At the end of 2009, we published Hitting the Roof! which discussed the risks of raising the debt ceiling to $12 Billion.
Back then, just 13 months ago, we expressed concern about the cost of having national debt close to the nation’s Gross Domestic Product (GDP). Well, today it exceeds present GDP, and it’s still climbing.
While political games players and pundits make hay blaming President Obama, the health care bill and other government programs such as TARP and Stimulus, the truth is that more money is appropriated than used for these programs.
TARP, much aligned by conservatives and liberals alike has actually netted a profit for the US Treasury, with minimal money outstanding. Losses by the Treasury have been negligible, and easily made up by profits from other uses. Much of Stimulus, more than $200 Billion was applied to Recovery Zone Bonds, and most every state failed to use all of their capacity. A renewal bill failed to pass the Senate in late 2010, allowing the remaining funds to expire December 31st. While health care is much maligned, it actually doesn’t really begin for another three years.
“I believe that banking institutions are more dangerous to our liberties than standing armies . . . If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] . . . will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered . . . The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”
President Thomas Jefferson — The Debate Over The Recharter Of The Bank Bill, (1809)
The truth is that our problems with the current crisis were not started by President Obama, nor by President George W. Bush. But started as early as the end of World War II, when America became the world’s policeman.
President Obama’s spending, while pretty hefty, pales by comparison to that of his predecessor, and Obama is taking the blame for putting those costs of Iraq and Afghanistan on the books, actually making those costs part of the budget.
There was a time when we became the joke of the world because we gave away so much money as foreign aid. Books, movies, and magazine articles from the 1950’s through the 1980’s made light of our national spending habits. Today, we ourselves are dependent upon aid from China, in the form of their buying our bonds.
Let’s liken the National Debt to an individual’s debt load. Most American’s owe far more than they produce in a year. Our mortgages are huge, our cars cost more today than our grandfather’s house, with all its furnishings. So can we assume that despite the rising national debt, it will be paid and the nation will not go bankrupt. However, there is a grave risk of default.
From 1913, until 1933, under the authority of the U.S. Congress, a private corporation held control of this nation’s gold supply. The U.S. paid interest on the use of our own gold, with more and more of its gold, ultimately ending in bankruptcy. Inevitably, the bankers foreclosed.
On March 9, 1933, the U.S. declared bankruptcy, as expressed in President Franklin Delano Roosevelt’s Executive Orders 6073, 6102, 6111, and 6260. President Roosevelt declared a National Emergency that made it unlawful for any citizen of the United States to own gold.
Clearly, the United States can live through a national bankruptcy. But things were different then. There was no social security system or support network for our citizens then. And a default on social security payments could cause widespread panic. While President Roosevelt not only survived the 1933 bankruptcy to go on to be re-elected three more times, it’s doubtful that any modern-day president would survive the poltical fallout. Roosevelt didn’t have television, the Internet or 24 hour news to report everything he did in voluminous detail.
We don’t think the United States will be forced to declare bankruptcy yet, but it remains a possibility. If it were to happen, likely it would be in the beginning of 2013, if President Obama is re-elected. If he loses, it may be politically expedient to do so in the lame-duck period between the election and the inauguration of his successor. Politics is never a sociable sport.