I’ve been thinking about something a realtor friend told me last night. Yesterday, three homeowners called a banker she knows and said that, if the banks were going to be bailed out, they weren’t going to pay their mortgage. These were regular mortgage payers with no history of credit problems. They have simply given up on the relationship between the economy and themselves that they’ve believed all their lives.
So, I looked into the total US debt, the total of debt owed by low-income countries, the total mortgage debt in the United States and other factors, such as total consumer debt, in the clusterf*^%$k we call the economy.
The United States has $10.2 trillion dollars of national debt as of today. Only $5.9 trillion of that is held by the public, the rest is intragovernmental debt, held by various government entities as part of borrowing conducted to keep things going.
As of August, there was $2.5 trillion in U.S. consumer revolving and nonrevolving debt. Low-income nations owe about $523 billion to rich countries, including the United States.
What if we call it all even? Just erase all debts, including all debts owed by developing nations, except those U.S. Treasury notes held by the public (which would include most of the debt held by banks and foreign governments today, so that the credit of the United States remains intact). Just say “you own what you have and all debts are forgiven.” The U.S. would pay off everything, while voiding intragovernmental debt ($4.3 trillion) and the debt holdings of all banks, which would be left with whatever cash they have on hand and their Treasury bills.
Everyone and every business in America would be left with their current assets (which would include receivables) and cash, Treasury bills and so forth.
It would result in a national debt roughly twice as large as today’s, somewhere not very far north of $22 trillion.
Then, ban any debt representing greater than, say 20% of a household’s total net worth. That 20%-of-assets debt, secured by the newly freed assets held by households and institutions, would fuel a lot of spending, which would jumpstart consumer spending.
The other thing we’d need to do is raise taxes—we could even have a simple flat tax of 39%—for ten years, while the government operates without deficits at any level, which would allow the country to pay of much of that national debt, which would amount to about $72,000 per individual or $7,200 a year for a decade (less than most people’s annual mortgage expenses). Using the Bureau of Economic Analysis’s Personal Income figures for the last year, that would generate approximately $4.5 trillion a year in tax revenue, far more than we currently raise in taxes (U.S. government receipts are about $2.5 trillion this year) and enough to operate the government, right Social Security and pay off most of the $22 trillion post-jubilee debt.
After 10 years, we’d have broken personal and corporate debt habits that have been learned only during the last 25 years, there would be a U.S. surplus and we could cut taxes drastically, if we chose to do so. But we would have put our house in order.
It’s just a thought. We need to buy back this country somehow.