Wake Up And Smell The Brewing Debt Crisis
Perhaps you’ve seen the sign: Drink Coffee – Do stupid things faster, with more enthusiasm. Reminds me of some politicians I know and pundits I read. Thomas Friedman, one of the partisan pundits who pretends a knowledge of economics, recently argued for more deficit spending to prime the economy. What would he consider the $1.3 trillion deficit the US government is currently running? This is a deficit of 10% of the national economy and yet the economy is barely growing. If one goes to usdebtclock.org, one will see the results of deficit spending in vivid enough terms to require more caffeine.
In looking at the incredible numbers found at USDebtCLock one will notice combined national debt, government and personal, is in the $54 trillion range. I couldn’t see that business debt is included, but that’s a lot. On a per capita basis, $176,235. If Keynesian economics is correct, then we should be rolling in growth. Since we’re not, the conclusion is that something is wrong with Keynesian economics. The fact is, on average, we have been spending $700 billion more than we have earned, per year, since 1940. The results are an economy in the doldrums, but steady, and 24,000,000 people out of work. The question is: what is going to happen when the inevitable cuts start occurring?
Since the reverse of deficit spending is paying off debt, it is most likely the economy will slow a bit so the going will have to be careful. Obama, a typical politician, seeks to avoid that problem until after his next election. So too will many others.
Let us be more specific. Currently, at $54,000,000,000 in debt, the only people enjoying this are the ones collecting the interest. They are collecting about $1,000,000,000 per year in interest payments, for doing nothing. In the meantime what the debt actually indicates is what we have purchased with money we have yet to earn. This includes houses, school buildings, cars, TVs, roads, college buildings, land (in Mecklenburg County we issued $200,000,000 in debt to buy land for parks not so very long ago), clothes, vacations, military equipment, office buildings, food stamps, and the list is endless. Anything which can be purchased with borrowed money, has been. If we stopped buying anything new, anything, it would take 5 years to pay off the debt. Anything means food, gas, clothes etc. Since that is not going to happen, it is going to take a lot longer than 5 years.
The fact is, when we start to pay off this debt, our standard of living is going to stop growing or even decrease more than it has recently. We will have to work the same amount while consuming less. The question is why? Why do we need to pay off this debt? Why don’t we just say: no, we’re bankrupt. We’re not paying. Kind of like Obama did to the bondholders of GM and Chrysler. What would actually happen?
The questions which then need to be asked are: Who is this money owed to? What would happen if we just defaulted?
The answers are curious. The money is owed to very rich people and the medium rich. People who invest in hedge funds and own thousands of shares of stocks. But if we didn’t pay them, their paper would become worthless. On the other hand, actual assets would still exist. Houses, roads and cars would not disappear. Everything we’ve bought on credit would still exist. We’d just be debt free. If you owed money on your house the bank would own your house, but the bank already owns your house. If they kicked everyone out, they’re be no one to buy, so they can’t kick everyone out. The bank would do anything for a payment. Call it rent. What is the difference in where and how you live?
That would work if the federal government would balance its budget; but if we defaulted on the loans, nobody would lend any money and, coincidentally, no one would have any money to lend. Governments would have to balance their budgets. The financial markets would have a fit, but how long would it be before things straightened out and we moved forward, without debt?
It would take a bit and it would be difficult (he said tongue in cheek), but if we follow the present course, we will be paying the rich people interest on the debt even as the economy muddles along and we don’t make enough money to pay the debt. Bonded indenture is an apt term, or perhaps you like this one better: indentured servant. We have become slaves to debt which is owned by the rich and those on medicare, medicaid, food stamps, welfare, government retirement and Social Security. And our leaders tell us we must pay the debt. Why? Why can’t we default? Remember The Ruling Class by Codevilla?
It is an interesting choice.
Some years ago I gave my daughter the choice of standing in the corner for a number of hours or a spanking. She chose to stand in the corner. After a while she asked me if she could take the spanking.
Paying the debt off will be like standing in the corner for 40 years. The only people who benefit are the ones collecting the interest. I’d rather have the spanking. Let us be done with this mess and start over.
And with that, a quote for the decade: “Those who make peaceful revolution impossible, make violent revolution inevitable.” ~ John Kennedy.
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