How to Erase the Federal Debt and Other Bad Ideas

The world is rife with bad ideas.  Just open your eyes and look around.  Hardly a blink can be made without some bad idea coming into view.  What’s more, the worse the idea…the more popular it becomes.  Here’s a partial list of what we mean…

Rap music, corn ethanol, the United Nations, pop psychology, Obamacare, no doc neg am loans, efficient market hypothesis, super mega big gulps, paper money, social welfare, skinny jeans, central banking, the Hindenburg, collateralized debt obligations, negative real interest rates, red bull energy drink, legal tender laws, democratic collectivism, fractional reserve banking, the helicopter ejection seat, Al Gore, malt liquor, the office cubicle, and much more.

Obviously, we could go on and on.  The list is practically without end.  But you get the point.  Bad ideas are everywhere and they are amazingly popular.

Nonetheless, today, we take aim at one really, really bad idea.  An idea that’s so bad, it’s extremely and extraordinarily popular.  It’s been going on for a long time.  But it really kicked off in earnest about 100-years ago…in 1913.

The bad idea is financing massive amounts of government spending with massive amounts of government debt.  Moreover, the bad idea of debt based government spending has brought forth numerous related bad ideas.  Here’s what we mean…

More Bad Ideas

Before the government began borrowing money and spending it in earnest – about 100-years ago – it was generally expected that each family would be self-supporting through their own contributions to society.  Over the years this expectation has replaced with the bad idea that everyone should live off the contributions of their neighbors.  Currently, 49 percent of American households receive government assistance.

Somewhere along the lines new bad ideas were dreamed up to justify the bad idea of debt based government spending.  One such bad idea is the bad idea that deficit spending brings prosperity to the world.  What makes this bad idea particularly bad is that massive public spending brings about the appearance of prosperity by borrowing wealth from the future.  That’s what politicians and voters love about this bad idea.

Unfortunately, as the debts run up year after year they ultimately run into the hard reality of arithmetic.  Making good on the debt becomes impossible for the economy to support.  Default or money printing becomes the only solution…and politicians nearly always opt for money printing because it masks the default from the general public.  Then greedy capitalists are blamed for jacking up prices.

Another such bad idea dreamed up to justify debt based government spending follows.  Years ago, when New Deal policies rocketed U.S. government debt into the stratosphere, the FDR brain trust came together to dismiss the concern.  At the center of the brain trust was John Maynard Keynes…the grandfather of public spending.

Together they came up with a new theory of public debt so indifferent, and cavalier, it excused the politicians in power and dumbfounded the opposition.  Their big discovery was that ‘We Owe It To Ourselves,’ so, therefore, massive piles of public debt don’t matter.  Yet these days we no longer owe it to ourselves.

We owe $1.2 trillion to communists in China.  We owe $1.1 trillion to the island of Japan.  We owe $263 billion to oil exporters, including Venezuela, Iran, Iraq, Saudi Arabia, and the United Arab Emirates.  We owe $257 billion to Caribbean banks in the Bahamas, Bermuda, and the Cayman Islands.  We owe $254 billion to Brazil.  And we owe plenty more to plenty of others.

Does it still not matter that we no longer ‘Owe It To Ourselves?’  Does it matter that we ‘Owe It To Others?’  Perhaps we’ll one day find out.

How to Erase the Federal Debt and Other Bad Ideas

Another bad idea that came about around a decade ago is the bad idea that ‘deficits don’t matter.’  This was the observation of former Vice President Dick Cheney.  From what we gather, the context of the statement was that ‘deficits don’t matter to voters.’  If this was indeed the case, Cheney’s observation was confirmed by President Barack Obama…when he racked up $1 trillion plus deficits for four consecutive years during his first term and was then reelected by the voters.  Simply amazing!

Yet just when we thought we’d heard it all, over the weekend we were greeted with another bad idea.  If you haven’t heard, Federal borrowing has once again reached the debt ceiling.  Right now, the Treasury’s employing what it calls “extraordinary measures” to buy a little extra time before it will no longer be able to borrow more money to pay for spending already authorized by Congress.  The bad idea, this time, is to solve the debt ceiling problem…

“What if the threat of a voluntary default by the United States could be erased by simply turning one tiny scrap of platinum into a coin?” asks Charles Riley at CNNMoney.com.

“That’s right.  No debt ceiling problem.  No bickering in Congress.  No market jitters.  The only thing needed is for the Treasury Department to mint a platinum coin with a face value of $1 trillion.”  According to Riley, the Treasury would use the $1 trillion coin to pay its obligations.

Have you ever heard such a moronically bad idea?

Did Riley ever stop to consider how a $1 trillion coin without $1 trillion of real wealth backing it could enter into circulation without debasing the dollar?  If it would really solve things, why stop with $1 trillion…why not ‘erase’ all the debt with a $16 trillion coin?

Of course, the origin of the bad idea, if you can believe it, is New York Congressional Representative, Jerrold Nadler.  Naturally, he’s yet another example of everything that’s wrong with Washington.

Sincerely,

MN Gordon
for Economic Prism

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