Americanly Yours

I have been hearing a lot of talk lately about repudiating our national debt.

Last week, my mom even commented that she thought that we should cancel our debt so that we didnt have to pay back China.  No one can deny that my mom is very intelligent.  The old phrase “mother knows best” often applies, but in this case, mom is incorrect.

According to the US Treasury department, our national debt is currently $11,379,966,189,575.05 [$11.3+ trillion].  This amounts to over $37,000 per person! But, the above numbers dont paint the whole picture.  A while ago, I posted a link to a news story which claimed our “real” national debt totaled $78,800,000,000,000 [$78.8 trillion].

However, Richard Fisher who is President of the Federal Reserve Bank of Dallas recently gave a very interesting interview with the Wall Street Journal.  In his interview, he talked about “the very deep hole [our political leaders] have dug in incurring unfunded liabilities of retirement and health-care obligations… [that] we at the Dallas Fed believe total over $99 trillion.” Thats $99,000,000,000,000.  But that is just the money for the unfunded liabilities and the costs of retirement and health care that have already been promised.  That number includes neither the current national debt, nor does it include the proposals by President Obama and the Democratic members of Congress to expand national healthcare.  However, even without including new proposals, the total national debt is astounding to say the least.  If you add the Dallas Federal Reserve’s estimation of unfunded liabilities with our current national debt, you reach a total of over $110,000,000,000,000 [$110 trillion]!  This amounts to a total debt of  over $360,000 for every American citizen!!!

Repudiating the debt probably sounds like a compelling idea.  After all, our national debt is massive and will continue to grow, especially as baby boomers start to retire and Social Security and Medicare costs soar while revenues for those programs drop.

[[And by the way, Mr. Fisher far from being a Republican hack who criticizes every move made by Democrats.In fact, Mr. Fisher is a Democrat who served in both the Carter and Clinton Administrations.  He was also the Democratic nominee for Senate in 1993 against Kay Bailey Hutchinson.]]

With current liabilities of over $360,000 per person, repudiating the debt may sound like a great idea.  Afterall, that is a massive sum for each America to be responsible.  In fact, there isnt enough money in the entire world to pay this debt. But, repudiating the debt is a terrible idea that must be opposed.

Yes, China and other foreign nations now own an increasing amount of our national debt.  This of course represents a massive national security risk to America (I believe that it is the greatest current threat to our National survival).  It is a security risk because the Chinese and other nations can threaten to dump their American debt holdings (making them worthless) unless we comply with their demands.  However, repudiating the debt and telling nations like China that we are not going to pay them the money they lent us in good faith may be an even greater risk to our Nation.

First of all, while China is now the largest foreign holder of our national debt, they hold less than 7% of the total debt.  Allies like Japan, the United Kingdom, Brazil, European nations, Mexico, India, and Israel also hold significant amounts of our national debt.  China’s holdings of our debt represents about 25% of the amount held by foreign governments.  Repudiating the debt to spite China would not only hurt China, but would also hurt many of our allies.

These nations could respond by exiting free trade agreements (if we can unilaterally declare agreements null and void, so can they).

The American public actually owns a higher amount of the national debt than do foreign nations.  As of January 31st of this year, the American public held 31% of the debt while foreign governments held 29%.  Repudiating the debt would adversely effect Americans who purchased government bonds to save for their futures.  Remember those savings bonds that your grandmother used to give you when you were a kid?  Well, those would be worthless if we repudiated the debt.  So would the treasury bonds that many older people have bought to prepare for their retirement.

Another 41% (if you add the numbers up you get a total of 101%–not my fault, these are government numbers) of the national debt is held by the government.  For example, the Social Security Administration holds treasury bills for money that it loaned to the Treasury Department.  Repudiating this portion of the debt would only mean that it would have to be reissued later when the sectors of the government that loaned money out need it in the future to manage their budgets.

[[The above numbers came from The Skeptical Optimist who used only government data.  The data is linked to in his article.]]

Besides all of this, of the $110,000,000,000,000 [$110 trillion] in total debt and obligation, only about 10% of that represents our current national debt.  Even if we repudiated the $11,379,966,189,575.05 [$11.3+ trillion] that we currently owe, we would still be responsible for a national debt of $99,000,000,000,000 [$99 trillion] in the future.  But if we repudiated the national debt, we could NEVER ever run a deficit again.  No foreign government would be dumb enough to loan money to a nation which had previously declared that its debt no longer existed.  That would be the definition of bad banking.  No financial advisor could ever recommend US bonds for his clients without being laughed at.

