Monday, January 28, 2008

Ceding Sovereignty

It is conceivable that the debts of the United States government will exceed its ability to repay. What then? The news is filled with microworlds in which the U.S. government is expected to come up with billions, sometimes hundreds of billions, and even trillions, of dollars. The Iraq war, the health care system, Baby Boomers' retirements, a one-time tax rebate to get the economy rolling, and, most recently, the prospect of having to bail out a major failing bank -- these are the levels of financial challenges now confronting the U.S. Treasury. Federal insolvency is not at all a foregone conclusion. This is merely a speculative, what-if? piece. Sovereign wealth funds have jumped in to infuse cash into needy banks. They may continue to buy up failing enterprises in the U.S., reducing somewhat the burden on the Treasury. In that event, the answer to the question is that the debts of the U.S. government did not exceed its ability to repay because other nations took advantage of the opportunity to gain control of important parts of the U.S. economy at a great price, buying when we were desperate for buyers. If federal insolvency does occur, it may be because the pieces that were left over, that no foreign buyers wanted to bid on, were things that offered no chance of profit. Health care and eldercare would be possible examples. In the worst case, with no supply of funds, the payments would simply stop, and people would die, as they do in other countries whose economies function on the level toward which ours sometimes seems to be heading. The trick for the next president, or possibly for this one if things develop swiftly, may be to sell troubled assets as quickly as possible to foreign bidders, so that the U.S. Treasury itself does not have to spend any more than necessary on such things -- so that it can instead continue to make payments on the things that nobody else will pay.