply of course, follow Argentina’s model and openly repudiate the debt, but that would make both the US dollar relatively worthless in buying things like oil and imported food and such, close capital markets for future borrowings. America could inflate the dollar to nothingness, which does essentially the same thing, but that would make the average person unable to buy food, clothing, or energy. Not a winner in a democracy. More likely to create a mob. Led by factions of the military.
Ask the average person, would they like their dollar to buy 200% more of what it does now, and all it will cost is A. Deport lots of illegals and their descendants, and B. Invade Mexico and other Latin American nations and extract gold and silver to “pay for illegal immigration costs in the past.” About 90% or so, even those of Hispanic background, will say yes (as long as they and theirs are unlikely to be deported).
America has not had to come to grips with the necessities of life. Of how to pay for all the “nice things” America bought on credit, to pay for essentially illegal immigration and cheap disposable labor. Well, now the bill is due.
America can simply repudiate the debt, openly or through inflation (Bernanke is doing the latter). America can on the other hand reduce costs and add to wealth by good old-fashioned imperialism, unapologetically putting the interests of Americans ahead of foreigners. Too bad for them, we’re broke. Really put into practice Smedley Butler’s conception of a gangster for capitalism.