February 23, 2004

The Bankrupt Borrow Money

It's an often unappreciated fact that a company entering bankruptcy proceedings almost always takes on additional debt during reorganization. If you've got no money and you aren't just going to suddenly cease operations, you've got to have an orderly process to resolve the situation so people still have to get paid for showing up to work and the people actually running the bankruptcy process have to get paid. So most bankruptcy judges will authorize debt as part of a plan to emerge from bankruptcy.

The United States of America is bankrupt.

We've got huge, insurmountable future obligations that simply cannot be paid with any reasonable future demographic scenario. The taxes necessary to theoretically make good on our "entitlements" promises would crush the economy and still wouldn't collect sufficient funds in the real world.

So, we need to reorganize. We need to adjust our future obligations while our credit rating is still good, and we need to transition entitlement programs to the non-entitlement category.

There's an election season coming up. I know that the Bush administration has a plan for entitlement reform. It's a tried and true formula that has been successfully used in other countries like Chile to go from defined benefit pay-as-you-go to defined contribution plans with private investments. John Kerry, during the traditional summer period of issuing position papers needs to present a plan at least as well structured. To duck and avoid the issue is more than just bad policy, it's a disaster for our country.

The results of timidity in reform can be seen on display in Donald Rumsfeld's 'Old Europe'. Government paralysis spreads with more and more areas being put off limits to reform, militaries atrophy and shrink in both size and effectiveness, foreign policies become little more than craven appeasement to enemies who are too stubborn to be overcome by what little leverage is left.

The US cannot fall into that mindset and survive the next century. Bankrupt though it is, it is going to have to borrow money. The only thing is that the only bankruptcy judge available (the one that approves such expenditures) is the US voter, a figure that has huge conflicts of interest. There is no good solution anymore. We've thrown all those away with delay. Now, it's just buckle down and do what's right or we will all drown.

Posted by TMLutas at February 23, 2004 11:25 AM