The political and economic costs of repudiating the debt are extremely high.  Like it or not, we are stuck with this debt.  However, we can think of this as a lesson.  If we balance the budget in the future and pay back the debt over the next 30 years (the maximum time a US treasury bond can be issued for) we will have plenty of time to think about the costs of running large deficits for so long.  All of the interest on the debt which is paid out should serve as a lesson for future generations of Americans about the importance of living within their means.

Repudiating the debt would make it impossible to pay for the bloated government programs which have already been promised to generations of Americans.  Im 100% for balancing the budget.  I believe that we should balance our budget and begin to wind down our entitlement and discretionary programs as fast as possible.  This debt should be taken care of the right way.  In this case, the right way happens to be the hard way:  We must oppose new government programs and discretionary spending, we must balance our budget, we must cut taxes to ensure economic growth, and we must pay back our national debt to those who have put their faith in us and loaned us money.

Americanly Yours,

Phred Barnet

Please help me promote my site:

Share on Facebook

Become a fan on Facebook

I have some interesting quotes from President Obama which he said this week at a Democratic Party retreat:

“If you’re headed for a cliff, you’ve got to change direction.”

This is true, but the problem is that Mr. Obama has misidentified the direction of the cliff that we are headed for.  A year ago, we were about to enter what would have been a somewhat minor recession.  Mr. Bush and Congress flipped out and spent hundreds of billions of dollars on a stimulus that completely failed.  Then, rather than allowing failing business to fail, Mr. Bush and Congress bailed them out one by one and then bought a bunch more.  I am not going to fully detail this now, but in a free market system prices are important not just because they tell us the value of something, but they also contain a lot of information within any given price.  Mr. Bush and Congress should have allowed the banks and insurance companies to fail and for the debt to be repriced, rather than subsidizing bad banks and investments and keeping debt priced at the same level.  But Mr. Obama is continuing the exact same policies that got us into this mess. If you disagree, then read about how Japan’s economy stagnated for 15 years when their government shored up bad private sector bank loans.

Our economy is racing toward a cliff and Mr. Obama is hitting the accelerator, rather than slowing down or changing directions.

“When you start hearing arguments, on the cable chatter, just understand a couple of things.  Number 1, when they say, ‘Well, why are we spending $800 billion [when] we’ve got this huge deficit?’  First of all, I found this deficit when I showed up, number 1.”

Um… yeah you did.  But how is that an excuse for spending $800 billion.  Remember the cliff that he mentioned above?  Didnt he also mention changing directions?

“I found this national debt, doubled, wrapped in a big bow waiting for me as I stepped into the Oval Office.”

The above quote from President Obama is almost true (the debt increased by about 85% during President Bush’s two terms).  But Mr. Obama has already requested about $1.2 trillion ($350 billion from TARP and over $800 billion from this “stimulus” bill) since he became President a few weeks ago.  That is an increase in the size of the National debt of about 10% in about 3 weeks!  Change, Mr. Obama?  Or just more of the same?

Americanly Yours,

Phred Barnet

Please help me promote my site:

Share on Facebook

Become a fan on Facebook

You cant make this up.

Apparently this guy gets really drunk on a United Airlines flight from Japan to America a few years ago.  Then, he goes home and beats his wife.  The beating was so severe that it landed him an 18 month jail sentence.  The couple is now suing United Airlines for over $100,000 because they claim that it is somehow their fault that he beat his wife after drinking on United’s plane.

Are you kiding me?  Why should United Airlines be responsible for the actions of a drunk customer of theirs.  The man, an adult, got drunk on his own and then choose to go home and abuse his wife.  I have been drunk hundreds of times and have never beat up a woman.  United Airlines had no reason to believe that serving this man alcohol would result in him physically abusing his wife, and they should not be forced to pay any damages to this man.  It is his personal responsibility–not the responsibility of United Airlines–to ensure that when he becomes inebriated that he does not abuse his wife.

No rational person could ever abuse his wife and then claim that it is the fault of the airline because the airline served him.  The judge should dismiss this case and the couple should be forced to reimburse the court and the attorneys for United Arilines for the costs of this frivolous case.

We live in a society where our first instinct has become to place blame on others for our own faults and that is a shame.

Americanly Yours,

Phred Barnet