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frank
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I will start by stating that I have a lot of respect for both Becker and Posner. I must, however, be critical of the fact that Judge Posner implicitly assumes that all of the tangible assets of both the federal government and state and local governments have a value of zero. This is certainly not the case, as can be seen by the privatization efforts of states and cities regarding shipping docks, airports, toll roads, etc. I cannot even guess at the total value of such assets as government buildings, hospitals, military facilities (that can and have been converted to private sector uses), etc. One flaw in our federal budgeting is that capital expenditures and operating expenditures are all treated the same--as if they are all current costs for which there are no future benefits. In fact, the future benefits of a capital good or building purchased by a governmental entity to society are much different from a payment to a private citizen on Social Security (the future benefits of which are likely to be close to, if not equal to zero). Like private corporations, governmental entities are able to "leverage" their equity through debt. Like Judge Posner, I do fear that we are attempting to over-leverage whatever governmental or public equity we have. I also doubt that the market for federal debt is so irrational and/or inefficient that the Treasury can continue to issue mountains of debt at low interest rates unless investors recognize the the federal government is not insolvent. There is real equity in the form of tangible government assets that should also be shown on the balance sheets of American governmental entities, and this may be a reason why the federal government can continue to issue huge amounts of debt at low interest rates. And, like the case of Freddie Mac and Fannie Mae, state and local governments may be able to continue to issue large amounts of debt because investors in municipal securities believe that there is an implicit federal guarantee should any large state (i. e., California) be unable to find buyers for its new debt issuance.
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Sep 2, 2010