Wokay!

This is pretty interesting. The state of New York is practically broke, but the city of New York is merely deeply indebted. To ease its fiscal crisis, the state of New York is transferring an island from joint administration to the sole administration of New York City:

After more than a year of negotiations, New York City has reached a deal to take control of Governors Island from the state, moving a prime 172-acre piece of waterfront real estate into the hands of a land-starved city and closer to an ambitious redevelopment, city and state officials announced on Sunday.

…

These agreements represent a reversal from 35 years ago, when a city on the verge of bankruptcy parted with a number of its assets and relied on the state to shore up its finances.

Raymond Horton, a professor at Columbia Business School who ran a commission that studied New York City’s finances during the fiscal crisis of the 1970s, said that by taking over properties like Governors Island, Mr. Bloomberg achieved a milestone that had eluded many of his predecessors.

“What tips the balance here is the state’s fiscal crisis,” Mr. Horton said. “The state is in a dire situation. The city is much better managed at this moment. That makes possible something that was not when the two governments’ finances were in similar condition.”

(New York Times)

This is not something very novel though. Throughout the nineteenth century countries that were broke or defeated in war would sell their territories, or give them up against war reparations, or sign long or perpetual leases. Some notable examples are:

• New York City itself! After the Dutch lost the Anglo-Dutch war, they allowed the British to keep New York in return for the island of Run in the East Indies, which at the time was the only place in the world where nutmeg used to grow. Talk about excessive discount rates.
• The Guantanamo Bay Naval Base, which Cuba handed over to America as a perpetual lease back in 1903.
• Hong Kong, which the Chinese empire leased to Great Britain for 99 years in 1900.
• Alaska, which the Russians sold to America for 7.2 million dollars.
• Almost a third of the continental United States, when the Thomas Jefferson administration paid Napoleon 15 million dollars in the Louisiana Purchase. They had offered him 10 million dollars just for New Orleans, but Napoleon had wars to fight and was desperate for cash, so he threw in pretty much the middle third of the United States. The extra 5 million dollars kept Napoleon’s armies going successfully until the Russian front in 1812, when famine decimated his army. On the other hand, Napoleon thought that by giving all that land to the US, he would make life even more difficult for Great Britain, which was hostile to America at that point of time. While Napoleon’s forces were being thulped at Moscow, America and Britain were actually fighting the War of 1812 which ended in a stalemate, so maybe this worked. Incidentally, the financing for the Louisiana Purchase was a fascinating piece of structuring.

Sadly Purchase, New York does not seem to fit this category.

Anyhow, it looks like the twenty-first century is going to see the return of grossly broke countries selling off their territory to keep up with the payments. The first inkling that it’s making a comeback came when two German MPs demanded that Greece sell off its islands (oh, and the Acropolis) if they wanted a bailout. It didn’t happen, but considering that Greece will probably default on its debt again soon, we may see this idea being taken up again. Portugal, Italy and Spain are also headed towards default, so we may soon witness the spectacle of Mediterranean beaches and slopes of Alpine mountains up for auction. It will be awesome.

The fiscal situation of the PIGS countries now is of course tiny compared to the fiscal situation of the United States a few years down the line. With the demographic bulge of the Baby Boom coming into Medicare and Social Security payout ages, the chances of the United States defaulting on its debt are beginning to look likely. The USA too may have to start selling its territory. Fortunately, it has a lot of empty territory to sell. Especially Michigan, which is rapidly depopulating.

The only thing is that selling something only works if there’s a buyer. That would involve either handing the territory over to whoever was holding the US debt and furious about the default, or someone with a shitload of cash.

The major holder of US debt is… the US government. Right, the major holder of US debt that is in a position to demand payments pronto is Japan, followed by China. Out of these, China is in a better position to throw its weight around.

Naturally, the prospect of China occupying Idaho or Nevada may not thrill the Americans, and they would be under pressure to sell to someone with a shitload of cash instead. Extrapolating from current trends, that would be… Apple. Steve Jobs has always been megalomaniac enough to want to own a country, but until now, it never looked like he actually would.

iDaho, iOwa, and iLlinois are on their way. We’re doomed.