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Why Rand Paul Is Wrong On Government Default

According to his website, conveniently named RandPaul2016.com (and yes, I know that the “2016″ is theoretically referencing his future Senate reelection bid in 2016 but….come on), Senator Rand Paul yesterday introduced the Default Prevention Act as a response to the latest iteration of the “debt ceiling debate”. Of course we’ve seen this show before, and we know how it ends: with the debt ceiling being raised after some sort of “compromise” is reached, where both sides cross-their-hearts-and-hope-to-die promise to fix the budget problems the country is facing next time.

Since the U.S. government technically reached the current legal debt limit on December 31, 2012, the government must rely on the funds it has and the funds it takes in to pay the bills. Those bills include everything and anything the government spends money on, from funding the overseas military empire to Social Security payments and of course, the interest on the debt itself. According to the press release from Senator Paul’s office:

In order to remove any chance of government default, Sen. Paul’s legislation spells out which government-funded programs should be held at the highest priority to continue funding, while paying down the interest and principal on debt held by the public.

“Some of my Republican colleagues in the House have decided to surrender to the Democrats’ annual plan to increase the debt ceiling. I believe we should stand and fight for a Balanced Budget Amendment to the Constitution before we raise the debt ceiling. My legislation takes the possibility of default off the table so we can continue to push for fiscal restraint. There is no reason the government would – or should – responsibly consider the idea of default,” Sen. Paul said.

Senator Paul has the wrong idea here when it comes to the national debt. He buys into the idea that the debt of the U.S. government belongs to the “public” i.e. every single person in the United States. This falsely equates private debt – where a person willingly takes on a debt and signs a contract to pay it back in a set amount of time with an agreed upon interest rate – with public debt. Conversely, the debts of the United States government are not contractually agreed to by anyone, and will not be paid through honest means. Instead, they will be paid through continued coercive taxation of the public.

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Rand is not wrong

He is keeping the conversation about debt alive. The same conversation that democrats want to bury. With the help from their Republican ringers Cantor and Boehner. Didn't those arsholes vote for 2008 bailout of the banks while holding Nancy Pelosi's hand? Making them all look bad is what Rand is doing. I am sure the Austrian School is not lost on Rand. Sure his tactics and solutions draw criticism but his electiblity is getting better by the day.

The apple does not fall far from the tree and, in this case, his father is of the greatest of men.

Garan's picture

B.T.W. RandPaul2016.com might be a scam.

RandPaul2016.com is mentioned in this post. However, that site looks like a scam to me.
I thought it was important enough to create a post (sorry for the cross post).
DailyPaul.com: RandPaul2016 might be a scam.

Rand Paul is not wrong on this issue

The establishment narrative re the deb ceiling is that anyone trying to use the debt ceiling as leverage for spending cuts is "holding America hostage" and risking default on the national debt. Rand's bill, which requires that the President prioritize interest payments on the debt, removes that rhetorical weapon from the hands of the establishment, and strengthens the hand of those conservatives and libertarians in the GOP who want to use the debt ceiling as leverage to get real spending cuts. This is the reason to support Rand's bill: it is a smart political move which effectively neuters the opposition, or at least forces them to come up with a new narrative.

Now, to be clear, this bill is not really about avoiding default, since there is no risk of default anyway. As I said, the idea that a failure to raise the debt ceiling will cause default is just rhetoric from the establishment. But why not default on the debt? Well, I'm in favor of defaulting on the debt in principle, but it can only be done in a certain way. Once we get the budget balanced at a low level of spending, and once we are seriously preparing for a return to the gold standard, then we can talk about defaulting on the debt - but not until then. Otherwise, if the federal government defaulted on its debts now, with the current monetary and banking system, the results could be catastrophic: complete collapse of the banking system and/or hyperinflation. That's to be avoided if at all possible, eh?

The article posted in this thread wants to make the debt an ethical issue: i.e. it is illegitimate to begin with and should not be paid. Yea, that's true, but you need to consider the practical implications of default. As I said, there's a right way and a wrong way to default on the debt. Defaulting right now, with the current monetary/banking system, is definitely the wrong way. Whereas we can get the burden of the debt off the backs of Americans just as well but with much less pain if we do it the right way.

