Tuesday, July 22, 2008

A modest proposal

Regular readers may recall that despite residing in Europe (and, briefly, Asia) for the past fifteen years or so, Macro Man is an American citizen. Now some folks might be bitter about paying fifteen years’ worth of income taxes with nothing to show for it but a little blue book (e.g., a passport), but that’s not Macro Man’s style. His actual US tax burden has been pretty modest, “thanks” to Gordon Brown. Still, it pains him to see the land of his birth in such dire straits these days, and lately he’s been giving quite a bit of thought about how to fix the economic and financial malaise that’s hit the United States over the past few years.

What he’s come up with is a modest proposal that should restore the fiscal health of the United States, reduce a large portion of future liabilities, and set the country on the road to economic health and prosperity. The assumptions that Macro Man used in his calculations are pretty modest, and while the identities of some of his suggested participants are a tad ambitious, he’s confident that his sums could work out in real life.

The first port of call is to take profit on a number of 18th century transactions conducted by the US Government. Top of the list is the Louisiana Purchase, which was consummated in 1803 for the princely sum of $23,213,568. To derive a current marketable value, Macro Man calculates an annual cash flow by multiplying state GDPs by 18% (the proportion of US nominal GDP that the Federal government receives in tax revenue) and assigns a modest P/E multiple of 8 to the result. Perhaps some banks or Donald Trump would assign a higher multiple to these one-of-a-kind assets, but Macro Man prefers to dwell in the realm of reality.

In any event, selling the Louisiana Purchase back to the European Union would get rid of Arkansas, Colorado, Iowa, Kansas, Louisiana, Minnesota, Missouri, Montana, North Dakota, Nebraska, Oklahoma, South Dakota, and Wyoming. Using the methodology described above, Macro Man reckons the US Government could raise $2.34 trillion. Good thing the euro’s so strong! You’ll agree that the price seems eminently reasonable...after all, it’s less than 50 times as much as InBev paid for Anheuser-Busch.

Next up on the auction block is the Gadsden Purchase, which would sell Arizona and New Mexico back to (old) Mexico. Macro Man’s calculated return of $465 billion represents a handsome profit on the initial outlay of $10 million.

The final bit of profit-taking would involve selling Alaska back to the Russians. Sure, they might drill for oil, increase their geopolitical power, and ruin the environment....but then again, they might not. In any event, needs must in an economic emergency, and the $64 billion from the sale sure would come in handy.

(Two asides on this one. The national security implications of giving Russia a foothold on the North American continent can be dismissed, as Canada represents a large-and soon to be growing, as you’ll see below- buffer between the US and Russian Alaska. It’s also worth noting that under Macro Man’s calculations, the CAGR on the Alaska Purchase (6.7%) is superior to that of the Louisiana Purchase (5.8%), though slightly behind the Gadsden (7.2%) . Seward’s Folly, indeed!)

Having done the easy work in selling back some assets to their “original” owners (sadly, the Native Americans can’t afford the price tag so are out of the running), the US Government will have to find buyers for some of the United States’ other saleable holdings. Naturally, they’ll need to enlist the help of investment bankers, who are blessed with a unique ability to match buyer and seller for hard-to-value assets. Ordinarily, Macro Man would suggest that the banks waive their fees for helping the government- call it a long-overdue payment of the premium for the Greenspan/Bernanke put. Given the current fragile state of the financial system, however, hefty investment banking fees are just the thing to restore institutions like Merrill Lynch and Lehman Brothers back to health.

To expedite the healing process, Macro Man has come up with a roadmap for more US Government capital raising. The first port of call should be Japan, an aging society with plenty of excess capital to invest. You know the Japanese love Hawaii, so they should be more than willing to part with the $88 billion price tag. Given the traditional Japanese sensitivity to exporters’ fortunes, they should be more than happy to buy up those states which are home to carmakers’ manufacturing facilities: Alabama, Kentucky, Indiana, Mississippi (all Toyota), and Ohio (Honda). Those five states should raise an additional $1.61 trillion.

While California should also be offered to the Japanese, Macro Man suspects that they won’t be able to compete with China when it comes to meeting the $2.61 trillion price tag. It’s only matter of time before the Chinese buy California, so we might as well cut to the chase now. As a condition of the sale, the US should insist that China also buys Tennessee for $351 billion. This would finally give China an export industry (the music of the Grand Ole Opry) that the remaining United States could find easy to resist.

At this juncture, Macro Man's scenario analysis suggests that Texas, seeing the fire sale elsewhere in the country, would not want to be messed with, and thus secede from the Union, reverting to an independent republic. Frankly, Macro Man isn't sure that the Texans will be missed...after all, each of the Texan presidents (Eisenhower, LBJ, Bush I and II) have seen the US embroiled in some sort of military conflict. Good riddance!

