Default is the only responsible choice

By Seth Grossman, Political Columnist

?Some tea party members simply do not want to raise the debt ceiling, and that could be catastrophic. . . America’s Triple A bond rating will be cut if no debt compromise is reached. . . So the tea party people should reassess the issue. . .?
? Bill O?Reilly, Talking Points Memo, July 21, 2011


?I?m concerned about the nation defaulting on its credit. . . I?m concerned that we?re getting into uncharted territory that could wreak great havoc on our nation. . .?
? Speaker of the House John Boehner to Rush Limbaugh, July 21, 2011


A lot of well-meaning conservatives and Republicans say they want to cut federal spending. But since Obama and Senate Democrats won?t agree to their plan, they are about to raise the debt ceiling anyway. They say it is the only ?responsible? thing to do. But is it?

The federal government debt is now roughly $14.3 trillion ($14,300,000,000,000) ? about $123,000 for each American household. (About $232,333 for each of the 53 percent of households that pay federal income tax). It is growing at $4.38 billion per day.

That doesn?t count $6.4 trillion of federal guarantees of junk mortgage and student loans for Fannie Mae, Freddie Mac, and Sallie Mae. And it doesn?t count the $60 trillion promised for Social Security and Medicare during the next 40 years, even though no money is set aside to make any of those payments.

If you add all this to the simple $14.3 trillion of ordinary federal government debt, you get a total of $80.6 trillion. That comes to $701,000 per household ? $1,321,311 for each household that pays taxes.

Then there are federal guarantees for banks (FDIC), postal pensions, etc.? Isn?t it obvious that the federal government is already unable to meet these obligations? Won?t there be a default anyway? And besides, why should our kids and grandkids pay all their lives for money our politicians spent on ?Cash for Clunkers? or Wall Street, AIG Insurance, GM and Chrysler bailouts?

The only responsible way to fix this mess is for the federal government to do what individuals and businesses do when they get in this much of a hole.

During the past 12 months, 1,516,971 American families and 54,212 businesses filed bankruptcy. The courts reduced their debts to what could reasonably be paid. In most cases, all debts were completely wiped out.

During that same time, about another million American families negotiated big reductions in their mortgages and credit cards without going through the formal bankruptcy process.

This caused large financial losses for the banks and other companies that made these stupid loans in the first place. But the Wall Street Journal and most private economists look to consumers and businesses who got themselves out of debt, and who are now living within their means, as most likely to cause any future recovery.

Countries with big government debt like us have depressed economies. Countries with little debt, like Brazil, India, and Iceland, are booming.

It?s way too late for the federal government to avoid default; the only real issue is how and when to do it.

Anyone who did work for, or loaned money to a failing business knows they are better off when the default and bankruptcy is done right away. When that happens, investors and creditors usually get back most of their money.

But when a failing business is allowed to stay in business for years, and keeps getting new loans to pay current expenses and minimum payments on old loans, there is more hardship for everyone. Creditors, vendors, and sometimes even employees get almost nothing on what they are owed. Think Trump and Millville Motorsports Park.

It is the same way with the federal government. If Uncle Sam came to my law office, my advice on his big debt problem would be something like this.

Cut back Social Security and Medicare so they never promise to pay out more than what they take in. Pay something like 40 cents on the dollar of the current $14.2 trillion debt, and pay that reduced amount off within 20 years ? just like a mortgage.

Cut $1.6 trillion off current expenses so the federal budget is balanced, this year. That would be easy if the federal government only did what Article I, Section 8 of the U.S. Constitution says it is allowed to do.

Isn?t this ?tea party? solution the only responsible thing to do?

(Reprinted from July 27, 2011 Current-Gazette Newspapers of Atlantic and Cape May Counties,

Somers Point attorney Seth Grossman appears on 1400AM talk radio 3-4 p.m. Mondays and Wednesdays and on 92.1FM 8-9 a.m. Saturdays. For information see, email or call?(609) 927-7333. Breakfast discussions are held 9:30-10:30 a.m. every Saturday at the Shore Diner on Fire and Tilton roads in Egg Harbor Township.

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  • Seth Grossman

    Seth Grossman is executive director of Liberty And Prosperity, which he co-founded in 2003. It promotes American liberty and limited constitutional government through weekly radio and in-person discussions, its website, email newsletters and various events. Seth Grossman is also a general practice lawyer.

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