"Alas! I believe in the virtue of birds. And it only takes a feather for me to die laughing."

This whole

This whole "there will be a catastrophic event" jargon is the same argument used to support every single tax raise, debt deal and bailout.

I agree there will be much less pain if we do it in the right way, and my point is that the right way is not continuing to pay the interest on the current dead. To seriously address the debt we must first admit that the current debt cannot be paid and renegotiate with lenders.

What Rand is suggest merely keeps the game going.

The sooner we reject the idea that the national debt is "our" debt the better.

http://lionsofliberty.com/
*Advancing the Ideas of Liberty Daily*

Bingo! Seems some here truly

Bingo! Seems some here truly want to witness a catastrophic event. I don't think they understand how ugly it would be. What our country needs is a plan for a smooth default so we can transition into a better monetary policy. You cannot rip the bandaid off of this one...it's too big.

Rand is a Constitutionalist

The public debt of the United States shall not be questioned.

Either way you're paying for this.

I believe most of you are honest in criticizing Rand here. The national debt is one of those grave injustices that Hamilton left us with. And it is perfectly right and just to criticize it.

But either way you're paying for this. If the government pays it off with inflation or taxation, you're paying for it. If the government defaults, you're paying for it with huge costs of fiance and a drastically reduced economy.

There is no "sticking it" to anybody by defaulting. The bankers can just charge more interest when you want to buy a home. The Chinese can simply dump our bonds on the market.

Maybe it is naive for Rand to think that government can be forced to curtail spending? But at least he is trying to do that.

Right-O.

Right-O.

Default on the debt.

.

If I were in debt...I'd

If I were in debt...I'd personally work out a plan to pay my debt...rather than create more debt or default on my debt. I think Rand is offering solutions.

There is a major difference

If *you* are in debt, it is because you voluntarily signed a contract agreeing to pay that debt.

When the *public* is in debt, the government is burdening them with obligations that they never agreed to, and forcing them to pay it anyway at the point of the gun.

There is a major difference between private and public debt.

http://lionsofliberty.com/
*Advancing the Ideas of Liberty Daily*

I'm just pointing out common

I'm just pointing out common sense.

Do you want to default? I don't. I would rather pay off our debts.

Now you are collectivizing

The debt is not *our* debt, it is the *government*'s debt. The government has already made obligations far beyond what it can pay, so it is already in an unaccepted state of default. The only way it will not default is by printing money, and that in itself is a default of a different kind.

So if the debt is impossible to pay, and default of some kind is impossible to avoid, why is the highest priority paying the crony bankers more loot stolen from taxpayers?

http://lionsofliberty.com/
*Advancing the Ideas of Liberty Daily*

Default means they will send in the repo men with guns.

The task of the US Military during WWII was to repossess the money the Federal Reserve had loaned 20 years before.

After Germany and Japan had looted its neighbors, the Federal Reserve looted them. Who were Kelly's Heros? Just a bunch of soldiers or repo men?

Marcos guarded the gold in the Philippines that the Japanese had looted from China and Southeast Asia.

How much would or creditors pay to recover $16.2 dollars.

The Iraq war cost taxpayers 4 trillion dollars. to repo Saddam's loans. The looters got what they could carry home. Out of hate, the taxpayers funded the operation.

The purpose of the Audit the Fed bill was to expose the fraud. As Henry Ford said,

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

Read more at http://www.brainyquote.com/quotes/quotes/h/henryford136294.h...

A R3volution, means to turn again, then we should use revolutionary ideas to avoid war and war debt and try something that didn't cause the original American Revolution to eventualy fail: Foreign Debt.

-Until such time, it is prudent to pay the interest on the debt 'owed'.

-Repeal all bills establishing an unfunded liability.

-Slash Federal spending by 75%

After that, we can negotiate and not grovel before our debtors.

Now we beg them to raise the debt ceiling. How will the creditors settle this? In their favor, no doubt.

