On the Economy: Trivialization of the National Debt
Rauf Naqishbendi
August 29, 2008
The federal government has been borrowing money imprudently and wasting it recklessly as if it has never has to pay the money back. This has been the trend since the time of President Ronald Reagan. The daunting problem is the lack of a ceiling on spending by our politicians. Individual credit cardholders can only borrow up to the limit, but our government can spend as it wishes without an apparent ceiling, which gives them a free hand on extravagant spending with impunity.
The star of the presidential history of debt is the current president, George W Bush, who will leave the nation with a mere $10 trillion in debt by the end of his term. Last year the interest on this debt was 13% of the government´s total revenue. That number keeps increasing with more borrowing, as evidenced by the current and future economic climate, and at some point will leave the government crippled, with little money to finance entitlement and other social programs. Besides, the lenders are foreign countries by whom this nation will be held hostage should they decide to redeem their funds. If that occurs, it could easily collapse bond market, cause immediate skyrocketing interest rates and sharp dollar devaluation amidst severe economic consequences.
That being said, Wall Street cheerleaders the sole beneficiaries of recent asset and real estate bubbles, claim the federal deficit isn´t a big deal. It equals about 1% of the GDP (gross domestic product), which is well below the average of 2.4% of the GDP going back 40 years, according to the Wall Street Journal (February 6, 2007). That is exactly when America started shrinking.
By definition, the GDP is the total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment, and government spending, plus the value of exports, minus the value of imports. Wall Street is behind this public deception, and they try to make the deficit tenuous by describing it as 1% of GDP. The government´s income is determined mostly by taxation, not the GDP, which reflects overall economic activities. To this end, the real government´s annual deficit is higher than 20% of its total annual revenue.
Economists claim that another dose of relief is that the U.S. federal deficit, relative to its economy, is smaller than most of the major industrial countries. Again according to the Wall Street Journal (February 6, 2007), U.S. federal debt as a share of GDP was 37% in 2006, comparing to 52% in Germany, 43% in France, and 79% in Japan. Total government debt is about 300% of its annual total revenue. By the way, they forget to mention that those countries have formidable national savings while we have negative savings. Economists bring out whatever "facts" support their argument; otherwise, they would mention China, with more than a trillion and a half dollars in cash deposits and no debt. Given the above observation, economists are trying to trivialize the severity of the federal deficit and federal debt. But that doesn´t attenuate the enormity of this problem; it only makes the people falsely feel better about our economy.
We as a nation are just doing fine. Imagine, we take in more than half of the entire world´s savings so that our government can spend or waste, however you describe it, and at the same time we can maintain a good standard of living. That sounds like a good deal, but where is our pride and sense of morality in all of that? Are we content with being freeloaders who prey on the rest of the world by letting them work harder, earn money in excess of their needs, and save so that we can borrow? So far it has been uneventful. Since President Ronald Reagan our government has continued borrowing money, and we haven´t paid much toward the principal. Only interest has been paid. The debt continues to pile up, but again, we are told that we are doing just fine, even with dollar devaluation.
The two candidates for the presidency supposedly address the problems of our time, yet neither has effectively or emphatically addressed the problem of the national debt. It´s true that many major problems are ganging up on us, such as the shrinking middle class, fear of losing jobs or homes, outsourcing of jobs to foreign workers, high energy prices, and the war in Iraq and Afghanistan. But even with those problems, we are not happy with the national debt, and our concerns should not be discarded or trivialized.
Since the birth of this great republic, Americans toiled proudly using their physical and brain power to accommodate for themselves and generations to come. They succeeded in building a nation with an economic, military, and moral value unparalleled in a history of mankind. This blessed country passed from one generation to another for better. While the country was far from perfect, the people endured pain and suffering, civil war, world war, and natural catastrophes. No one was able to hinder their progress and determination for betterment. We are the youngest nation in history, yet we left the Old World in its place and found ourselves the supreme power in the world. Now, all that seem like a distant memory to the current generation who is reversing past pride, stumbling over what they inherit, and acting irresponsible toward future generations.
