by Brian Meyer

Created on: April 21, 2008

There is angst among some of those in the United States regarding the nine trillion dollars of debt owed by their federal government to various creditors. Some of the holders of US dollar based investments, spread throughout the world, share their angst. If the federal government defaulted on the debt payments, the value of their dollar based holdings would plummet.

What is the best method for the federal government of the US to pay off a significant portion of this debt? Expectation of the availability of nine trillion dollars of tax revenue, after annual expenditures of three trillion dollars for the federal budget is of questionable rationality.

Commonly, activist groups and media pundits criticize elected officials for overspending. Expect then the family farmers to lobby for cuts in agriculture subsidies, the teachers union among a multitude of state and local government organizations opt out of the federal coffers, and the corporations to shun government contracts. Yes, even the 8A contractors should lead by example.

As this second solution is as improbable as the first, what then is a third alternative? Is it possible to turn a multi-trillion dollar debt into a pro-growth opportunity and still pay off much of the debt?

The answer is a simple yes.

The federal government owns over four trillion US dollars in physical assets. The physical assets include Tennessee Valley Agency power plants and AMTRAK rail lines among others. Assets such as those are opportunities to pay down trillions of dollars of debt and provide for economic growth.

The general consensus in the US believes assets with potential private commercial sector value would generate more revenue under private commercial sector management than under government sector management. How then does one transfer the management of federal government owned assets to the private commercial sector?

The common answer is to sell the asset for payment. If the government accepted payment at fair market value for an asset, the government would not utilize the payment for current debts. The historical record of government decision in similar matters is irrefutable. Government officials would spend the revenue on government programs and not to pay down debt.

The proposed solution is to assign a fair market value to each of the assets. The assigned value serves as the initial proposed value at a public auction. The unique aspect to the auction is that payments are not accepted. The acquirer agrees to accept primary party responsibility to pay off US Treasury Bill Notes equal to the final auction value of the asset.

The management of the acquiring organization is free to do with the asset as it desires. Whether the TVA power plants and AMTRAK rail lines are resold for cash payment or operated to generate service revenue is the decision of the acquirer. With the assets under the control of private sector for-profit organizations, the assets will assuredly increase in economic value.

The for-profit management of the asset would also benefit the United States in the occurrence of increased economic growth.

The US Treasury serves as the underwriter of the sale in the event the buyer is unable to fulfill their obligations. If the buyer is unable make payments, the ownership of the asset would revert to the federal government.

The same policy works for state and local governments and their respective assets.

Governments of the United States should divest itself of assets with commercial sector value. Auctioning those assets in a debt for acquisition contract is the optimum solution. Not only would the government lower its debt payments, but the new managers would maximize the economic value of those assets.

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