Why is the United States Government today still considered the finest investment risk in the world? The answer traces to Alexander Hamilton:

In 1789, Alexander Hamilton, the first U.S. Treasury secretary, faced a dilemma still challenging Congress today. The new nation was deeply in debt, and there was a lack of consensus in Congress about how to pay for it. Of the $75 million total debt, everyone back then agreed that the U.S. had to pay in full the $10 million loans from France and other nations to finance the American Revolution. Otherwise, no nation would ever loan money to the U.S. in an emergency again. More than $44 million, however, was owed to American citizens who had purchased war bonds during the war. Many of the original purchasers of these bonds had died or sold them at a significant discount to wealthy speculators. They had lost confidence in the ability or willingness of the infant nation to pay.

More:

Some leaders, including James Madison, argued that the new government should pay the current or market value of the bonds, rather than the higher, original face value. Others argued that the government should attempt to discriminate between the original purchasers of the bonds who paid the higher price and the speculators who paid the lower market value.

Adding to the complexity of the issue was the fact that some states had incurred $20 million of debt fighting the Revolution. Other states, which had already paid off their war debts, argued that their citizens shouldn’t be forced to pay the debts of other states. Some even suggested that some of the state debts were the result of non-war spending.

Hamilton’s “Report on the National Credit of 1790” stunned everyone, including President George Washington. Hamilton advised paying off the entire national debt at full face value and assuming all existing state debt. To do otherwise, he argued, would cause citizens to lose faith in the credit and integrity of the struggling government and sabotage the new Constitution. The Revolution had been fought for the benefit of all states, and the unity of all states would be critical to the survival of the new nation.

We often fail to understand just how important belief is to financial investors. Even the mere suggestion that America might default on its debt could induce widespread panic, a loss of faith in the dollar, and much, much higher borrowing costs for the government. Rational investors will not give money to people who did not pay them back last time. Institutions geared to minimizing risks will avoid “bad” sovereign debt like the plague.

Now consider this:

One day after assuring Americans he is not running for president “to make things unstable for the country,” the presumptive Republican nominee, Donald J. Trump, said in a television interview Thursday that he might seek to reduce the national debt by persuading creditors to accept something less than full payment.

Asked whether the United States needed to pay its debts in full, or whether he could negotiate a partial repayment, Mr. Trump told the cable network CNBC, “I would borrow, knowing that if the economy crashed, you could make a deal.”

From my perspective, this might all end up (after enormous pain) to be a good thing.

The simple fact is that US Government debt needs to be handled. There are, as far as I know, only four ways to do this:

1. Grow like crazy. This requires enormous regulatory and tax reform, which — sadly — is not happening. We are stagnated and regulations continue to grow.
2. Cut entitlements. Also not happening.
3. Hyperinflate by printing money, third-world style. Debts become worthless (though so do savings, of course). The government will openly seize assets to pay entitlements, as they have done in Japan, Venezuela, Greece, Cyprus, Portugal, Argentina, etc. But in the end, most entitlements will become worthless.
4. Default/bankrupt. Offer debtors a haircut. Destroy faith in the United States as the default safehaven in the world.It also means, in the end, cutting pensions for most Americans, not just those who have worked for the federal government.

I think that the nation — lacking the will for either of the first two — will end up hyperinflating under Clinton or defaulting under Trump.

Either, I suppose, would make it easier to for states to secede and start a new America, one reconnected to limited government and maximum individual rights to life, liberty, and property.

Am I missing something?