Friday, February 28, 2014

Limitless - US Federal Debt

Are politicians racking up debt that your children will have to pay?
photo image of a toddlers holding a pink pen with hundred dollars in the background.
National Debt is Silly!
Anyone who has visited my Blog has probably noted the US Debt counter on the right side of the main page. To me, national debt is a serious issue.
While my biggest concern has to do with what's done with the money borrowed, the overall amount is also hard to ignore.
Whether we pay the money through loosing buying power due to inflation or through income confiscation (taxes), the amount we owe is so large that there is just no way for our present generation to pay for it. As a result, it will be our children who are left with the bill.
But in every family, there is someone who just does not understand the problem of spending. Most of them see government as a kind of deity (God) who has the power to create money from thin air. What they miss is that the problem is not about the creation of the money but the creation of value.
image of the Empire Estate Building.
To pay a trillion in debt to the
Chinese, we need about
1,500 Empire Estate Buildings
For example, if the Chinese lend us a trillion dollars, we will have to give them a document that promises we will pay in ten years. Such document is a 10 year treasury bond. Well, in ten years, the Chinese will come back to get paid. But we will have to give them something of value. They will want to trade their bond for corn, cars or famous buildings. Of course that they will be fine with first receiving cash that they can then exchange for the Empire Estate Building and a few other landmarks. But what do you think will happen if the money we give them is not good? They will certainly refuse to accept dollars and would rather get paid with the buildings directly. After all, the money they lend us has value when we borrow it. They expect the same in return.
This is exactly what happened with German money after the first World War. The country was broke and as a result their money was worthless, So, the rest of Europe demanded to get paid with gold and other valuables.
Now think. Would you like the US government to come to your house in ten years and tell you that you have just lost your house to the Chinese as payment for the money Uncle Sam borrowed ten years before? What if they tell you that your house is exactly your fair portion of the total amount owed? Would such fairness make you feel any better? Do you think that it is fair for the Chinese not to get paid instead?
But you may be thinking that the government just prints money that the Chinese can then use to buy whatever they want. But the question is: if the government can just print money out of thin air, why did it had to borrow in the first place? The answer is because they can print money but not value. To pay the Chinese back, Uncle Sam will have to take your money or your goods. It is as simple as that.
If we are a nation that does things right, we need to have a good plan on how we will pay for what we spend before we use the money.
image of the chart illustrating US debt during the 20th century.
President Obama, in his attempts to take advantage of the public's ignorance, claims that we should raise the debt limit because we should pay what we owe. With this, Obama uses the high moral ground as his argument without explaining how money payments really work. By the time he is done, Obama will double the debt accumulated by all US Presidents combined.
It's not about not wanting to pay. The US has the best credit in the world because we do pay. Instead, it's about making sure we don't default. The best way to prevent default is to spend within our means. Unfortunately, this is at the core of our incompetence. We just can't do it. We love to talk about spending money for fireman and teachers even when it isn't our money we are giving away.
To see how ridiculous this situation is, look at this video.
Rather than making things complex by using national debt, the video simplifies things by putting everything within the context of family in debt. Make sure to share the article with anyone who needs to understand the topic better. Let's be more responsible. Enjoy!

No comments:

Post a Comment