Monday, August 1, 2011

Selling Government Assets: How much money could we get? What's the advantage?

By almost any measure (such as deficit to GDP or debt to GDP),  the US is faced with a major problem. Our current yearly deficit is on the order of 10% of the GDP. Our federal government is spending roughly 30% of the GDP and only bringing in tax (or other) revenues at roughly 20% of GDP. The yearly deficit is roughly 1.3 trillion dollars, i.e. 10% of our roughly 14 trillion yearly GDP, and roughly 10% of gross federal debt. This is unacceptable, and most people recognize this fact. Hoping that the problem will go away is no longer an option for politicians because the voters are starting to become knowledgeable about the size of the debt and the inflationary methods that the government has tried so far to fix it (such as QE2...i.e. printing money while the commodity price index was rapidly increasing.)

As a society, we need to be producing more things of actual value and spending less until we bring the deficit and the debt back into a manageable size.

The general options available:  cut spending, raise taxes, print money, or sell government assets. Some of these options are better than others.

For me personally, I tend to favor the following options in this general order:
1) Sell government assets  (gold, silver, Postal Service, TVA power plant, Amtrak, and Federal Reserve owned assets)

2) Increase the retirement age and link the retirement age to life-expectancy. (There should of course be exceptions made for hazardous professions, such as fire-fighting or steel mill laborers.)

3) Tax pollution   (municipal solid waste going to landfills, acid gas emissions, and perhaps greenhouse gas emissions.) Ideally, we would lower income tax by however much we raise taxes on pollution, but we are so far in debt that we need to get back into fiscal sanity before we seriously discuss lowering income tax levels. I hate the idea of income taxes, but I hate the idea of borrowing money from China even more.

4) At the state level, increase luxury/sin taxes...but probably not at the federal level, or else we might cut into the tax that could be raised at the state level.

But I recognize that the things listed above are unlikely to get the size of the deficit, let alone the debt, to a manageable level because the problem we face is just that big.

But every little bit counts, so the rest of this post is devoted to putting a price tag on some of the big ticket items that the government could sell. (A longer list can be found here, of which I discuss a few of the items on their list that seem more realistic. See full article at DailyFinance:

1. New York Federal Reserve Building
Guesstimated price tag: $750 million
Location: Manhattan, New York
U.S. ownership: 87 years
Who should buy it: Donald Trump, SL Green, Tishman Speyer
Why it's valuable: Location, Location, Location

2. Hoover Dam
Guesstimated price tag: $415 million

Location: Nevada/Arizona
U.S. ownership: 75 years
Who should buy it: Duke Power, Con Edison, Southern Company
Why it's valuable: Hydroelectric power

3. Randolph Air Force Base
Guesstimated price tag: $1 billion
Location: San Antonio, Texas
U.S. ownership: 81 years
Who should buy it: City of San Antonio
Why it's valuable: Could be converted to a commercial airport

7. U.S. Postal Service
Guesstimated price tag: $40 billion
Location: Nationwide
U.S. ownership: 236 years
Who should buy it: UPS, FedEx
Why it's valuable: Parcel delivery infrastructure (vehicles, buildings)

9. U.S. Gold Supply
Guesstimated price tag: $400 billion
Location: U.S. Bullion Depository, Fort Knox, Kentucky
U.S. ownership: Varies
Who should buy It: China, Germany, the International Monetary Fund
Why it's valuable: Precious commodity  (i.e. jewelry)
Clearly, selling all of these assets would only be a start. We should probably include selling all of the power plants owned by the US government (such as the TVA.) This would be another $50-100 billion. Though, these assets actually make money for the government, so the net present value of the electricity sales is probably greater than the net present value that the government would get from selling it today. The reasons to sell these assets are: a) we're in debt today and b) the government should not be in the business of owning power plants. There's no part of the Constitution that can justify the government owning power plants.

There's also about 3 trillion dollars in mortgage-backed securities, student loans and US Treasuries owned by the Federal Reserve. We need to start selling these assets, but at a reasonable rate so that we can recoup as much money as possible. (See the wiki site for the Federal Reserve, and sub-section on Balance Sheet for more details.)

So, everything mentioned above is a good start, but we need more money than just selling government assets to really tackle the debt. That's why I think that we need to sell government assets while doing other changes: such as increasing the retirement age, taxing pollution, and taxing luxury items. We've dug ourselves into a major hole and it's going to take a lot of work to get us out of this mess.
As we work out our spending problem at the national level, it's always good to remember that all of us can work to solve the problem at an individual level as well. This means investing our own time, energy and money into investments with high rate of returns.  We need to grow and growth starts with individuals starting new businesses that make things of value.

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