Economati's Path To Prosperity solution

The news is all abuzz these days with John Ryan's so called "Path To Prosperity".  I don't even have to read it.  I already know it is just more unrealistic political posturing and stalling because our debt situation is a no win deal.  There is no easy way out.  Of course, for those who need to sift through all the numbers before they will recognize the obvious, Mish discusses it in great detail.  The bottom line is that whatever they do is going to lead to a crash eventually because a crash is already built into the scam.  Ponzi schemes always crash in the end.  You cannot posture and pose your way out of bankruptcy.  The main ideas behind the Dem's and GOP's respective plans for prosperity are some combination of more taxation and less government spending.  But if they tax us more then the economy will suffer and so will their ability to tax us.  And if they cut government spending then the GDP will plummet because deficit based government spending is too big a part of the economy to just cut off.  That's all you need to know.  The rest is just posturing and noise.

Things that I think are especially telling about Ryan's plan are:

• It ignores the impact on the economy of cutting government spending.  Put differently, where was the Plan To Prosperity in March of 2009 when the stock market was in major tankage, jobs were plummeting, etc.?  It was nowhere to be found because you don't put austerity measures in place when things are already difficult for the people if you want to avoid getting hanged in the streets.  But now that historically massive stimulus and money printing has revived the economy somewhat, all the loons are coming out of the woodwork as if we are so strong now that we can actually cut back on that which drove the recovery.  I've said it before and I'll say it again: when the stimulus and spending turn into cuts and austerity then the industries which were expanding on the back of government spending will just stop.  When the free money stops everything will revert to the ugly mean.  In other words, it may look like a good time for austerity but from now on there will never be a good time.  As soon as we try to implement austerity the very act of doing so will cause a recession (or worse).
• It ignores the cost of interest on the existing debt to say nothing of the new annual debt that will be created under his plan.  What if interest rates go up to 7, 8, 10% or more like they did in the past?  Sorry, the "plan" doesn't cover that eventuality even if it is the most likely thing that will eventually happen.
• It talks about stuff which may or may not happen long after Ryan is done with politics.  Seriously, how can Ryan credibly make a plan which some future politician is going to have to suffer for?  When things are hard on the people they (stupidly) turn to government for help as if government is some endless pit of free wealth to draw upon.  The guy that replaces Ryan is going to catch the heat 4, 6, 10 years down the road for things that the Ryan plan puts in place today.  When that happens, the new guy will renege on all the promises and deals.  So nothing will ever actually happen despite all the posturing today.

Because of the above, there is no traditional thinking that is going to work.  And thus I present to you the Economati path to prosperity.

Instead of having budget theater, making endless unkeepable promises about paying the debt while racking up even more debt, JUST STOP.  Stop and take the pain now.  Do it now while we are relatively strong.  Tell the world that we are defaulting on our loans.  At the same time, declare all internal debts null and void.  In other words, repudiate all debt because it will never be paid off anyway.  Do this intelligently so that, for example, someone who has already defaulted on their house and is not making payments does not end up with a free house.  Also, the property investor leveraged to the hilt should not get to keep a bunch of property that he only has 5% stake in.  We would need to create a set of rules for the tear down of the credit scam which would make everyone a winner in some way without making leveraged gamblers big winners.  For example, put limits on the amount of debt repudiation per individual or company and then require them to either pay off the remaining places with cash or just give them back to whoever loaned them the money to buy them in the first place.

At the same time, make it binding law that government at all levels must balance the budget using real accounting, not fake off balance sheet accounting.  Make it illegal for US governments of any level to take on debt for any reason, ever again.  Period.  Too bad if Katrina 2.0 happens, no debt would be allowed to address it.  Instead, save for the rainy days in advance.  Gee, what a concept, huh?  And don't let people use insurance as a way to avoid saving in advance for catastrophes.  Insurance is just another leveraged money game. 

Get rid of the dollar and replace it with a true gold backed currency with real audits of the gold supply by someone other than government.  Get rid of fractional reserve banking.  Stand down 2/3 of our military at least (thus reducing pressure on others to beat their plowshares into swords).  At the end of the day we would have a society more focused on living, learning, growing our knowledge, making life better for our fellow citizens and other noble causes than on the blind pursuit of money and consumption for consumption's sake.

If this sounds crazy, consider that we already defaulted on the world before without causing WW3.  We promised that the dollar would always be backed by gold and then we closed the gold window resulting in the biggest default in human history even if most people did not understand it as such.

Reasoning behind the Economati path to prosperity:

• What's done is done, it cannot be undone.  Making further lies and promises will only piss people off more than they already have the right to be.  Piss people off too much and it leads to war which is completely unproductive.  True leadership would be to explain how the whole global economy is one big debt Ponzi that will eventually collapse so the sooner it happens the better.  
• What cannot be paid will not be paid.  Acting like we can pay just pushes out the healing.  It attempts to fool people who are getting very tired of always being conned.
• The US did not acquire debt in a vacuum.  Those loaning the US money should have recognized the risks involved.  That they did not is their problem at this point.
• Everyone else in the world is in debt too!  If the US takes this path, everyone else will follow our lead. 
• Everyone gets something in this deal.  The main way to avoid people wanting to go to war is if they get something out of the solution.
• After the Grand Default, fairness will rule the day immediately and going forward.  If the US does not produce enough stuff to consume then it will not consume as much because no debt will be allowed in the trade balance equation.  A measure of wheat grown by the US will be traded for the iPod built in China.  Nobody will accept debt notes in exchange for real goods.  The vendor finance scam would be over forever and the world would be a better place for it.
• The value of physical labor will increase to a fair level.  There will be no need for unions or minimum wage laws.  These things had to be put in place because the money supply is corrupt and game-able by those at the top.  But moving to an honest money supply which is devoid of fiat currency and fractional reserve lending will mean that elite have to do their own work because their leveraged scams will have collapsed.  Can you imagine rich people mowing their own lawns, cleaning their own pools, painting their own houses and doing other physically intense labor? 
• Bankers and moneymen will no longer be treated as the top crust of society because they will no longer get massive compensation for basically being clerks and con men.  The banking profession will thin out rapidly and become the home of plodding accountants and book keepers again.  Those leaving the banking industry will find real jobs where perhaps their cleverness can be put to economically productive, non-fraudulent use again.

No Dem or GOP solution can claim to have the positive effects of the Economati solution and they certainly can't do anything so quickly that our children will see positive benefits instead of dragging them through our ongoing debt crisis for the rest of their lives.