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Repudiate Sovereign Debt

A fascinating essay by Murray Rothbard takes issue with the idea that public debt is of same nature as private debt. When a private person contracts to borrow money, he is entering into an obligation to repay the money – in the full knowledge of the terms of the loan.

However, when the state borrows money, it is not the politicians who are taking on responsibility for paying back loans, but the taxpayers. Trouble is, the taxpayer is never consulted and is not a willing partner to the contract.

The fact is, governments borrow money using their taxing power as the basis for their creditworthiness. When someone invests in a government bond, they are doing so because they believe the government in question has enough guns to enforce taxation – and therefore repay the debt.

The essential point is this: the hapless taxpayer finds himself liable for a debt he did not sign up to, did not authorise. So the moral solution to the sovereign debt crisis is to simply repudiate it – refuse to pay it back.

The Greeks are about to find out the true cost of government borrowing – in the hardship they endure as a result of being forced to pay it all back.

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  1. Dee
    May 12th, 2010 at 16:09 | #1

    Assuming that it is possible for the hapless taxpayer to refuse to pay it back, what happens to the debt? Who is the creditor? Is it another taxpayer? Who pays, or who ends up not being paid?

  2. May 12th, 2010 at 16:21 | #2

    Unfortunately it’s not possible for an individual taxpayer to refuse to pay it back – except by leaving the country and not paying taxes. However, if the government were to choose to default (say as a result of citizen pressure), then the creditors would lose – the bondholders. Sovereign bond holders are usually institutional investors, banking conglomerates or other nation states (as in China’s continuing purchasing of US debt, via Treasuries).

    The essential fact is that unlike private debt, which is a contract signed by an individual or a corporation, government debt is entered into by politicians who bear no personal responsibility. So taxpayers are left holding the debt for which they were not consulted, and certainly didn’t sign for.

  3. Dolf
    May 14th, 2010 at 14:45 | #3

    In a democracy a government is “by the people” , is it not? We hold an entire population responsible if their elected leaders declare war, so why would debt be different? They voted for said government their entire lives, benefiting from the loans, then surely they should pay it back? In democracies budgets are public documents, so people cannot claim ignorance. They knew the debt was there, and growing and chose to re-elect these governments.

    Sorry to all those pensioners in Greece, but they lived on the “Buy now, pay later” scheme. And guess what? It’s later. Pay up folks.

  4. May 14th, 2010 at 14:56 | #4

    Yes, democracy is supposed to be “government by the people’, but in fact it’s not. If one party gets 51% of the vote then it gets to rule. But what of the 49% who didn’t vote for it? Those 49% are not getting the government they voted for, so cannot be held responsible for such a government’s actions.

    This is why democracy is nothing but dressed-up “mob rule”. And it’s a collectivist concept. It takes no account of the most important minority – the minority of one.

    Of course, the issue of welfare, debt, war and all the other stuff democracies spend money on, would not be an issue if there was any respect for property rights, for then taxation could not be compulsory and governments would not be able to put their own people in hock.

  5. Dolf
    May 14th, 2010 at 15:36 | #5

    David,

    Your point is valid, but I would love to see a country where even 49% truly STAND for personal freedoms and true property rights. We have not seen such a country for many years.

    And that is my point: Suddenly everybody is for personal freedoms. Where were all these people for the last 30 years, while the debt was being racked up? Who stood against government spending in the 90′s? Where were the tea party’s of the 80′s?

    No, when it rained milk, everybody drank. Nobody stood back for one minute and asked in a loud voice “Who’s picking up the check for this?”

    Now that it is time to pay, suddenly the streets resound: “This is not what I wanted, i never voted for this”. But of course you did. You either voted Democrats (who love spending other peoples money) or you voted Republicans (Who love spending other peoples money). In some countries in Europe it was even worse, where you essentially had a choice between two opposing openly socialist parties.

    The minority of one is protected by the constitution, that shackles the mob. But this has been under attack for years now, and the minorities of one did nothing.

    To paraphrase a quote attributed to Einstein “The world is evil…because good men do nothing”

  6. rosa
    February 5th, 2011 at 10:45 | #6

    no one benefited from the gov debt who wasnt also paying back way more than if the same things were provided for in a open free market. gov is always going out of bounds. many do no participate in the benefits unless forced too, and many are neutral and do not vote like myself. I don’t support any human gov anyway, also the loans were much out of thin air loans, promises to pay. no real asset is actually given. the gold silver remains in their vaults. and no one is responsible for contracts that are enforced against them without signing anything with full knowledge and disclosure.

    second many were tricked into accepting such obligations via welfare system and lying about the real pupose of taxes and how the money system works if I had know the social security number was fraudenlent or a trick to voluneteer to be a taxpayer or federal employee (hence occupying a office hence becoming a sub corporation) I would of never gotten one. if I would of known long ago that I do not have income, it being a corporate term, I would of never ‘volunteered” to consider it income and subject to the benefit of being a taxpayer. if I could step out of federalism in a righteous way I would. I would waive all these benefits if I hadn’t been trapped into and not being allowed out.

    they mean liabilities when they say benefits as far as I am concerned they use that term to make it look like your getting something when in reality your not.

  1. July 20th, 2010 at 08:41 | #1