Anyhow, another potentially rich source of funds are the world's oil producers, who have a surfeit of dollars that they'd like to get rid of- a match made in heaven! Canada should be a willing buyer for Michigan (if only to acquire a successful hockey team), Washington state (Seattle would fit in nicely with B.C. culture), Maine (you could argue that it used to be part of what is now Canada), and Vermont (appease Quebeckers by acquiring another territory with a French name.) These states should raise an additional $1.1 trillion. Selling all of these Northern states would also increase the buffer between the remaining United States and Russian Alaska.

Illinois could be sold to the cash-rich Abu Dhabi Investment Authority in a deal that can only be described as win/win. The US would raise $877 billion, and Abu Dhabi would get access to a cooler climate, loads of fresh water (in Lake Michigan), and immediately catch up to Dubai in the cool skyscraper sweepstakes.

Utah, meanwhile, could be sold to the Saudis. Similar to the deal above, the state's cool climate would be a welcome change from the searing heat of the Arabian peninsula. Moreover, Utah's reputation for clean living and penchant for polygamy would represent familiar territory to the House of Saud. At $152 billion, the price would be a snip.

Idaho could be sold for $73 billion to Norway, for whom the cold weather and mountainous terrain would be just like home. Although the UK budget is stretched to the breaking point, the recent suggestion that the rules could be bent might allow room for Gordon Brown to buy Nevada for $183 billion, and thus render moot the debate about supercasinos in Britain.

Oregon could be sold to the peace- and nature-loving Swiss for $227 billion; perhaps the IRS could agree to look past UBS as a quid pro quo to smooth the deal. The Germans would no doubt be more than happy to spend some of their euros ($334 billion worth, to be precise) on Wisconsin, well known for its sausages, beer, and large-framed residents. Finally, Florida could be sold to GIC for $1.05 trillion. The heat, humidity, tourists, and nasty insects would be familiar to the Singaporeans, but the 151,000 sq. km would represent a welcome increase in the space available to the city-state's residents.

After these sales, fourteen states would remain: Delaware, Pennsylvania, New Jersey, Georgia, Connecticut, Massachusetts, Maryland, South Carolina, New Hampshire, Virginia, New York, North Carolina, Rhode Island, and West Virginia. By a stunning coincidence, these fourteen states comprise the territory of the original thirteen colonies represented by the stripes on the US flag, so there'd be no need to change that (other than knocking off the odd star or two.)

According to Macro man's calculations, the asset sales would raise a total of $11.55 trillion
(less investment banking fees, of course)....easily more than enough to retire the publicly held debt of the Federal, state, and local governments. The excess cash (comprising some $4 trillion or so) could be used to directly back most Fannie and Freddie mortgages on a dollar for dollar basis, thus getting rid of that nasty problem.

Looking ahead, the Macro Man Plan will make life a lot easier for the remaining United States. The worst housing markets (Florida, California, Las Vegas) will now be someone else's problem. Ditching Florida and Arizona will significantly reduce the Social Security burden in years to come, while the secession of Texas should bring about a welcome reduction in future military spending. The environmental costs of California smog will now be borne by China, while Canada can pay for the benefits of Detroit autoworkers.

Sure, the Macro Man Plan will entail a modest loss of American international prestige, but that's a small price to pay for restoring the nation to economic health. Wall Street will still be part of the USA, so the investment banking billions will stay within American hands. And hey, in ten years' time when the next "once in a lifetime" financial crisis rears its head, the US will still be able to sell Washington, DC...that is, if a willing buyer can be found.


CDN Trader said...

Would the US Government offer vendor financing like Merrill?

D said...


The US treasury debt is very manageable if we run a balanced budget and either dropped the entitlements or had a one time "wealth tax" on qualified accounts over say $1mm to recapitalize them.

The last thing we want to do is recapitalize f*cked up investment banks by selling sovereign whole states. The markets are about (investor perspective) potential reward for assuming risk. Start haircutting debt investors and we are getting somewhere. This crap of circling the wagons around the debt investors is completely distasteful. If a company requires government attention, the capital structure gets hit first and the senior officers get zeroed out and serve a minimum 5 year term in white collar.

Go back to the drawing board.

Macro Man said...

CDN, that's the beauty of my proposal! The US has already provided vendor financing to most of my potential buyers, via the trillions of Treasury and Agency bonds that they hold. It's brilliant!

D, I think you need to read up on your Jonathan Swift, my friend.

Anonymous said...

Almost as good as the 'voluntary transitioning' solution proposed by Buckley in Boomsday!
Cheers, JL

D said...


For some reason I couldn't sleep last night and was early to the blog today...

I've been known to be not my finest when I am sleepy!


Carry on.

pej said...

MacroMan, you're the Man!
your post if fab!

RN said...

What the hell are you doing in finance earning pennies on spreads and such nonsense?? You are one of the funniest writers/thinkers going. You should cash it in, get yourself a beachside shack on Anguilla and do nothing but write.

This is so awesome I'm sending it to everyone I know.

Sadly (and this is something I've been trying to come to grips with), the dark undercurrent of this piece is that it quietly communicates the nearly unfathomable depth of this current situation.

Linda P. said...

Maine was originally part of Massachusetts, so we must be allowed to stay...

