Committing National Suicide

by Dene McGriff

We have heard about lemmings going over the cliff. Have you ever heard of a nation committing suicide? ­­That is exactly what we are doing and no one seems to get it. America is committing national suicide and doesn’t even know it. To think we can rack up trillions in debt every year without consequences is foolish.  How long can we continue to borrow 40 cents of every dollar we spend? Unless America deals with its spending/consumption problem, it will end in a catastrophe of monumental proportions. In four years, the national debt has nearly doubled – added as much as in all previous administrations and rather than decreasing, it is accelerating! The Federal Debt of $16 trillion is nothing compared to the real figure of over $100 trillion!

This week negotiations between the Administration and Congress fell apart.  The Speaker of the House, John Boehner, couldn’t convince enough House Republicans to vote for his Plan B.  It now appears that there will be no compromise before the first of the year, so over the cliff we go!  The Republicans seem to be concerned about spending but the Democrats and Administration don’t seem to care.

The question is: Why is it so hard for anyone not to recognize the problem?  We spend $10 billion a day.  We take in $6 billion from taxes and borrow $4 billion.  Okay, let’s make this easy to understand.

Joe Sixpack has a budget and spends $10,000 a month.  He earns $6,000 a month in his job.  His neighbor, a nice Asian gentleman named Chin Fool, loans Joe $4,000 a month so he can make ends meet.  Now Chin Fool hopes that his neighbor will pay him back some day, but just in case he doesn’t, he owns a big store and let’s Joe shop there. 

He spends about $2,000 a month buying stuff at Chin’s store so Chin gets the feeling that at least things are almost even.  Chin loans Joe money and Joe buys Chin’s stuff.  Meanwhile, Joe’s debt grows.  After a few years, the amount of money Joe owes Chin has ballooned to about $100,000 a month. Now Chin, being the nice person that he is, lets him pay only two percent interest on the money so for a while Joe can afford to pay it.  But now Joe still makes his $6,000 a month and is loaned $4,000 but his standard of living is less because he has to pay Chin Fool $2,000 a month of it in interest.  Poor Chin becomes concerned that Joe may not be able to continue to make payments, so he decides he needs to raise the interest rate to four percent, still very reasonable of course, but now poor Joe keeps borrowing $4,000 a month but has to pay it all back to Chin.  Joe can’t afford to live as well as he did so he negotiates a bigger loan from Chin.  Now he makes his $6,000 a month.  He borrows $8,000 from Chin but pays him back $4,000 in interest but now is able to continue his budget of $10,000 a month.  Chin scratches his chin and thinks to himself.  Am I being a fool to continue to loan money to Joe Sixpack just so he can pay me back, buy from my store and live well?

You get the idea.  How long can either Joe Sixpack or Chin Fool continue to play this game?  Now at the level of the real world, we are fools if we think we can borrow and stimulate ourselves to prosperity.  Even John Maynard Keynes, the famous economist, who came up with the idea of stimulus and deficits, understood that debt should only be temporary and be paid back.  To say that we can go on like this forever is ridiculous!

One day Chin noticed that when Joe paid him (always in cash) he observed that the bills were really crisp.  Chin asked: 

“Wow, looks like you just printed ‘um?” 

Joe smiled:  “Fool, I told you ‘where there’s a will, there’s a way.’”

Chin looked puzzled:  “What do you mean – where there’s a will there’s a way?  Are you taking me for a dummy?” 

Joe:  “No, Fool, my word is my bond – every bill I pay you I stand by it and I’ve always paid you, right?” 

Chin:  “Yeah, I guess you’re right – it’s all ‘good money’ – right?” 

Joe:  “Sure, Fool, it’s backed by my good faith.” 

Chin thought to himself:  “Man, it’s like magic; Joe just pulls it out of thin air – and I’m not the only loaning him money …. Hey, Joe, next time I’d like to have my payment in gold or silver…not that I don’t trust your freshly printed bills, but….”

Joe didn’t fool around; he said in a stern voice:  “Fool, you got a problem with my money?  What if I just stop shopping at your store…I can always get other guys to loan me coin … what do you think about that?”

Joe noticed that Chin didn’t like what he heard.

Chin:  “Well, Joe, you’re ‘into me’ for so much … and really, I guess I could just pay you back in these crisp bills you just gave me, right?”

Joe:  “That’s right, Fool – now you’re talkin’ my game and playing by my rules … isn’t it great being partners?”

Chin smiled – “Yeah, I guess so…I guess so…I guess so….” … then Fool remembered these wise words:  “Promises make debt, and debt makes promises.”.”  It was such a wise word that, much like his loaning money to Joe, he never understood it!

