SPEAKING FREELY
Stop worrying and embrace the debt
By Aetius Romulous
Speaking Freely is an Asia Times Online feature that allows guest writers to have
their say.
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America is in debt because it wants to be. Unlike any other country, America
has believed for a generation that its debt was the fountainhead of its power,
the source of its wealth and excess. America has deliberately and with full
intent run deficits and financed them through debt, a veritable ATM of cash
with which it buys its economic hegemony, and makes payments on
its future. It's hard to solve a problem that isn't one to the blind who will
not see.
The nation's financial books are kept on an annual basis, and once a year
buildings full of civil servants add it all up and produce all the totals. If
the government is short - if it has spent more than it took in - a "deficit"
occurs. If the government takes in more than it spends, then it is called a
"surplus".
It takes a lot of spending to become the United States of America, and not all
of it is bad. World War II is rightfully remembered as the most pitiful folly
mankind has ever bumbled into, but what is not so well known is the staggering
bill in dollars that "event" charged up. In the US, war production and maimed
international markets produced a witches' brew of deficits, every one of which
was absolutely necessary at the time - accepting, of course, that one finds war
necessary. The real issue, then, becomes what to do with that massive shortfall
once the bill arrives?
In the US, the decision has always been made to borrow the shortage and pay it
back whenever. Deficits not paid turn into debts owed at the stroke of midnight
every October 1. The debt sits on the books until next year, when the same
civil servants in the same buildings total all the same columns and learn to
their utter surprise - again - that the government spent more than it took in.
Another deficit, stroke of midnight, added to the debt from last year. Civil
servants, buildings, total ... and do it all over again. Good work if you can
get it.
On January 1, 1791, the first full year of accounting for the newly minted
United States of America, the National Public Debt (that's what the wonks call
it) stood at a whopping US$75,463,476.52 (In those days, I would guess, 52
cents meant something). That was the shortfall from the Revolutionary War, and
sundry costs to set up shop on a new continent. This is what the Founders spent
beyond what they had, and I suppose as the first actual shortfall on the first
day of business, it was both debt and deficit, right as the clock chimed
midnight, for the very first time.
Those were nothing if not quaint old times, and in those days of yore real
attempts were made to repay those loans. France, (which had financed the war)
was paid back, and the people of the new America helped out as well, lending
their own hard sweat and blood and receiving government bonds in return. The
steady hands of Valley Forge were paid back 100-fold for their investment, in
loan repayment, opportunity and freedom.
The new government struggled with its deficits in the early years, but honest
hard work and common cause brought the young nation to its greatest day never
celebrated, an anniversary absent from the calendar - January 8, 1835. Andrew
Jackson had tamed the beast and done the impossible when the National Public
Debt hit zero, at the stroke of midnight. Nothing. Nada. Zilch. Debt-free.
The next day it was off again, never to return.
Sixty five million dollars when Lincoln took office; one billion when Picket
charged at Gettysburg; 2.7 billion at the last shot of the war in Ford's
Theater; 26 billion when Gatsby gazed at that light across the bay; and 43
billion as the Panzers clawed across the Meuse.
When Wally and Beaver trotted off to school - 260 billion; John, Paul, George,
and Ringo ... 300 billion USD. One small step for man, one giant leap to 400
billion. Ronald Reagan, uber conservative, one trillion dollars in National
Public Debt. George Bush Jr, in - 5 trillion dollars; George Bush Jr, out - 13
trillion Dollars. Barack Obama, in ...
Of course, with debt comes credit-card payments. In addition to any other
budgetary shortfalls - stuff the government couldn't pay for - there is also
paid the interest owed to all the folks owed money. $214,145,028,847.73 paid in
interest in 1988. Twenty years later, in addition to every other expense a
struggling country has, the US paid $451,154,049,950.63 in interest payments
alone. In the single month of December, 2009, nearly $100,000,000,000.00. A
single month. Thirteen zero's.
No one - and I mean no one - does this kind of thing by mistake.
