I’ve read a wide variety of opinions concerning the importance of our nation’s debt burden. Some of these are noted economists, some just a qualified opinion. What continues to amaze me is how many simply discount the debt almost entirely. It’s a concern because many of these people either serve in, or have influence on the administration policies. Not a new problem to be sure. Mixing politics with economics nearly always results in poor policy decisions. The here and now always takes precedence when re-election is paramount.
They made an attempt to address this with the creation of the Federal Reserve in 1913. The Fed is designed to operate independently free from the coercion of the White House. In theory, they can address their mandates of market stability, control of inflation and full employment without concern of political ramifications. However, no ramifications also means no accountability. The Fed is accountable to its shareholders only and they have been able to amass profits regardless of the state of the nation’s economy.
The lesson learned is that government simply needs to stay out of the markets and its attempts to manipulate them. If accountability is left to a third-party as in the case of the Fed, their priorities differ from that of the country. If accountability is through the ballot box, decisions tend to be very short-sighted as any administration only has a two-term potential to account for. We have the best of both worlds today. We have a Fed not accountable to us and we have an administration not concerned with future debt obligations. It’s a recipe for disaster.
The debt numbers are staggering to say the least. The nation’s federal debt is currently about $13.6 trillion. Other types of debts include interest, mortgage debt, personal debt, credit card debt and consumer debt. Add it up and it amounts to over $54 trillion. Pile on our long-term liabilities such as social security and medicare which currently exceed $111 trillion and it’s mind-boggling. The numbers are so unreal, that this is the way in which they viewed by economists. We can’t pay them. We never will pay them. We have an economy with an annual GDP exceeding $13 trillion. We are by far the largest economy in the world. Yet, we aren’t producing anywhere close to what would be required to eliminate our debt.
Most economists are promoters of carrying debt. Fractional reserve banking is based upon it. It’s considered wise to invest risk capital using someone else’s money. Foreign debt we owe to countries such as China or Japan is in U.S. dollars since the dollar is the world’s reserve currency. This means that debt would need to be redeemed back here. The risk lies in the fact that you rely on other nations continually carrying this debt and not redeeming it. We need their debt money to operate and fund our annual deficits. It’s a complex web. Any number of factors can throw the works into disarray. If our debt becomes too excessive as related to GDP, out credit rating could be dropped. If enough foreign countries colluded, they could replace the dollar as the reserve currency. A currency war could result if a trade war were to ever erupt. The threat of war in the Middle East always remains high and could blow up the commodities markets. None of these scenarios would bode well for our precarious balance we operate under.
None of these scenarios is playing out currently, however. This allows our government to continue to operate ignorant of the debt issue. In fact, some theorize this is done on purpose because should a doomsday scenario ever play out, we would simply repudiate the debt. This would signal the end of the U.S. as the world leader. You’d end with a trashed credit rating and a worthless currency. Entire industries would be in ruin and countless individuals wiped out. No one really knows what the landscape would resemble at that point.
The tea party has been leading the charge for accountability in spending and debt. What is not practical is those who call for an immediate retirement of the debt. Some argue it is a Constitutional issue in operating under deficits and amassing debt. The level of debt we have eliminates any drastic solutions. Repudiate and you kill the economy. Maybe you could restore it someday in the future, but there are no guarantees. You could raise taxes to increase revenue. This will also be a drag on the economy. Raise them too much and you’ll kill it also. You could reduce benefits to entitlement programs to reduce our long-term unfunded liabilities. That is, of course, a political hot potato.
The point is this is why debt matters. We have arrived at a situation where we don’t have any good options. They all have drawbacks, some economically, some political, some both. Not unlike us in our personal life when we get into trouble and don’t have a way out. However, we can usually take our medicine even if it wipes us out and eventually work our way back out again if we’re disciplined. When the entire country is at stake, it’s obviously not that simple. After a personal bankruptcy, we still have a flourishing system in place around us to integrate back into. Take down the entire economy and that option is out.
One of our risk factors is eventually going to give. Only a matte of when, not if. There simply isn’t enough pressure on our legislators to act. Particularly when it’s not in their self-serving interest. Not only will the general public face severe austerity measures, our legislators would also have to willingly reduce their power and influence if spending were to ever be curtailed to any significant degree. The public will have to become much more involved to force these measures. Not just some Glenn Beck rallies in the Capitol. The public will have to demand that austerity be imposed. It will painful for nearly all. It won’t be short-term. Accountability through the ballot box will have to be religiously adhered to. We can no longer kick the can down the road and allow the debt to be somebody else’s problem. We can’t just make it our kid’s problem, because it will simply be out of reach by then.
I would say this. Have you done ALL you can do to change things? Really? Maybe you’ve done your share, maybe more than your share. Yet, you must to offset those who don’t. Maybe it’s just another phone call or letter or fax or e-mail. Maybe a conversation with someone. Because what is clear is we haven’t done enough. None of the decision makers are acting with the sort of urgency that is required. It falls back on us to force them to do it. Keep this in mind as well. The Boston Tea Party of 1776 was born out of protest for higher taxes imposed by Britain. Why did Britain do this? Too much debt accrued from fighting wars. Yes, debt does matter. I will leave you with this statement.
“Keeping liberty as a nation requires individuals to act together”