While President Trump is putting many Americans back to work and striving to make sure the nation is safe from criminal illegal immigrants and terrorists, a “back of the stove” issue continues to slowly cook — the enormous national debt.
The debt, which just a generation ago stood at roughly $5 trillion, is now nearly four times that number, a staggering sum that our last president was responsible for at least 50 percent of.
While America is preoccupied with fighting over healthcare, sanctuary cities and the international travel ban from six Muslim countries, the national debt continues to be a major concern that has the potential to sink the country into depression and disaster the likes of which we’ve never known, if it’s not contained and eventually paid down.
Fortunately, President Trump is not only aware of the national debt issue, he’s had some great ideas about what to do about it. Imagine if the country were a big corporation. Many corporations actually have large debts themselves, and great numbers of them continue to borrow money, even in the face of these outstanding debits.
How can they do it? Why do banks continue to loan these firms money when their debt is usually measured in the millions (and is typically a matter of public record)?
The answer is that in addition to their many liabilities, most companies also have a tremendous amount of assets. In fact, it’s these assets (along with the capacity to produce more) that usually act as collateral for these firms’ financial obligations.
Like these private enterprises, the federal government also has assets. In fact, the assets that the United States owns are so abundant that nearly 30 percent of the 2.27 billion acres of land in the nation is owned by the U.S. government.
Some of that land is park land and is protected by law. Other land is comprised of nature preserves, which are also protected in many cases. But on other land, the government allows companies to recover natural resources using methods such as drilling for oil, mining for minerals and farming.
In many cases, the government leases this land to individuals or private companies that in turn extract the resources that the land holds. In some cases, the government actually doesn’t own the land itself, but retains the oil drilling or mineral rights underneath it. In leasing this land or these deposits, the government is afforded a steady — if sometimes relatively small — stream of income that can be counted on well into the future.
As stated above, the total amount of land the government holds or holds rights to is a staggering area. One of the ideas to reduce the national debt that President Trump has is to sell — rather than lease — some of this land and/or the rights to the oil and mineral deposits it holds.
Companies that wish to invest in long-term extraction could buy, rather than lease, the land or property and could expect long-term returns, provided that they’ve done their homework. According to the Institute for Energy Research (IER), just the rights for gas and oil that the government holds were worth a jaw-dropping $128 trillion as of January 2013.
Of course, since then, oil prices have fallen by roughly half and gas prices have declined by 15 percent. But still, the total figure is a multiple of the national debt. And President Trump, with his extensive real estate experience, knows a little something about marketing property. Of course, the property he’s used to selling is above ground, not underneath it.
The IER figures also don’t take into account the percentage of the total area that’s already leased to private companies. Leases usually span ten years; therefore, any proposed sales would have to be done over time.
Also, sales would be a one-time affair; there would be no second chance to tap into this vital resource, and the government’s source of “slow” leasing income in many cases would be gone forever. At the same time, there may be a compelling argument to make if the government can afford to do without some of that income.
Oil and gas companies aren’t exactly making profits hand over fist these days. But if the rights for these properties were priced attractively enough, banks could probably be convinced to loan the companies money to buy them based on their return value. ExxonMobil — Secretary of State Rex Tillerson’s former company — made a $6.6 billion bet on shale oil in the Permian Basin of New Mexico and Texas in January.
And a few years ago, the company purchased XTO Energy, a natural gas company based in Houston, for $41 billion. Since 2006, the company has been spending billions buying its shares back from the stock market. Other commodity players likely to be interested in these assets would be British Petroleum, Royal Dutch Shell and Chevron.
It’s also worth mentioning that these rights only represent one asset class identified by IER. Others include above-ground assets like “buildings, lands, roads, railroad infrastructure, levees, dams and hydroelectric generating facilities, to name just a few, many of which are underutilized,” according to the IER.
Privatization of government assets has helped other governments reduce national debt and raise quick cash in the past; the practice of selling them is far from unheard of. In fact, to a limited extent, the government sells a small fraction of its assets every day — in auctions, planned sales and negotiated deals — and not always for the best possible prices.
This is something that Trump’s team should definitely look at further, as even reducing the national debt by half would be an attractive prospect. Extra effort would have to be made by lawmakers in the future not to let the U.S. slide into a worse financial condition. These seem like sensible priorities that the Trump administration could tackle while it puts more parts of the economy back to work.
Regards,
Ethan Warrick
Editor
Wealth Authority
