July 14, 2011--The Sooner the Better

“I don’t know what the problem is.” I was having coffee with a friend. “It’s working for me.”

“What’s that, Joe?”

“Chapter whatever.”

“I’m not following you.” In fact I wasn’t.

“Chapter 7. Bankruptcy. Personal bankruptcy. I declared it, what, about 18 months ago.” I nodded sympathetically. “Best thing I ever did.”

“How’s that, Joe? I’m not sure I understand. Doesn’t it mean you can’t have any credit cards or borrow money? Among other things, I mean.”

“That’s half the reason it’s the best thing that ever happened to me. I was addicted to those cards. They got me into a peck of trouble. And my mortgage, which of course I defaulted on.

“Sorry to hear that.”

“Thanks but there's nothing to be sorry about. As they say about all people who get themselves in trouble, I had to hit rock bottom. That’s where I hit, but now look at me.” I turned to face him. “I don’t look so bad do I?”

I had to admit he didn’t.

“I’m getting my act together. A step at a time. It’ll take a few more years to dig out for sure, but then I’ll be able to start all over. All the better for it.”

“Not that I’m disagreeing with you, Joe, but you’re still a relatively young man with responsibilities. You have a nice family. I don’t know a lot about Chapter 7, but doesn’t it mean you're not eligible for many kinds of jobs? I mean when you apply for something at, say, Walmart, don’t they run a credit check on you? And wouldn’t that mean . . . ?”

“Yes, that they wouldn’t hire me. Don’t get me wrong. There are real consequences. You don’t get off scot-free as if you did nothing wrong. But that’s the whole point—I did do something wrong and there is a price to pay. But the price I’m paying is leading me to a better place. As they used to say, ‘There’s no free lunch.’”

“I agree with that,” I said.

“And what’s more, what’s good for me would be good for the country.”

“Again, I’m not following you.”

The U.S. of A. We’re bankrupt too. Just like me.”

“I’m not sure I agree with that.”

“We owe more than $14 trillion, right?” I nodded. “That’s our national debt, right?” I shrugged my shoulders. “Tell me what’s so different?”

“For one thing we have by far the world’s largest economy, China not withstanding. Ours is at least four times the size of the Chinese economy and we have way fewer people. About a third as many. Which means that we’re very productive and there’s a lot of tax money streaming into the Treasury. Money they use to meet our obligations.”

“Fair points; but tell me this—how are we ever going to pay down that $14 trillion?”

“Many economists say that for an economy the size of ours carrying that much debt is not as big a problem as it sounds. I know that doesn’t feel like common sense, but that’s what they say.”

“I can name other economists who say exactly the opposite. It’s not an exact science. In fact, it’s far from anything resembling science. But that’s neither here nor there because even Paul Krugmans—he’s one on your side, right—even he can’t tell us how to get out from under our obligations. In fact, if your Obama had listened to him, we’d owe another few trillion and still be counting.”

“But you’re ignoring how we got into this predicament in the first place. Your George Bush . . .”

“That’s old news. What we have to do now is face our situation the way I did. It’s cold-turkey time. I use that expression because like me the government is addicted to borrowing and spending. The only way out is to face the fact that we’re at rock bottom.”

“And?”

“Which means exactly what I said. What I did. Like me the government has to say, ‘No mas.’ No more. It’s time to face the reality of our situation. We’re in a hole we can’t dig out of.”

“And?”

“Whatever chapter it is, the U.S. has to declare bankruptcy. Reorganize.”

“You mean not pay what we own to our bond holders?”

“Among other things.”

“And these include?”

“Look, when we declare national bankruptcy the economy continues. People still have their jobs. They still get paychecks. They still pay taxes. But what we do with those taxes would be different. Rather than pay the Chinese we continue to send out Social Security checks, we pay veterans benefits, we pay our soldiers, we even keep paying for Medicare. The only thing we stop doing is paying our foreign creditors.”

“But you know that many other institutions and foreign governments hold our Treasury bills? We’d stop paying them too?”

“Yup.”

“Wouldn’t that mean, with all due respects, that like you who can’t apply for certain kinds of jobs or buy a car or house, the United States would become a pariah economy? That nobody would ever trust us again or be willing to do business with us? To trade with us, for example? Do you think the Chinese would ever again export stuff to us?”

“What would be so bad about that? They’re killing us now by not playing by the rules. Wouldn’t we be better off without having all those goods produced by cheap labor flooding our country and taking away jobs from Americans?”

“Some of this may be true, but if we walked away from our obligations wouldn’t we be risking the collapse of our economy and wind up totally isolated from the rest of the world? What you’re proposing would be quit a roll of the dice with potentially cataclysmic consequences.”

“As far as I’m concerned we’re already living with a cataclysm. I say, ‘The sooner the better.’ Waiting for the inevitable to happen is not the solution. Facing up to the reality of our situation and doing what needs to be done is what we have to do. And I mean now. Again, as I said, like I did.”

“It may be working for you but for the country, which is a whole other matter, I’m not so sure. I’m not willing to risk all our futures on something as radical and untested as what you’re proposing. look at what just the possibility of Greece defaulting has done to the world economy.

"And frankly," I continued, "your Republicans aren’t being responsible either. They taking cheap shots to scare worried people into voting for them. There’s one Congressman I read about yesterday, Austin Scott, who’s part of the Tea Party freshman class, who said that, yes, there will be some, ‘short-term volatility,’ but, to quote him, 'in the end the sun is going to come up tomorrow.'"

Joe chuckled at that.

“I don’t know,” I said, “if he was evoking Ronald Reagan who told us that in spite of our problems it was still morning in America, or Annie. I suspect Annie since he clearly doesn’t know his history. During Reagan’s time the Republican Congress voted casually to raise the debt limit a number of times. And during his eight years Reagan tripled the debt, increasing it from $900 billion to $2.7 trillion. But I assume you believe that he was still a pretty good president.”

Joe just smiled at me and said, “You really don’t get it, do you?”

* * *

Maybe I don’t, but I did look up what President Reagan wrote to then Senate Majority leader Howard Baker back in November, 1983, urging him to have Congress raise the debt limit:

The United States could be forced to default on its obligations for the first time in its history.

This country now possesses the strongest credit in the world. The full consequence of a default–or even the serious prospect of default–by the United States are impossible to predict and awesome to contemplate . . . . The risks, the costs, the disruptions, and the incalculable damage lead me to but one conclusion: the Senate must pass this legislation before the Congress adjourns.

I thus wondered who in fact doesn’t get it.