As Democrats move this week to raise America's $12.1 trillion debtlimit, we're deep into the usual kabuki-style fuss over this must-passlegislation. The opposition party denounces the fiscal recklessness of theparty in power. Chin-stroking scolds cluck about the need for a bipartisancommission. Stenographers in the media inexplicably characterize thesecommission-mongers as "fiscal conservatives," though they offer not a singleconcrete proposal to cut spending or raise taxes. It's all so predictableand depressing. If America is fated to sink under a tide of debt, can't weat least bring something fresh to the task?
That's where financial innovation comes in. Usually such ingenuity isthe preserve of the private sector -- think of all those incomprehensiblesecurities that drove the economy to the brink. But there's no reasonAmerica's financial bureaucrats can't think creatively as well.
Treasury is perpetually anxious about whether China will continue to buyour debt, now that deficits are running over $1 trillion a year, and we'reslated to add a stunning $10 trillion in new debt over the next decade. Sohere's an idea. Instead of worrying about whether the Chinese will show upat our public Treasury auctions every few months, why don't we reach out tocut a deal with China directly via a major private debt placement, asroutinely happens with private companies seeking cash from lenders?
We'd ask the Chinese to pick up, say, another trillion or so in Treasurydebt over the next few years. We'd let them lock in an interest rate thatseems attractive to both sides. Presto! Half the worry (and xenophobia)that comes with today's debt -- will the Chinese, or won't they? --disappears. It's a long-term business deal, pure and simple.
Yes, the optics of this private placement would be unprecedented andhumiliating. But so what? These are extraordinary times. China still hasbig savings surpluses that need to be invested. We need to borrow massivelyfor at least a few more years. Why worry month-to-month about who will showup to buy our debt, and what sky-high interest rates they might demand?Besides, if we were really worried about looking like weak and profligateidiots, we shouldn't have behaved like weak and profligate idiots in thefirst place.
An historic private placement would let China feel Warren Buffett-like toboot -- an heroic investor at a time of national need. Maybe as part of thedeal (in exchange, say, for an interest rate break) we'd give China, forfree, the green energy technology we want them to be using instead of allthose dirty coal plants that could lock in emissions woes for decades.Call it a Copenhagen/debt limit two-fer.
In an age of relative American decline, private placement of U.S.Treasury debt with the world's leading Communist power is an embarrassmentwhose time has come. The mere mention of it lifts the debt limit squabbleout of its unbearable rut. And if we're going to go down under the weightof our indulgent refusal to make responsible fiscal choices, let's at leastgo down with a little brio.