Besides, since every large money manager on Wall Street has a summer home in Maine, they would certainly add some kind of covenant to keep us in the good ole US of A

Great post MacroMan!

Anonymous said...


Anonymous said...

No, Macro should not quit his day job to become a writer. I think the work he has is what is making him into such a great writer. And partly also the kind of interest his readers have.

The piece was brilliant by the way.

/The foreigner

"Cassandra" said...

MM - I think floating an initial 15% tranche alone (of Alaska) might go for $65 billion, valuing at $465bn the whole piece. and the Chinese would pay way more than the Russians it, who already have more than plenty of virgin forest, undammed rivers & fresh water, tundra, swamp and pristine coastline.

No! The Russians would be bid for a place in the tropical sun with plenty of deepwater docks for their MYs, and plastic surgeons to further chisel and enhance their trophy beauties, with the bonus of plenty of elderly care facilities for their aging population. Moreover, Florida finally offers them that strategic toehold in the Caribbean they've been coveting since Kruschev days . Cheap at any price, a couple of hundred billion seems fair provided they agree to accept Wayne Huizenga and Pat Boone. But we should not delay on hitting the bid on this pig since it will be mostly underwater by the time Medvedev is once again in diapers.

As for Texas, rumour had it that Bonderman, Bass, Pickens, Marvin Davis, The Hunts (and Bono!?!?) were preparing a club-bid somewhere north of $500 billion....

FX said...

Idea of the year!!

davews said...

I love it.

Macro Man said...

Thanks to all and sundry. This was a fun one to research and write. I got the idea while getting cleaned up after a session at the gym...proof positive that exercise stimulates the subconscious!

claus vistesen said...

Excellent punditry (or was it prose?) Macro Man. As always ...

I would second Cass' suggestion though and let China have a go at Alaska first before Abramovich and his ilk are considered. The latter don't need it as much as the former.


HoosierDaddy said...

Why not sell off foreign policy? How much would the Russkies pay for free rein in their old stomping ground? What about the Chinese for a guarantee of non-intervention on behalf of Taiwan? That's gotta be worth a GSE bailout or two. I bet the Iranians would be willing to trade a few petro-dollars for dropping all sanctions, maybe they'd even pay relocation costs for the wrap-up of OIF.

Granted, the Africans probably don't have the money to get in our good graces. But China might be willing to sponsor Sudan and a couple mineral rich hotspots.

Of course, we'll have to go on the occasional foreign misadventure to demonstrate that "accidents happen" to countries that step out of line without paying up.

There's all kinds of creative ways we could raise money. I think the world is ready for the G.W. Bush and Dick Cheney dunk tank world tour (we have bases in all over the world so we could move the attraction around at pretty low cost).

Anonymous said...

I as a Texan and would Love to secede from the Union and not have to pay the enormous tab that "them there Yankee's have rung up."
Given the U.S debt can't we just sell the Congress and call it even, they are always For Sale.

Anonymous said...

Kudos, once again. FWIW, you've become one of my daily "must reads", in part, because of posts like this. In some ways, MM reminds me of "Going Private", another exceptionally well written blog...a pity the ep rarely posts these days.


Anonymous said...

To slice up the Golden U.S.A. is to kill the Global Money Machine that lays the Golden US $Dollars --too shabby, says Confucius

Anonymous said...

Macro Man, Macro Man…

Are you outsourcing bsetser to Europe?

Don't you have a place in The City to have him checking the money flows of the City?

Wouldn't he be worth more than those little islands working at small interest for oligarchs and sheiks, before breaking the UK into pieces?

Or you are thinking in another modest proposal on UK?



Anonymous said...

I say, you'd sell the Sandwich Islands to the blasted Nips instead of the UK? The British will not stand for such arrant nonsense, we shall be forced to launch a hostile takeover of the Eastern sea board if that should happen. We will regrettably have to sell Ulster to the Irish to secure the funds for such a splendid venture, but sacrifices will have to be made in pursuit of the old empire.

Charles Butler said...

Hoosierdaddy -

Doesn't have to happen that way. Included in the charity auction will be the condition that all, umm, manifestations of manifest destiny be eschewed eternally.

Anonymous Texan -

You do promise to never export your politicians again? Hmmm?

Mike said...

Hysterical. Thanks for the laugh!

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Greg0658 said...

HoosierDaddy at 12:26 AM
"Why not sell off foreign policy? How much would the Russkies pay for free rein in their old stomping ground ..."

I think thats called extortion.

:-) where all those figures close to true? lotta research if so. lol great read

Macro Man said...

Oh yes, all accurate (well, as of the end of 2006, I think)....we take our satire very seriously here!

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Warren Mosler said...

how about the feds sell off all the states as they all contribute to the bleeding they call the federal deficit

or maybe privatize the fed and let it run on a for profit basis? should be able to get a tonne for as the new owner could, for example, sell bonds short then raise rates. buy them back and cut rates, etc. and have all the dollars in the world in no time.


However, I'd go the other way. Offer to take over Canada and mexico, convert their currencies to dollars, and take over all of their national debt, letting them start clean.
And then we would be energy independent!