Chuck Butler, President of Everbank World Markets delivered a very impassioned presentation entitled, “Chuck Butler’s views on solving the debt crisis”. Chuck is the editor of an Everbank web site called the Daily Pfennig. For those more curious, a “pfennig” is an old German coin or note. In Chuck’s world, he sees nothing but kicking the can down the road with the continued efforts to raise the debt ceiling – hard to argue with that. Most recently, the U.S. Congress did not have to deal with another government shutdown since the Treasury invoked extraordinary measures thereby obviating the need for a ceiling. We blew threw the ceiling but it did not matter.
He postulated that there are four general (not his) solutions:
- Increase revenue – We can raise taxes though only so much can be squeezed out of taxpayers.
- Cut spending – He laughed after he suggested this.
- Devalue U.S. Dollar (USD) – That would allow debts to be paid back with cheaper dollars and is the easiest road. He thinks other countries will debase but the U.S. will do it faster.
- Default – There are serious implications to this course.
Editor’s note: As readers of Escaping Oz know, there is simply not enough taxing power available to resolve the debt problem. Spending curtailment has not been an imperative given the fiat nature of our currency. Devaluation of the USD will simply occur in parallel to other currency devaluations currently in effect. Default is an option that other governments have invoked (see Russia) and provides an opportunity to start over. That said, the creditworthiness of future debt issue will come under much greater scrutiny and higher rates.
Here are Chuck’s solutions to debt crisis:
- Stop wars. This includes Iraq, Afghanistan, and the War on Drugs.
- Adopt a policy of “if it does not work scrap it” with respect to government programs.
- Close military bases around the world, bring troops home and protect our borders. The U.S. has 4,702 military bases worldwide and 110 are considered “large”. In the state of Montana alone, there are 249 bases (missile silos included in count).
- Stop discretionary spending. He gave the example of the famous Route 66 that was built with private funds.
- Stop sending money overseas.
- Enact a law mandating a balanced budget.
- Repeal 1913, figuratively. This was the year that saw the birth of the income tax and the Federal Reserve.
- Enact changes to entitlement programs.
- Those 60 and above experience no changes.
- Ages 50-59 receive 50% of what was promised plus what they paid in.
- Younger than 50 receive no promises but earn what they paid in.
All the solutions noted by the speaker will involve an often discussed topic in my column, which is the clash between politics and economics. That is not a critique of Chuck’s solutions but rather the inevitable headwinds they would face. Those headwinds are exacerbated by the use of a fiat currency and the USD status as the world’s reserve currency.
Chuck concluded his presentation by suggesting diversification out of USD with 20% invested in currencies and 10-15% in metals – investments offered by Everbank.