In 1789, Thomas Jefferson wrote to James Madison, "Then I say, the earth belongs to each of these generations during its course, fully and in its own right. The second generation receives it clear of the debts and encumbrances of the first, the third of the second, and so on. For if the first could charge it with a debt, then the earth would belong to the dead and not to the living generation. Then, no generation can contract debts greater than may be paid during the course of its own existence." --
The star of the presidential history of debt is the current president, George W Bush, who will leave the nation with a mere $10 trillion in debt by the end of his term. Last year the interest on this debt was 13% of the government´s total revenue. That number keeps increasing with more borrowing, as evidenced by the current and future economic climate, and at some point will leave the government crippled, with little money to finance entitlement and other social programs. Besides, the lenders are foreign countries by whom this nation will be held hostage should they decide to redeem their funds. If that occurs, it could easily collapse bond market, cause immediate skyrocketing interest rates and sharp dollar devaluation amidst severe economic consequences.
That being said, Wall Street cheerleaders the sole beneficiaries of recent asset and real estate bubbles, claim the federal deficit isn´t a big deal. It equals about 1% of the GDP (gross domestic product), which is well below the average of 2.4% of the GDP going back 40 years, according to the Wall Street Journal (February 6, 2007). That is exactly when America started shrinking.
By definition, the GDP is the total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment, and government spending, plus the value of exports, minus the value of imports. Wall Street is behind this public deception, and they try to make the deficit tenuous by describing it as 1% of GDP. The government´s income is determined mostly by taxation, not the GDP, which reflects overall economic activities. To this end, the real government´s annual deficit is higher than 20% of its total annual revenue.
Economists claim that another dose of relief is that the U.S. federal deficit, relative to its economy, is smaller than most of the major industrial countries. Again according to the Wall Street Journal (February 6, 2007), U.S. federal debt as a share of GDP was 37% in 2006, comparing to 52% in Germany, 43% in France, and 79% in Japan. Total government debt is about 300% of its annual total revenue. By the way, they forget to mention that those countries have formidable national savings while we have negative savings. Economists bring out whatever "facts" support their argument; otherwise, they would mention China, with more than a trillion and a half dollars in cash deposits and no debt. Given the above observation, economists are trying to trivialize the severity of the federal deficit and federal debt. But that doesn´t attenuate the enormity of this problem; it only makes the people falsely feel better about our economy.
We as a nation are just doing fine. Imagine, we take in more than half of the entire world´s savings so that our government can spend or waste, however you describe it, and at the same time we can maintain a good standard of living. That sounds like a good deal, but where is our pride and sense of morality in all of that? Are we content with being freeloaders who prey on the rest of the world by letting them work harder, earn money in excess of their needs, and save so that we can borrow? So far it has been uneventful. Since President Ronald Reagan our government has continued borrowing money, and we haven´t paid much toward the principal. Only interest has been paid. The debt continues to pile up, but again, we are told that we are doing just fine, even with dollar devaluation.
The two candidates for the presidency supposedly address the problems of our time, yet neither has effectively or emphatically addressed the problem of the national debt. It´s true that many major problems are ganging up on us, such as the shrinking middle class, fear of losing jobs or homes, outsourcing of jobs to foreign workers, high energy prices, and the war in Iraq and Afghanistan. But even with those problems, we are not happy with the national debt, and our concerns should not be discarded or trivialized.
Since the birth of this great republic, Americans toiled proudly using their physical and brain power to accommodate for themselves and generations to come. They succeeded in building a nation with an economic, military, and moral value unparalleled in a history of mankind. This blessed country passed from one generation to another for better. While the country was far from perfect, the people endured pain and suffering, civil war, world war, and natural catastrophes. No one was able to hinder their progress and determination for betterment. We are the youngest nation in history, yet we left the Old World in its place and found ourselves the supreme power in the world. Now, all that seem like a distant memory to the current generation who is reversing past pride, stumbling over what they inherit, and acting irresponsible toward future generations.
In 1789, Thomas Jefferson wrote to James Madison, "Then I say, the earth belongs to each of these generations during its course, fully and in its own right. The second generation receives it clear of the debts and encumbrances of the first, the third of the second, and so on. For if the first could charge it with a debt, then the earth would belong to the dead and not to the living generation. Then, no generation can contract debts greater than may be paid during the course of its own existence." --
Print
Email