Sure we have our guns. The repo men will come bigger guns.

There is a way out. It means giving 3/4 of the Federal government a pink slip.

Free includes debt-free!

This is what I was saying in the other thread

The repo men are here...
It can't be a US only thing, that is true. But a global jubilee, declared by and for the people in spite of government objections could be fun. I'd like to try it.

This is the article that got my posting privileges revoked:
http://bklim.newsvine.com/_news/2013/05/12/18212165-dr-stan-...

It is not

our debt. It is the debt of the United State government. Much like these wars and drone attacks are not done by us. They are tactics employed by the United States government. Stop saying "our government" and "we are at war". Unless you are active military or a veteran, you are not and were not at war. The US government is at war. Same goes with the debt.

Ok...I would rather our

Ok...I would rather our Government pay off their debt.

the government would rather

the government would rather that YOU pay off THEIR debt. The government has no resources but what it steals from someone else.

Bingo

So...is Rand our proposing

So...is Rand our proposing that "we" pay off the debt? Seems to me he is proposing prioritizing our spending (spending cuts) and paying down the interest...rather then raise the debt ceiling or going into default.

It's a start.

Slashing Federal spending 75%.

What do we need The USDA for. It was one of the Marxist 10 Planks to oppresive government added by Lincoln.

Ron Paul listed 5 other departments fit for the chopping clock.

Free includes debt-free!

Yes...and you have to start

Yes...and you have to start somewhere.

Rand is simply

trying to get government to be more accountable and prioritize what it spends on.

"In order to remove any chance of government default, Sen. Paul’s legislation spells out which government-funded programs should be held at the highest priority to continue funding, while paying down the interest and principal on debt held by the public."

I'm sure that Rand knows that public debt is undesirable and, more than that, immoral. This legislation will force recognition by policy makers of how deleterious public debt is to our economy, and force them to start paying it off. The goal being a "balanced budget amendment", which would be much more palatable under these circumstances.

The term

The term "more accountable government" wreaks of statism. It makes the false assumption that there is an "accountable" way to loot and pillage from the citizens.

If someone is stealing from me, as the government does with spending regardless of it pays for it with a tax or with inflation, I could care less what kind of "accounting" they do afterwards.

http://lionsofliberty.com/
*Advancing the Ideas of Liberty Daily*

I'm not an anarchist.

If I were, I would not be the least bit concerned in politics.

Because I believe government to be appropriate, I am capable of having a rational discussion of what would be a "more accountable government" in regards to Rand's policies.

It's a difference between having a ruler or boss and government.

There is no restriction on an Anarcher entering a contract with others. It does not require accepting a ruler, but only the terms of the contract.

Part of the Contract of 1789 was a Bill of Rights that protected individuals from government abuses. That's a pretty good idea as far as it goes.

Free includes debt-free!

Stop attacking Rand

Just for the sake of attacking Rand. Ron Paul endorsed this exact same idea when he was in office. This article overlooks several fundamental issues that are irresponsible to ignore.

1. Iceland forgave The private mortgage debt of their citizens, not the public debt issued by the government. Further, they only forgave debt above 110% of the current property value on underwater mortgages. People keep misrepresenting this situation as Iceland writing off all debt of any kind.

2. The author states it is unfair to pay the interest on the debt before paying the social security recipients their monthly check. A large portion of the social security fund is invested in Treasuries, which pays social security recipients using the interest paid out by these treasuries. So if you don't make the interest payment, you won't payout the social security benefits.

3. The article makes the assumption that we will screw over the banks by defaulting. While this is true, in reality we will be screwing over all creditors including the US people. Our citizens are one of our largest creditors (larger than China) having invested in savings bonds and Treasuries in their pension plans, 401ks and mutual funds.

4. Most of these funds are required to invest in AAA rated assets. If we default and get downgraded, there will be a rush to sell the existing treasuries destroying their value and the retirement of many Americans.

The only responsible thing to do is exactly what Rand proposes. Pay the interest while enacting a balanced budget (cut spending) and lay out a plan to pay off our debt.

peace + liberty = prosperity

????

