I am surprised at the fast and loose use of numbers and assumptions[1] put in this article. I expect more from the Financial Times. Even if we accept the numbers to establish that the United States and its citizens have a negative net-worth, that is not equivalent to bankruptcy. Bankruptcy is a legally declared inability to pay creditors. If the US Government ever makes that declaration... wow. We as a country have not defaulted on our debts, and based on the strength of the treasury market, few are betting on that scenario.
Martin Feldstein's proposal is so much less radical, as presented here (I am otherwise unfamiliar with it).
[1] For example: "The debt secured on half or more US homes will be worth more than the home itself, with little or no prospect of a quick rebound in housing values to rebuild positive equity. In the circumstances, many households may conclude that it is rational to walk away rather than pay over-the-odds for an asset the price of which has no realistic chance of regaining its former value in the short to medium term. The resulting wave of repossessions would only depress prices further." That might be true if housing were some simple investment vehicle... but it is not. My assumption: at worst, most people view a mortgage like credit card debt or an auto loan -- you don't consider the asset being backed, you focus on the payment. With the exception of speculative housing investors, most foreclosures seem (as reported) to be about an inability to make payments. Recall the existence of mortgage structures that accumulated negative equity: this is not an indication of savvy investors focused on ROI.
> We as a country have not defaulted on our debts and based on the strength of the treasury market few are betting on that scenario.
I haven't read the article yet, but I just want to make one comment about this quote. Although technically speaking we have not defaulted, we are inflating our currency through the roof, which is virtually a default -- In other words, our creditors will not be able to buy the same amount of stuff with the dollars we are going to repay them. And we are only able to do that because the dollar is a reserve currency.
For example, Argentina defaulted because they didn't have enough dollars to repay their debt. The difference in our case is that we own the dollar's printing press.
Martin Feldstein's proposal is so much less radical, as presented here (I am otherwise unfamiliar with it).
[1] For example: "The debt secured on half or more US homes will be worth more than the home itself, with little or no prospect of a quick rebound in housing values to rebuild positive equity. In the circumstances, many households may conclude that it is rational to walk away rather than pay over-the-odds for an asset the price of which has no realistic chance of regaining its former value in the short to medium term. The resulting wave of repossessions would only depress prices further." That might be true if housing were some simple investment vehicle... but it is not. My assumption: at worst, most people view a mortgage like credit card debt or an auto loan -- you don't consider the asset being backed, you focus on the payment. With the exception of speculative housing investors, most foreclosures seem (as reported) to be about an inability to make payments. Recall the existence of mortgage structures that accumulated negative equity: this is not an indication of savvy investors focused on ROI.