Don’t Discount America

One thing I have been saying for years now, is:  Don’t discount America.  America is very rich in natural resources and is still the number one economy in the world by a large margin.  America has never defaulted on foreign debt.  When we issue bonds to raise more capital, there are three times as many buyers as there are treasuries (i.e., “debt instruments” – T-bills; America’s I.O.U.).  Buyers are willing to borrow even though we pay anything from zero to two or three percent interest.  America is considered the safe haven for the world’s money.  We are not an Argentina that is going to run up debt and stiff creditors (no offense intended – I love the country).  Just because we have sterling credit (although it’s been downgraded a couple of notches during the Obama Administration) doesn’t mean we can keep going into debt indefinitely.  Eventually the books must be balanced.  Printing more money and paying off debt on the cheap will only cause inflation, and may cause the creditors to either raise the interest/risk rate or stop loaning money all together.

Japan is an interesting country and we are following their playbook.  Even though it has been in a slump for over twenty years, it is still the third largest economy in the world.  In the 1980s it was the miracle economy and everyone was expecting it to take over the number one slot.  Then in 1989 something happened.  Almost overnight the stock market and real estate lost three quarters of its value.  The government responded by deficit spending, bank bailouts, government works projects.  Fortunately, the Japanese were savers so Japan was able to fund government deficits with the savings of their people.  But they are now beginning to run out of savings and their national debt will reach 245 percent of GDP in 2013.  In spite of all of their spending, they have been in a deflation (another word for depression) for over 20 years with no end in sight.  Stimulus, bailouts and printing of currency has not led to hyperinflation but rather to stagnation.  They refuse to let banks fail but have continually bailed them out. They are maintaining just as America will for some time to come.

The biggest mistake people and countries make is they think the crash is imminent and America will become a minor third world country in the next few years.  Take a lesson from Japan, England or even Rome.  Things don’t change that quickly.  Please see In Search of Prophetic Babylon, an eBook I wrote a few years ago.  America still has plenty of national resources, including oil and gas that is just beginning to come on line.  It is still a bread basket for the world; still a serious consumer of the world’s junk; and still has the most powerful military.  The one-and-a-half billion problems (people) that both China and India have will be a weight on their shoulders that will be difficult to overcome.  It will become an unbearable burden, especially as the childless population of China grows older.  Even though it looks like a deal has been struck to save Greece, it is only a matter of time before the highly leveraged “sovereign debt” causes the Euro zone to collapse.  China and Japan will fall under their own weight and Europe will decline because the Eurozone can’t afford to pay for the early retirements, free health care, and long vacations people have become accustomed to.  With all of the “have nots” and immigrants screaming for their “fair share” business stagnates under greater demands from the State.

One of the subtle dangers is that the debt accumulates quietly and slowly over time.  It takes years and years before anyone really recognizes it as a problem.  We seem to be getting by.  But one of several things can occur.  Worst case scenario is that there is some kind of crisis causing the global financial system to collapse.  A slow and agonizing economic sickness comes as credit agencies keep downgrading American debt.  This eventually leads to higher interest rates and the interest on the debt becomes an overwhelming burden. 

Don’t Raise Your Hopes in America

We are slowly running toward the cliff and one day we will go over.  I am currently reading the Ayn Rand classic Atlas Shrugged.  I must say, I read the novel and turn on the news and see the same dialogue.  I am soon confused as to where I am – in the book or in the present world.  In the world of “Atlas Shrugged” the United States has become anti-business, anti-risk taking, anti-entrepreneur.  People are to work for the collective good and everyone needs their “fair share.”  The rich should be punished for their avarice.  Ayn Rand is a brilliant writer, born and raised in Russia, who writes about an America following in the communist footsteps.  

I am frankly amazed at both parties.  The Obama Administration seems unconcerned about deficits.  They say they are, but in the first two months of this fiscal year they increased the deficit after running a $292 and $172 billion in November alone!  Neither the Ryan Plan, nor the Boehner Plan, nor anything proposed by the administration addresses the real problem of spending.  Yes it is about spending.  It is also about taxing.  The higher the tax rates, the less the private sector will have to invest.  That is just a statement of fact.  The more Greece, Italy and Spain raise their rates to combat the deficit, the more the economy slows and the lower the government revenues.  I don’t know why they don’t see it.  Perhaps, like the Lemmings charging toward the cliff, they have a death wish.