You said:

"A large portion of the social security fund is invested in Treasuries"

Do you even know what you are saying when you say that? Do you know what treasuries are? The SS fund being "invested in Treasuries" means the SS fund contains IOU's! The US Govt is BROKE and they stole the money that we taxpayers have been paying in.

You then said:

"which pays social security recipients using the interest paid out by these treasuries" -- hahahaha! (????) o_O

The interest is owed by the US GOVT! Which is ---> BROKE.

There are only three ways to make good on SS payments:

1) through more taxes
2) sell more treasuries (go into further debt) -- buyers are getting harder to find
3) for the Fed to buy it's own Treasuries (the new magically insane way -- past the point absurdity)

.
~wobbles but doesn't fall down~

Your points

1. I never made a comparison to Iceland. At any point.

2. This is some kind of circular logic...there is no specific "fund" by which Social Security payments are made from. To say "a large portion of the social security fund is invested in Treasuries" tries to pretend there is such a thing as a Social Security fund. Since there is no fund, essentially all Social Security payments come from existing revenues, regardless of what specific financial instruments the Treasury Department uses to pay them. The Federal Reserve is the largest holder of U.S. Debt.

3. I also dd not make an "assumption" of any kind, I explained the reality of "public debt' vs. "private debt", and 100% of the U.S. debt I am referring to is public debt. Any funds, whether it's the government's own funds or the funds of private citizens, which hold U.S. debt do so as part of the overall coercive tax system. It is not the fault of the man who is being taxed or the man whose money is being inflated that someone else promised his money to a third party. If my neighbor comes to my door demanding all my money and I refuse, the conversation does not change when he says "but I PROMISED I'd give all your money to my sick grandmother."

4. There SHOULD be a rush to sell U.S. treasuries, and there will be at some point no matter what, so there should be no attempt to prop them up. This only encourages further "kicking the can down the road" and further expansion of government. Last time the debt ceiling was raised the U.S. had it's credit rating lowered. The world did not end.

The only responsible thing to do is to denounce and call for an end to the coercive taxation system that allows government to go into debt upon behalf of it's citizens. Any serious analysis of the debt shows that it cannot, under any feasible circumstances, be "paid off", so any attempts to act as such are merely propping up the current system. The debt needs to, at the least, be negotiated down in a Chapter 11 type situation, because any wise creditor knows he won't keep getting paid once the U.S. defaults.

http://lionsofliberty.com/
*Advancing the Ideas of Liberty Daily*

RE: Iceland

1. I apologize I had the Iceland example in my head from another thread on the site that was endorsing the repudiation of US debt (outlined in this article) using Iceland as an example (not in this article).

2. There is a fund for social security, even it if is looted and spent for other purposes: http://www.ssa.gov/cgi-bin/investheld.cgi
The link shows the investments that have been made into Treasury bonds by the social security fund. (interesting note, The Fed QE depressing interest rates is screwing the social security fund as its old high interest bonds are rotating in to new low interest bonds when the expire).

3. I agree that the current tax system is coercive and should be radically changed. However, you can't ignore that the system is in place, the funds have been coerced into the social security fund, and Americans rely on social security payments for their retirement. Even if you eliminated forced social security contributions today (which I support), that doesn't change the fact that people have paid in for the entire lives and rely on that money now. Is your solution that we just default on payments to these people?

4. There shouldn't be a rush to sell treasuries as there isn't an immediate risk. I agree with you that the paper isn't backed by much of anything, but creating a panic by default creates an unnecessary collapse in the market with terrible economic repercussions for every US citizen. With that said, I think the current Fed Policy of QE is deplorable and should be phased out allowing interest rates to rise as the artificial demand for treasuries created by the fed is removed from the market. This will bring the treasury market back into line with actual demand, rather than just collapsing the market all together.

If I understand you correctly, you would prefer to just declare bankruptcy today and let the chips fall where they may. To use an analogy, we have had our foot on the gas pedal speeding out of control and you would prefer to just dive out of the car and let it crash rather than applying the breaks.

peace + liberty = prosperity