The solution to US debt? Sell Alaska

Maybe what Russian professor Igor Panarin had to say quite a few years ago, although off on the timing, might slowly be coming to fruition.

The prospect of once again hitting the federal debt ceiling has provoked the ritual round of hand-wringing about the intractable nature of this $US16 trillion conundrum. But there is a simple, elegant option that involves no tax increases, no spending cuts and just a bit of imagination.

Sell Alaska.

That’s right. Put the entire state – from Juneau to Deadhorse, from the Bering Strait to the Beaufort Sea – on the auction block.

Absurd? No more absurd than the spectacle taking place right now as we skid closer to the fiscal cliff.

Selling real estate at top dollar is all about timing, and now’s a great time to unload the Klondike state. The federal government, which owns 69 per cent of Alaska, could cash in on the vast, resource-rich state at a time when oil prices are high and wild salmon is flying off the shelves at Whole Foods. Selling Alaska could fetch at least $US2.5 trillion ($A2.4 trillion) and maybe twice that amount, enough to lop off a huge chunk of the national debt and perhaps as much money as President Obama and House Speaker John Boehner hope to save or raise over the next decade.

The return on investment would look great, too. Secretary of State William H. Seward – you might know him as the handsome fellow played by David Strathairn in the new Steven Spielberg movie, Lincoln – bought Alaska from Russia in 1867 for $US7.2 million, drawing ridicule. One New York newspaper that year called Alaska a “sucked orange,” saying Russia had already drained all the value out of it. But even after adjusting for inflation, the price paid for “Seward’s folly” or “Seward’s icebox,” as it was known back then, looks pretty cheap – about $US114 million.

What is Alaska worth today?

There are 3.7 billion barrels of proved oil reserves and 9 trillion cubic feet of proved natural gas reserves in the state, according to the Energy Information Administration. Oil companies are eyeing even bigger potential reserves in unexplored areas. The Interior Department estimates that the Chukchi Sea alone could hold up to 12 billion barrels, equal to half of the country’s proved reserves, and Cook Inlet and the Beaufort Sea as much as 8 billion barrels. The state has large shale areas where new hydraulic fracturing techniques could yield new supplies.

Alaska has countless other natural resources, some in areas we hold off limits, such as the Arctic National Wildlife Refuge, and others on state lands. Mining companies are salivating at the prospect of more than $US300 billion worth of copper, gold and molybdenum at their proposed Pebble mine in the southwestern part of the state. The state’s forests could also be exploited.

I e-mailed Alaska Lieutenant Governor Mead Treadwell to ask him how he would feel about having his state sold out from under him.

“I can’t talk down our value,” he replied. “It’s a great piece of property. We love this place. Great views.”

Putin’s prize

First in line might be the Russian Federation, with its deep historical ties to the state. For 126 years, Russia governed Alaska, which has been part of the United States for just 145 years. Vladimir Putin, who is seeking to restore Russia’s power and glory, could re-establish the seat of government at the former Russian capital, Sitka, a southern seaside town that still has a Russian Orthodox church, St. Michael’s. First built in the 1840s, it houses icons from that era.

Russia already has plenty of space and oil. But if it hoisted its own red, white and blue flag over Alaska, Sarah Palin would actually be able to see Russia from her front porch.

Next would be the Chinese, flush with cash and starving for energy resources and open spaces. Why should China fiddle with acquisitions of companies such as Canada’s Nexen or US battery-maker A123 Systems, hoping for approval from the government’s guardian of national security, the Committee for Foreign Investment in the United States?

It would be much simpler for Beijing to use its $US3 trillion in foreign exchange reserves – a large chunk of it invested in US Treasury debt – to vacuum up Alaska’s resources and to resettle some people from China’s overcrowded and heavily polluted cities. As the Arctic ice melts with climate change, Alaska could also serve as a valuable shipping route, saving time, fuel and money for cargo ships traveling from China to Europe.

The transaction could be done by simply canceling the Treasury debt, thus avoiding the financial upheaval that would result if China sold those securities on the open market.

Unpleasant choices

He floated the proposal (tongue in cheek) in a paper for a Wharton Business School conference on US government debt. Speaking on a panel called “US Ability and Willingness to Pay: Unwinding the Empire,” he also tossed in the possibility of selling off vast federal lands in the Rocky Mountain states and offshore areas. In a book based on the conference, his chapter was called Burning the Furniture to Heat the House – The Potential Role of Asset Sales in Funding the Federal Government’s Deficits

As Millstein noted, there is a serious point beneath all this: Countries that spend with abandon and ask little of taxpayers end up facing some unpleasant choices.

Selling off the national furniture isn’t unusual or far-fetched in other parts of the world. When governments spend beyond their means, the International Monetary Fund usually rolls up and offers aid, often with a condition: Sell state-owned assets. Sometimes that means the state-owned airline or phone company. After the fall of communism, Eastern European countries sold off state-owned enterprises.

This can wound national pride, as in Greece recently. Two right-wing German politicians triggered outrage in Athens in 2010 when they said Greece should sell historic buildings, artwork and unpopulated islands.

But it’s not without precedent. In 1803, France was in a position that should sound vaguely familiar. France, the superpower of continental Europe, had suffered a severe setback in Haiti, where fighting had exacted a steep cost in lives and treasure. Napoleon wanted to bring the troops back home to confront England. So rather than maintaining all of his far-flung empire, he decided to sell the Louisiana Territory – including part or all of 14 modern-day US states – to us for $US15 million.

What could selling Alaska do? It could shrink the federal debt by 10 to 25 per cent of gross domestic product, bringing it well within the range considered safe. Even without a budget deal to cut spending and boost revenue, there would be no need to ask Republicans to raise the debt ceiling for another five or six years. Now that’s long-range planning.

The deaccessioning of Alaska would also slash the interest the government pays on the national debt. Under the budget plan Obama proposed in February, those interest payments would otherwise grow to more than $600 billion in 2017, and in 2018 they would become the third-biggest item in the federal budget, after defense and Social Security.

Sell more assets

The solution then would be, as Millstein suggested, to sell more assets. After all, that’s what happens in the private sector: Companies that run in the red are forced to restructure, trim unnecessary costs and focus on their core competencies.

With manifest destiny looking manifestly unaffordable, the federal government could auction off more territory. There’s plenty there. The government owns 40 per cent or more of California, Nevada, Oregon, Idaho, Arizona, New Mexico and Wyoming. Then there are the oil-rich federal waters of the Outer Continental Shelf.

Millstein said he proposed a federal asset sell-off to embarrass “the current crowd” of lawmakers and administration budget-writers. He wanted to suggest that things are so bad, it could come to this.

“I think selling all this stuff would be criminal, but in the absence of compromise on spending and tax policies, it may be necessary, even if totally humiliating,” he said.

It all depends on the budget talks over the next two weeks and the tax reform efforts next year. Our fate – Alaska’s fate? – is in Washington’s hands.

Treadwell said, “Let me know when we can put together a bid.”

Full article: The solution to US debt? Sell Alaska (The Sydney Morning Herald)

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