The following link is to a video showing the growing threat of nuclear war from North Korea.Whereas China holds a majority of US debt, and whereas the United States of America has more debt than 13 times the actual currency in circulation, and whereas our national debt offerings are becoming less attractive on the open market, and whereas the United States has no financial reserves, and whereas North Korea is an ally of China and therefore a war with North Korea is also a war with China, would China allow its biggest debtor to fight a war with its ally and in the event of war with North Korea, how would the US fund such a war?
That is the predicament we find ourselves in right now on any front - whether it be with China, North Korea, Iran, Russia or any other country. We are at the point where our credit card is nearly maxed out. There is still some space on it but it will soon be taken by health care reform. There will always be some way to fund our actions but at what cost? At what rate of return will our creditors require? What can we afford? And, because of our severe indebtedness, will we be able to make the hard choices required to preserve life, liberty and the pursuit of happiness?
It all comes back to this:
- You need money to buy things
- Money has to come from somewhere
- There isn't an infinite amount of valuable money
We, the People, are the guardians of our credit. In order to fulfill that responsibility, we need to understand what public credit is for and why it was established. To do this, we must go back to our roots to understand the foundations for public credit.
Public credit for the United States was established by Alexander Hamilton, our most influential and revolutionary founding father. He was the only one of the founders who saw not just the political revolution, but also the economic one. In his 1790 "Report on Public Credit," Hamilton laid out the purposes, as well as the good and bad fruits, of public credit. He stated there were four reasons for public credit:
"That exigencies (emergencies) are to be expected to occur, in the affairs of nations, in which there will be a necessity for borrowing.
"That loans in times of public danger, especially from foreign war, are found an indispensable resource, even to the wealthiest of them.
"And that in a country, which, like this, is possessed of little active wealth, or in other words, little monied capital, the necessity for that resource, must, in such emergencies, be proportionably urgent.
"And as on the one hand, the necessity for borrowing in particular emergencies cannot be doubted, so on the other, it is equally evident, that to be able to borrow upon good terms, it is essential that the credit of a nation should be well established (footnote 1)."
This is critical to understanding why we ever had a national debt in the very first place. Essentially it is for emergencies, public danger, and foreign war. It was never intended for and should not be used for the day-to-day operations of government or the funding of entitlement programs. These things were certainly envisioned in his day and were warned against. It is also indispensable to know that it was for the time when the country had little wealth. Public debt was something that would be done away with except for in times of national emergency.
Hamilton fought hard to establish public credit to restore the good name of the United States and to place us in a situation whereby we could protect the public and ensure that the government was equal to any emergencies that arose. His efforts established the framework for our financial system which helped in creating the country we are today. However, with an official debt of nearly $12 trillion, and an unofficial debt of nearly $62 trillion, we are destroying our public credit and therefore the nation with it. This was evidenced a few weeks ago when our Treasury Secretary had to go on a personal tour to reassure the world of US commitments to pay its debts. Sadly, he was literally laughed at (footnote 2).
2008 saw $412 billion dollars go to interest payments alone (that's 25% of your taxes) on the national debt (footnote 3). That number is staggering. As the debt gets higher, the interest rates on that debt will climb. Therefore, those interest payments will also climb. As those payments climb, so do our taxes. Our taxes will climb at the same time we will be taxing more to pay for more and more entitlement programs - and perhaps even try and fund another war. Just like with an individual's finances, this kind of math doesn't add up. It will eventually strangle or cripple the Republic and its citizens.
David Hume, a British philosopher, wrote on the good and evils of public credit. He recognized that many good things can come from it. He also acknowledged that several ills can come from it. He wrote:
"If the abuses of treasures be dangerous, either by engaging the state in rash enterprizes, or making it neglect military discipline, in confidence of its riches; the abuses of mortgaging are more certain and inevitable; poverty, impotence, and subjection to foreign powers (footnote 4)."
I repeat, the consequences of abusing public credit are: poverty, impotence, and subjection to foreign powers. Anyone who has lived in a third world country can attest to this. Despite America's many rash enterprises, we have somehow survived. However, with a national debt closing in on $12 trillion, is now the time for more of them? I think not. Even so, what appears to be a limitless checking account in the hands of government seems to give them the illusion that any time is a good time for another rash enterprise. Hume continued:
"The practice, therefore, of 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, in this manner, upon posterity...(footnote 4)"
We sadly are not concerned enough with restricting the government's ability to draw bills on public credit. Certainly there has been some "good" wrought out of our current debts. However, it is hard to say that the good it brings outweighs the cost of it. Hume stated:
"More men, therefore, with large stocks and incomes, may naturally be supposed to continue in trade, where there are public debts; and this, it must be owned, is of some advantage to commerce, by diminishing its profits, promoting circulation, and encouraging industry. But, in opposition to these two favourable circumstances, perhaps of no very great importance, weigh the many disadvantages which attend our public debts, in the whole interior economy of the state: You will find no comparison between the ill and the good which result from them.
"...The taxes, which are levied to pay the interests of these debts, are apt either to heighten the price of labour, or be an oppression on the poorer sort.
"...As foreigners possess a great share of our national funds, they render the public, in a manner, tributary to them, and may in time occasion the transport of our people and our industry (footnote 4)."
This is a truth with debt of any kind. As foreign countries, oil companies and banks possess the greatest share of our debt (footnote 5), we have become tributes to them and are losing our own sovereign ability to steer and guide America. America is now an enterprise for them and their uses. Can you see how we can't continue to spend like we are? Can you see how we cannot continue on this reckless course? The consequences of poor public credit are even greater though. Hume stated,
"If the prince has become absolute, as may naturally be expected from this situation of affairs, it is so easy for him to encrease his exactions upon the annuitants, which amount only to the retaining money in his own hands, that this species of property would soon lose all its credit, and the whole income of every individual in the state must lie entirely at the mercy of the sovereign: A degree of despotism, which no oriental monarchy has ever yet attained (footnote 4)."
What that means is that the chief executive, being responsible for all of that debt, will become a greater despot than ever known to pay off the debts which the government had so foolishly contracted. The states will be subject to him. Congress will be subject to him. All of the citizenry will be subject unto him - the high and the low, the rich and the poor. Our liberties will be sacrificed for our short sighted behavior. Is this worth it to us?
We must restore our public credit. We must put a stop to this endless spending and restore the government to its proper role. I quote Alexander Hamilton, "To justify and preserve their confidence; to promote the encreasing respectability of the American name; to answer the calls of justice; to restore landed property to its due value; to furnish new resources both to agriculture and commerce; to cement more closely the union of the states; to add to their security against foreign attack; to establish public order on the basis of an upright and liberal policy. These are the great and invaluable ends to be secured, by a proper and adequate provision, at the present period, for the support of public credit (footnote 1)."
Our country and its citizens would be blessed in every possible way if we were to restore the government to fiscal responsibility and pay off our debts. These are an embarrassment to the very principles of SOUND GOVERNMENT, of LIBERTY, of FREEDOM, of NATIONAL DEFENSE. Debt is bondage and bondage is everything but what we believe in but yet is everything we are working for. This path is one of folly. Surely you must see this.
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Footnotes
1. http://press-pubs.uchicago.edu/founders/documents/a1_8_2s5.html
2. http://www.youtube.com/watch?v=CwM6OdbN2-w and http://www.youtube.com/watch?v=ZNNy_yz1f_E&NR=1
3. http://www.federalbudget.com/
