0 votes

A Modest Proposal for Radical Reform

This is a little scheme I've been dreaming up, thought you might enjoy a peek.

...

The first step in righting the ship of state is to balance the budget, to do so purely through spending cuts, and to balance the budget at a much lower level of total spending. If you believe as I do that the only legitimate functions of the federal government are defense, the federal courts, and foreign diplomacy, then the federal budget can be cut from its current multi-trillion dollar level to ~$400 billion annually. $400 billion is enough for defense. The cost of the courts, the diplomatic service, and the salaries of elected officials themselves are negligible.

How will we fund this new and improved (i.e. drastically reduced) federal government? I propose that we eliminate all taxes and replace them with nothing for five years. How is that possible, how will the federal government fund itself? Through the sale of its assets.

Federal Assets
(billions of dollars)

(government ex-Federal Reserve: p.493 analytical perspectives)
Financial: $1341 (100%)
Non-financial reproducible ex-defense: $459 (90%) = $413.1
Non-financial reproducible defense: $825 (50%) = $412.5
Non-reproducible: $753 (100%)
Inventories: $286 (90%) = $257.4
Total: $3186

(Federal Reserve H.4.1 release 3/22/2012)
Total Federal Reserve assets ex-treasuries and gold: $1220

Grand Total: $4406

(The percentages next to the figures represent the proportion of those assets which are to be sold. I've tried to roughly approximate cutting the defense establishment in half [and therefore selling half of its assets], and cutting all but 10% of the federal bureaucracy [and therefore selling all but 10% of its assets.])

So if we sold (almost) all federal asset we would raise $4406 billion. It would cost $2000 billion to fund the federal government for five years if it was spending $400 billion annually. That leaves us with an extra $2406 billion. What to do with these funds? Well, the next step in righting the ship of state is to get out from under the national debt – and the best way to do that is to default. But, plenty of ordinary Americans own treasuries via their retirements savings accounts, their pensions, etc. It's not fair to completely ruin these people, but neither is it fair to keep taxing everyone to repay the debt. Fortunately, thanks to the asset sales, we now have a surplus of $2406 billion. We can use this to partially settle the debt owed to ordinary Americans.

Federal Liabilities
(billions of dollars)

(p. 493 analytical perspectives)
Total federal pensions/benefits: $5631 (present value)

(non-marketable treasuries: p. 17 CBO)
Savings bonds: $189
Thrift savings plan (military 401k): $124
State and local governments: $193
Total: $506

(marketable treasuries: p. 26 CBO)
Held by individuals: $1100
Mutual funds: $603
Pension funds: $775
State and local governments: $509
Total: $2987

Grand Total: $9124

This is an approximation of the total debt owed to ordinary Americans who own treasuries directly or through their retirement plans (including federal employees). Remember we had $2406 billion to give them, and we owe them $9124 billion, so we can afford to give them a one-time payout of 26.4% of what they're owed (2406 / 9124 = 26.4%). That's not 100%, but it's a lot better than 0%.

Let's reflect on what we've accomplished so far. We have reduced federal spending to a mere $400 billion annually, we have eliminated all taxation (for five years), we have eliminated the national debt in its entirety, and we made a fairly generous one-time payout to American owners of treasuries because we feel bad leaving them with nothing. But the job is not quite finished. We still have to deal with the monetary and banking system. Our goal is to return to the gold standard, to eliminate central banking, and to restore free banking (i.e. banking as it would be in a free-market).

Have a bank holiday for one week, during which:

1) gold is revalued in order to back all federal reserve notes and bank deposits
-Per h.4.1. Release 3/22/2012, all federal reserve notes + all deposits = $2912 billion
-US gold reserves = 8133.5 tonnes = 8.1335 billion grams
-8.1335 / 2912 = .002793098 grams per dollar
-2912 / 8.1335 = ~$358 per gram = ~$10149 per ounce

2) Treasury announces a standing offer to redeem dollars for gold at this rate, and sends gold bullion to banks to back their dollar deposits at this rate

3) At this point, all banks have 100% reserves for all deposits

4) Repeal all laws regulating banking (go to free banking), including the Federal Reserve Act, announce selective default on US treasuries at this time (as discussed above)

5) Banks reopen – the pure commercial banks are now sound (100% reserves backing deposits), mixed commercial-investment banks may or may not have problems (depends what liabilities other than deposits they may have). The weakest banks will fail, money will flow to the stronger banks, and all banks will be operating in a free-market and sound money environment going forward. Incidentally, you can expect most of the “too big to fail” banks (which are dependent on the Fed and government largess) to go bankrupt – I say, serves them right. Most deposits are in commercial banks, however, and so most deposits should be fine.

So what have we accomplished now? We reduced federal spending to $400 billion, eliminated the national debt (making a one-time mercy payout to individual treasury holders in the US), returned to a gold standard, eliminated the Fed, created a free-market in banking, and eliminated all federal taxes for five-years.

Budabing, Budaboom, you got yourself a free country.
....

References:

FY2010 budget analytical perspectives: http://www.whitehouse.gov/sites/defa...ssets/spec.pdf

CBO “federal debt and interest costs”
http://www.cbo.gov/sites/default/fil...ederaldebt.pdf

Federal Reserve H.4.1 release 3/22/2012
http://www.federalreserve.gov/releases/h41/Current/

US gold reserves
http://en.wikipedia.org/wiki/Gold_re..._gold_holdings