While debt remains a four-letter word to those with a tabloid understanding of
macroeconomics and monetary policy, most sober economic thinkers favor the
judicious use of deficits and tolerable levels of debt. To a certain point, all
agree it's all good. However, there then diverges real opinion on just what
"judicious" and "tolerable" mean - where one economist's feast is another's
famine, where, exactly, good turns into bad. For American economic
policymakers, the opinion since Richard Nixon changed the world forever - on
August 15, 1971 - has been, who cares?
Since the end of World War II, the victorious world had "fixed" the Earth's
economy, by binding it together through, essentially, linking most progressive
national currencies to the US greenback, and anchoring those currencies to
gold. However, with a disastrous money shredder in Vietnam, and American
consumers - for the first time - buying more crap from the world than they were
returning (in manufactured goods anyway), the gold anchor that underlay the
planet's financial architecture became a millstone around the neck of American
hubris.
In the teeth of a financial gale, Nixon cut the line to the skidding gold
anchor and set the world adrift. The international financial architecture of
the planet was tied to the fortunes of the US dollar, which itself was tied to
nothing but goodwill.
Everything trades in American dollars between nations, and America supplies the
dollars. When other nations need dollars to trade with, they must earn them by
selling more of their stuff than they buy. Since the caustic summer of 1971,
when America needs money for any reason, America simply prints it.
And so was born the deficit cash machine of the baby-boom generation, the
mother of all American Express Cards, the ultimate no "preset spending limit"
plastic bling. Either by issuing bonds to cover the deficit, or by directly
slapping the ink on the presses, the god of the system created loaves from
fishes, money from nothing with which it flooded the world.
The boomers now ensconced in financial buildings around Washington found that
although the creation of money from thin air fueled inflation - which caused
the price of the stuff they were buying to rise - they could simply create more
money to pay the cost of the inflation that creating money causes. In this way,
a small suburban home in Potterville could be bought for $5,000 in 1957, and
abandoned at $500,000 in 2007 - without much more than a few new coats of paint
and driveway sealer. As long as everybody was happy, and the "value" of stuff
kept going up to cover the costs of stuff going up, debt became a gift - a gift
that keeps on giving.
Clearly then, the US national debt has been far from a problem and, in fact,
has been the solution for history's most powerful national economy, as it
pursues a religious quest for economic manifest destiny, spreading truth,
justice and the American way around the globe.
However, like all things just too good to be true, there was a catch. A small,
indiscernible, caveat buried in bold red print on the front page; "Warning: Not
Applicable When The Value Of Stuff Goes Down". The most schooled generation of
minds in history missed it, buried as they were in righteous cars, clothing,
coke, and junk from every corner of the globe.
The National Public Debt, at $13 trillion and rising by $1 trillion every month
- was never, ever, meant to be repaid. The staggering interest costs that piled
on each American every year like one hundred tons of feathers, always had to be
paid by the creation of more money, which depended entirely on the stable rise
of all the stuff a million miles below. Like a house of cards in a gathering
storm, when the inevitable happened in the summer of 2007, the falling price of
the American Dream blew the cards away.
On the other side of the world, staring blankly at computer screens awash in
red, a worried clutch of foreign faces wondered - wonder - in a thousand
foreign thoughts, "Ummmm ... are we gonna get paid?" And for their sins, the
answer is no.
As long as the United States of America is committed to defending a way of life
measured entirely by gain, the National Public Debt is the sole remaining
weapon, the last bullet in the chamber left with which to defend the good
Fortress of America.
And as it is the last, faint hope, no patriot wants to screw with that. The
only option available to the besieged and beleaguered Alamo is to flood the
planet with absolute rivers of more American debt - "stimulus" - in the vain
hope that Americans will return to buying stuff at a record pace in order to
force the value of the falling junk to rise again, thereby returning the world
to its proper axis, moving mirthlessly among the stars and galaxies, drifting
further into outer space.
Embrace the debt America, it is the only chance you have.
Aetius Romulous is an historian, economist, writer and blood-sucking CEO.
He writes and blogs from his frozen northern outpost in Canada. Blog:
http://screambucket.blogspot.com
Article reprinted with permission of the author. Copyright retained.
Speaking Freely is an Asia Times Online feature that allows guest writers to have
their say.
Please click hereif you are interested in contributing.
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