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April 14, 2011

Debt: The Citizenís Conundrum

Patricia A. Kelly

In “Of Public Credit,” written approximately 250 years ago, David Hume wrote: “Contracting debt will almost infallibly be abused in every government. It would scarcely be more imprudent to give a prodigal son a credit in every banker’s shop in London, than to empower a statesman to draw bills on posterity.”


Our nation, without agreement by early July to raise the debt ceiling, will face default on our debt. We’ve actually defaulted twice before.  First, our government defaulted on its paper money at the end of the Revolutionary War, but did make good with gold. Second, on June 5, 1933, in the first year of Franklin Roosevelt’s presidency, our government defaulted on its agreement to pay U.S. bonds issued during World War I, in gold. Instead, it paid in deflated currency.


This time our debt is different, though. We owe a lot of it to foreign countries.


Then, as now, times were hard financially.


The concept of the United States of America defaulting on a loan is mind boggling, but the International Monetary Fund considers it a possible scenario as our budget negotiations play out.


The Republicans say they won’t let it happen, that they will pass the increased debt ceiling that is required to prevent it. They are only considering holding off to gain some concessions. According to a representative of John Cornyn (R., TX), who spoke to The Huffington Post, the dream agreement would include a balanced budget amendment to our Constitution, a spending cap bill, and legislation to deal with debt and deficits.


In his budget related speeches, President Barack Obama was expected to address long term fiscal reform, entitlements, tax expenditures and defense spending. Entitlements, certainly, have long been invulnerable to attack, especially among Democrats. [Ms. Kelly submitted this column prior to the president’s speech yesterday.]


Even to conservatives, taking retirement money away from people who were forced by the government to include Social Security in their retirement plans seems wrong now that many are unable to work to recoup this loss.


Our debt ceiling is $14.3 trillion. How can that have snuck up on us in only 250 years? It seems like only yesterday that we were a new country looking for soldiers who were willing to bring their own guns and clothing to war with them as we had nothing to pay them.


We are now actually within a few months of defaulting on our loans. On Tuesday, April 11, the International Monetary Fund urged us to outline credible measures to reduce deficits. We, the powerful and mighty United States, could go the way of Greece!


So, now we’re going to have to face the music, not that “We the People” may have much to do with it. It seems we’re still not privy to exactly what the agreement was that kept the government going last Friday. We know that one issue was Republican interest in social programs such as abortion. Two years ago, Democrats added partner rights for gays and removal of Speaker John Boehner‘s school voucher program, among other measures, to their budget offerings. No one has clean hands here.


The percentage of the Gross National Product (GNP) that constitutes taxes has run about 20 percent throughout most of our history. We tolerated 24% during World War II. The possibility now exists, if we can’t reduce spending, that we could look at as much as 50 percent in the not too distant future, as in Norway and France. Or we could default on our Treasury Bills, or create hyperinflation, thus dramatically reducing the debt in real dollars. Or we could stop throwing money around like sailors on payday, although history says that‘s too hard for us.


We could pull out of Afghanistan and Iraq, designating a small military force to fight specifically against terrorism. We could privatize medicine, even to giving the elderly cash to use to shop for medical care. They know how to strike deals.


At present insurance companies, and what they agree to pay, drive medical practice costs. Insured people get more tests. Sometimes insured people have to accept treatment from an insurance company mandated provider, even if he is not very good at his job.


But back to money. We could look into waste in government spending, and look hard, shared offices, avoidance of duplication of services, offering government employees benefits and pay comparable to the prevailing free market.


Proposed cuts generally meet with a political outcry. “You are attempting to save money by starving the elderly, mistreating the sick, etc., etc. We do that sometimes, it‘s true, but mostly through bureaucratic error, rather than purposely through legislation.


Perhaps most amusingly, the White House is asking for a “clean vote” on the matter of raising the debt ceiling. That will be the first and only time anyone in politics – that I can think of – ever wanted such a thing. What? Stop all the little additions to bills than now exist? Oh no, not that!


If we did that, our constituents would have no way to get their little favors granted. And, if we don’t grant their favors, they might not vote for us again. We definitely can’t have that.


We’ll see what happens. It could be default, or it could be an agreement. Might be a good idea to keep an eye on things and try to figure out what they’re doing this time.


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