John Steele Gordon does a nice job describing America’s out of control debt
The bad news is that the debt is rapidly rising, both in absolute terms and relative to GDP, thanks to the current recession, the stimulus effort to end that recession, and the bailout of the country’s financial system. The budget deficit for fiscal 2009 is estimated to be a staggering $1.6 trillion, larger than the entire national debt as recently as 1984. It is the largest peacetime deficit (measured as a percentage of federal revenues) since 1936, when the country was still in the throes of a far worse economic downturn. The deficit will cause the ratio of debt to GDP to rise to over 80 percent by the end of fiscal 2009. That will be the highest it has been since 1950.
Worse, the Obama administration is projecting unprecedented annual deficits over the next ten years if its political agenda of cap and trade, universal healthcare, and other expensive programs is enacted. According to the non-partisan Congressional Budget Office, these programs will average more than 4 percent of GDP each year and total $9.3 trillion over the decade. That would mean a doubling of the national debt in absolute terms and at least a 50 percentage point rise in the ratio of debt to GDP, taking us back nearly to where the debt was at the end of World War II.
And that, of course, assumes a quick recovery from the current recession and an economy expanding at a rate averaging 2.5 percent a year beginning in 2010. If the economy were to continue to lag or the country face a serious crisis, such as a major war, or if the Obama agenda is enacted and turns out to be more expensive than estimated—as government programs usually do—the result could be a debt load that not even the United States could sustain. The only alternatives would then be a tax rate that would cripple the economy, radical reductions in government spending, or a deliberate policy of inflation that would send interest rates soaring.
Well, the quick recovery isn’t going to happen anytime soon, no matter how much “stimulus” money is injected. Or printed. And the debt itself will become (well, already has) a huge burden slowing real growth. When coupled with the massive entitlement deficit coming (well, it’s already here), the economy will be (already is) strangled with a death grip.
So, what has caused this massive deficit/debt spiral. Steele offers four reasons:
The U.S. debt exploded in the last half-century from a fateful intersection of 1) a national economic trauma; 2) a fundamental change in the prevailing economic theory; 3) ill-considered political fund raising reforms after Watergate; and 4) reforms in Congress that made spending impossible to control.
I’d love to agree, but each of those are a direct result of, not the cause of, the problem. Some are even irrelevant and mere ancillary to the real issue.
Since Mr. Steele can’t see the forest for the trees, let me show him the forest.
When Nixon took us off the last vestiges of the gold standard in 1971, as they say, all hell broke loose. Our debt binge began precisely at the same time. Once there were no restraints, no restraint was shown.
And why does leviathan love debt? Because he can inflate his way out of it. Or at least, use inflation as a tool.
Thus, inflation and debt are basically one in the same.
As for the trees, I’ll grant that 1 and 2, the depression and Keynes, did facilitate (I believe the psychological term is enable!!) recklessness and destruction. However, sans freely printing funny money, there were some limitations. Once that was lifted…
As for 3 and 4, political and congressional reforms, those are both the consequence of the debasement of the money. Congress had long violated the constitutional limits on its power, but at least, as far as the purse strings were concerned, they could only go so far. A completely worthless, fiat currency changed all that. Then, the marriage of unlimited power and unlimited money made for a rather awful offspring.
So, massive rent seeking, mercantilism, and collectivization of every aspect of the economy, can only occur through the power of the press. That would be of course the money presses.
At least we can agree that the debt is ruinous. And yes, the fate of the Roman Empire is well within our reach.