The chart to the left shows the growth of spending in Medicare, Medicaid and Social Security.  They eventually overwhelm the budget, squeeze all other program spending and this doesn’t even count interest on the national debt which is another huge line item that is growing out of control.  The country is awash with debt at every level – personal (credit cards, mortgages, student loans), business, state, county and local government.

If they project a trillion a year deficit for as far as the eye can see, believe me, it will be much more.  They have no idea what Obamacare is really going to cost.  Just go back in history and look how much they underestimated the cost of Medicare and that has now become the biggest expense the nation has.  I worked in health care for 30 years both here and in other countries.  It is not about our “sick care” system but the highly regulated, industrialized, processed dead food we eat that causes us to degenerate and get fat!  There won’t be enough money in the world to save our sick “you know whats.”  Sorry, I got carried away but it is true.

Why Can’t We See It?

We seem are blind as we race one another to the proverbial cliff.  Why is it so hard to understand?  We get the concept in a sense.  Most of us don’t spend 40 percent more than we take in every month (not that we wouldn’t if we could – remember the “housing bubble”).  We don’t go into debt indefinitely.  We don’t think we can print our way out of debt.  Yet, when our government does this, we seem to ignore the fact as well as the consequences of such reckless action. 

When someone says this debt will fall on the shoulders of our children and grandchildren, we feel guilty for a moment but then selfishly continue to let things go on as if there was no tomorrow.  Where is the outrage?  Does anyone care?  Does anyone understand the seriousness of the situation?  I studied economics in the ‘60s and again in the late ‘70s when I got another masters in international business.  I know what they teach in universities.  Deficits don’t matter.   What matters is the ratio between debt and GDP.  Our economy is big.  We can handle it.  Other countries love us.  They will loan us money indefinitely. 

So what are the consequences of debt if it just keeps growing year after year?  Well, obviously the debt grows, the interest increases it geometrically until one day it is too big, takes up all of our resources and sells the assets of the country to others.  China is over here buying up businesses just like Japan did in the ‘80s.  Do you remember the original name of Soni Pictures? 

This just shows the national debt, but remember there are what they call unfunded liabilities which are estimated to be $100 trillion.  That is Social Security, Medicare, federal retirement, etc. 

What does this mean to us?  Look around.  How is your State doing?  How about your county and city?  Have your school budgets increased lately?  How about police and fire?  Do you see a lot of businesses hiring?  Just wait until next year.  You ain’t see nothin’ yet!  Business after business is cutting workers back to 30 hours a week so they don’t have to pay for benefits.  Do you get Social Security?  What’s going to happen to your increases?  Will Social Security be there for you?  If you get old, will Obamacare pay for that expensive operation or just keep you drugged and comfortable?  Dear readers, the government is not going to take care of the problem.  It will get worse.  Let’s look at the problems for a moment.  Will they really solve them?

• Federal, State and local deficits increase, taxes increase and private sector activity decreases
• Unfunded retirements go broke – this goes for public employees, big corporations and individual retirements
• Banks refuse to admit the size and scope of their problems but continue to extort bailouts for themselves but eventually go broke
• Derivatives continue to grow toward $2 quadrillion but eventually unravel and bring down the global financial system
• Europe continues to implode and the too big to fail countries such as Italy and Spain default.  The EEU falls apart
• Taxes increase, business contracts
• Capital gains taxes increase, investment contracts
• Sectarian conflict rages through the Middle East and Africa as war spreads across the Middle East and Africa
• The administration and liberals punish business and the wealthy

Doesn’t anyone see it?  Does anyone want to see it?  Will anything be done about it?  Or will people just keep seeking money, power and their own self-interest?  Is there anything we can do?  Will it be done in time?

Here are some warnings from the past:

• If I owe you a pound, I have a problem; but if I owe you a million, the problem is yours – John Maynard Keynes
• It would be easier to pay off the national debt overnight than to neutralize the long-range effects of our national stupidity – Frank Zappa
• “Nothing is so well calculated to produce a death-like torpor in the country as an extended system of taxation and a great national debt.”

I leave you with this quote by Thomas Jefferson, “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.”

Conclusion

This debate goes back to the founding of our nation and even before.   But this is just one example of a world out of control.  If we saw the real state of the world, the corruption, the mismanagement, the self-serving incompetence, we would all fall on our knees and cry out to God, “Save us from this mess!  Deliver us!  Take us to a better place.”  And do you know what? He will.  There is no justice in this life.  There is no responsible and trustworthy administration.  The only hope is to have a life change by having a relationship with God, by realizing that our hope isn’t in this world.  Don’t blame God.  We messed it up all by ourselves.  It just comes naturally. 

Dene McGriff, Sacramento, California