While launching his presidential campaign in the hotly contested 51st state, Rand told Business Insider's Grace Wyler, who is travelling in Israel with Rand, that he has a plan to prevent a default by the US government on its debt:
Paul, who is traveling through Israel this week, told Business Insider here Thursday that he believes the GOP should take a more pro-active approach to the coming fight over raising the debt ceiling. Rather than march the country toward a government shutdown — and spook markets with possible default — Paul argued that Republicans should pass a bill that would force the government to prioritize payments to bondholders.As I have pointed out, Rothbard was in favor of debt default and also warned of the negative consequences to the economy of making interest payments on government debt. Specifically, Rothbard wrote:
"The only real way to have leverage with the debt ceiling is to convince people that we are not going to default on our debt," Paul said. "We could actually direct the President to pay our interest, make Social Security payments, pay soldier salaries, the basic functions that could keep government going. That way we take default off the table[...]"
The annual government deficit, plus the annual interest payment that keeps rising as the total debt accumulates, increasingly channels scarce and precious private savings into wasteful government boondoggles, which "crowd out" productive investments. Establishment economists, including Reaganomists, cleverly fudge the issue by arbitrarily labeling virtually all government spending as "investments," making it sound as if everything is fine and dandy because savings are being productively "invested." In reality, however, government spending only qualifies as "investment" in an Orwellian sense; government actually spends on behalf of the "consumer goods" and desires of bureaucrats, politicians, and their dependent client groups. Government spending, therefore, rather than being "investment," is consumer spending of a peculiarly wasteful and unproductive sort, since it is indulged not by producers but by a parasitic class that is living off, and increasingly weakening, the productive private sector.[...]
Deficits and a mounting debt, therefore, are a growing and intolerable burden on the society and economy, both because they raise the tax burden and increasingly drain resources from the productive to the parasitic, counterproductive, "public" sector. Moreover, whenever deficits are financed by expanding bank credit – in other words, by creating new money – matters become still worse, since credit inflation creates permanent and rising price inflation as well as waves of boom-bust "business cycles."
It is for all these reasons that the Jeffersonians and Jacksonians (who, contrary to the myths of historians, were extraordinarily knowledgeable in economic and monetary theory) hated and reviled the public debt. Indeed, the national debt was paid off twice in American history, the first time by Thomas Jefferson and the second, and undoubtedly the last time, by Andrew Jackson.
Unfortunately, paying off a national debt that will soon reach $4 trillion would quickly bankrupt the entire country. Think about the consequences of imposing new taxes of $4 trillion in the United States next year! Another way, and almost as devastating, a way to pay off the public debt would be to print $4 trillion of new money – either in paper dollars or by creating new bank credit. This method would be extraordinarily inflationary, and prices would quickly skyrocket, ruining all groups whose earnings did not increase to the same extent, and destroying the value of the dollar. But in essence this is what happens in countries that hyper-inflate, as Germany did in 1923, and in countless countries since, particularly the Third World. If a country inflates the currency to pay off its debt, prices will rise so that the dollars or marks or pesos the creditor receives are worth a lot less than the dollars or pesos they originally lent out. When an American purchased a 10,000 mark German bond in 1914, it was worth several thousand dollars; those 10,000 marks by late 1923 would not have been worth more than a stick of bubble gum. Inflation, then, is an underhanded and terribly destructive way of indirectly repudiating the "public debt"; destructive because it ruins the currency unit, which individuals and businesses depend upon for calculating all their economic decisions.[...]
I propose, then, a seemingly drastic but actually far less destructive way of paying off the public debt at a single blow: outright debt repudiation.[...]BI did not question Rand as to what would happen to his plan if interest rates climbed above the current extraordinary low levels. If rates climbed substantially, the interest rate burden would soar. Then what would Rand propose, after he cut government spending to the "bones," call for raising taxes? To protect the name of the reckless spending of the US government? Perhaps, BI didn't ask the question is because Rand the explained he's only talking real short-term.
It's bizarre, this is only Rand's "temporary" solution, it's a play thing, while negotiations continue between the White House and Congress on a debt agreement that only lowers spending "over time." Have you ever heard that before? Rand is one of the best two-steppers in the business. Here's BI explaining Rand's dance back from balancing the budget to doing it "gradually."
"We have tax receipts to pay for about 70 percent of the government and we're running deficits of about 30 percent, so what I would say is pay for the 70 percent we would all keep going and stop paying the other 30 percent until we come to an agreement," Paul said. "That agreement would include an amendment to gradually balance the budget over five years. The only thing the debt ceiling would do is force us immediately to have a balanced budget."
So the only real thing Rand is really proposing to take off the table is default, not elimination of deficits!