Ways to deal with the debt

Economics Economics Questions
1

  1. Monetize it. There is inflation/hyperinflation. The least desirable solution from a libertarian view.

  2. Repudiate it. Taxpayers are off the hook. There is massive deflation. There is no risk of inflation if the government doesn’t intervene. The preferred solution among libertarians if done without . Obamney would probably like this option least because of the short term pain it would cause and because it would decrease the size of the state the most..

  3. Pay it back via revenues. Doesn’t have to cause inflation or deflation.. Less of an option the more debt there is and especially the higher the federal funds rate is. The bright side is that Federal lands can be privatized and weapons can be taken out of the hands of the state. However, Obamney would never sell the national parks system or the military’s weapons. Best if paired with 2, but is not by itself the best option.

Half of 2 and half of 3 would be best as long as they did it through selling public lands and public weapons rather than taxes.

Is there anything above that’s inaccurate? If so, what is inaccurate? I was asking because I wasn’t sure it was correct and because I don’t want to continue telling people that if it’s inaccurate.

I think 1 is the most likely, or they start 2, but the instant there is a bank failure or the instant GDP goes down, they override it by changing (back) to 1.

2

This is a good question. I’m not sure I understand why defaulting on the debt would cause deflation but raising taxes wouldn’t.

3

I get the feeling that a default would be a huge disincentive to buy US based debt assets and because so much of the currency is valued with overvalued debt derivatives, that when they try to sell them in a default environment, no one will buy them because they are dependent on purchasing them with credit which is only availiabe through the artificial expansion of those very debt assets value. So, the banks will have to write the value of their paper assets until someone will buy them. My guess is that that will be very low, much lower than today, and those write downs will depreciate everyones labor and income and the whole economy’s purchasing power.

4

If purchasing power decreases, that would be inflationary. If the debt instruments were to drastically decrease in exchange value, wouldnt that a) be measuredrelative to the exchange value of other things b) mean that purchasing power (of at very least something else) would increase?

5

I may not know what repudiate means. Is repudiation different from the if the Federal government were to refuse to pay its debts back? If so, then that would cause people to not lend at below market interest rates anymore and would cause people to save, right?

6

You got it right. “repudiate” means basically tell them you will not pay it back. The government could also partially repudiate the debt, discount it to 20% or something, 30 billion isnt so bad.

7

300 billion. Makes my head hurt