|NOT PAYING OFF THE NATIONAL DEBT
In the last article, I discussed ways to raise revenue in order to pay off the National Debt. (No. 146,
"Paying Off The National Debt.") I assumed that the budget had been balanced and all new revenue
would be applied to paying down the debt. (I wrote an article about balancing the budget also, No. 145,
"The Default Opportunity.")
In the article about paying off the National Debt, I found about $500 billion dollars in increased revenue
that could be applied to the National Debt each year. Suggested strategies to generate the $500 billion
were: allowing the Bush tax cuts to expire, adding a 44% top tax bracket for the very rich, and raffling off
the 240,000 Freddie Mac and Fannie Mae properties.
I also suggested some strategies that would yield money eventually: dropping the corporate tax rate to
a flat 15% and closing all but one loophole and fast tracking and protecting new inventions. Because the
amount of revenue produced by these measures was not easy to predict, I did not predict it. It is not
included in the $500 billion of increased revenue.
To a great extent the ability of the middle class to buy will decide how much revenue is generated by
corporate profits and new inventions. What Congress does or does not do to deal with the critical
economic situation we are in could greatly compromise the ability of average Americans to buy.
So far, what has been done to deal with the government's cash crunch has been inflationary. The
Federal Reserve has instituted a policy of quantitative easing. Investopedia defines quantitative easing
in this way. "A government monetary policy occasionally used to increase the money supply by buying
government securities or other securities from the market. Quantitative easing increases the money
supply by flooding financial institutions with capital, in an effort to promote increased lending and
Then Investopedia explains the problems with quantitative easing. "The major risk of quantitative
easing is that, although more money is floating around, there is still a fixed amount of goods for sale.
This will eventually lead to higher prices or inflation." (www.investopedia.com).
Just as a substantial corn crop lowers the price of corn, when there are more dollars than currency
buyers want, the price of dollars decreases. When the value of dollars decreases on the world market,
the cost of all imports increases. When things cost more, people living on wages or fixed income buy
less, their ability to buy has been compromised.
America is in a trap and Congress knows it. Printing money or creating money electronically to buy back
government debt as the bonds come due is inflationary. In two rounds of quantitative easing, the
Federal Reserve has added about $2 trillion to the amount of American currency. (The exact amount is
hard to calculate.) Bad harvests in several countries and QE1 and QE2 are the cause of the sharp
increase in food prices, etc. QE3 is expected soon. It will push food and fuel prices even higher. Sharp
price increases will eventually compromise the middle class' ability to purchase.
On the other hand, any rise in interest rates from the 0% that is maintained by buying back debt (QE1 and
QE2) could push the interest cost of the National Debt so high that the US would be forced to default.
Then the government would have to cut jobs and social services abruptly, which would devastate the
The cure for this is a policy such as I have suggested. First balance the budget, then pay down the
National Debt. That takes guts, most Congressmen prefer denial. Those on fixed incomes have already
felt the cost of congressional denial in a surge of higher prices on things they must buy.
Perhaps voting the incumbents out is the answer, but a few Congressmen are sincerely trying to fix the
problem. If you decide to vote against incumbents, please check out your Congressmen and make sure
you vote to keep the reformers.
Can we actually pay off the National Debt? The National Debt is $15,000 billion, $500 billion in increased
revenue is not much compared to $15,000 billion. Before we pay it off, let's examine the process that
built the debt. For an example, here is what's happening in Greece seen through the eyes of a man
whose job was embroiling third world nations in debt, setting up situations that allowed the plundering
of their resources.
"Greece has been struck by economic hit men. Set to default on its debts... this nation, where
democracy was first defined more than 2000 years ago, is clearly demonstrating how predatory
capitalism works to undue (sic) the freedoms of its citizens. The Greek people were not the ones who
agreed to accept these debts and for the most part they did not benefit from them; yet they will be
burdened for years to come because they were hoodwinked by the international banking community and
their own corrupt leaders.
"Bailouts serve the creditors; they enslave the debtors... It has become evident that bailouts in our own
U.S. crisis have only benefited the corporatocracy, with CEO's (sic) paying themselves outrageous
bonuses. This method of borrowing against the well-being of a country's citizens merely serves to
increase the power of the central banks, the IMF and corporate CEOs.
"In my books, I write about how world economics and politics today are controlled by a very few people
-- the corporatocracy. This is clearly demonstrated by the fact that whenever "debt restructuring" or
"debt forgiveness" deals are struck they include privatizing parts of the economy that were previously
considered public... These corporations are usurping the economic engines of growth that historically
have been considered as belonging to the public domain." (John Perkins, "Economic Chaos, Loans,
Greece and Corporatocracy," Huff Post Politics, July 18, 2011. John Perkins is the author of the books,
"Confesssions of An Economic Hit Man" and "Hoodwinked.")
The system that built the National Debt is a system designed to rake off the wealth generated by the
production of goods. The system takes part of the money produced by workmen and leaves part of the
money in their pockets. Parts of the system are completely legitimate, for example, a person who builds
a factory and finds markets for its goods deserves a fair return for his investment. If that person pays
fair wages, then they are doing the world a service.
Parts of the system are not at all legitimate. Some financial organizations are predatory in nature. For
example, Goldman Sachs bundled mortgages, many of them fraudulent, and sold them as securities to
pension funds and other investors all over the world. Everyone involved in these sales got rich from
front end fees and bonuses.
The purchasers of these securities got clobbered. The value of real estate got clobbered. The middle
class lost half its wealth, over $7 trillion. (Rex Nutting, "How the Bubble Destroyed the Middle Class,"
MarketWatch, July 8, 2011).
This ripoff of investors put Goldman Sachs in a financial bind. They needed a bailout and as a major
funding source to many politicians, (ABC estimated Goldman Sachs donated around $5 million to
politicians in 2008), they got a bailout of about $10 billion. ("Bailed out banks," CNN Money).They repaid
the $10 billion in 2009.
In 2010, Goldman Sachs paid a SEC fine of $550 million for "misleading" investors, avoiding charges of
fraud. (Goldman Sachs donated almost a million to Barach Obama's 2008 campaign.) In 2011, Goldman
Sachs employees will receive $15 billion in bonuses. Shortchanging investors was very profitable and
the penalties were light, less than 4% of a normal year's bonuses.
Here's a novel thought: It seems to me that the people who profited from crashing America's economy
should assume the responsibility for the National Debt.
Who got the money? It was not working men and women. According to the Congressional Budget Office
the income of the bottom 80% was stagnate from 1979 to 2007, all increases were eaten up by inflation.
(Dave Gilson and Carolyn Perot, "It's the Inequality, Stupid," Mother Jones, March/April 2011). It can
hardly be said that the bottom 80% owe the National Debt.
In 1979, the National Debt was less than $1 trillion, now it is over $15 trillion. According to the
Congressional Budget Office, from 1979 to 2007, the average household income of the top 1% more than
tripled, from under $600,000 to over $1.8 million. (Ibid). During that period the tax rate of the super-rich
was cut in half.
In 1979 and 1980, the top tax rate was 70% of income over $212,000. From 1982 to 1986, the top tax rate
was 50%. Since 1987, the top tax rate has been under 40%. Since 2003, the top tax rate has been 35%.
(See http://ntu.org/tax-basics/history-of-federal-individual-1.html.) Taxes on long term capital gains have
been 15% since 2003. (Capital gains in the United States, Wikipedia).
The experiment of cutting taxes for the rich to boost the economy, which began with the Reagan
presidency, has proved an expensive failure. A big chunk of the National Debt, which is looming over
America these days, is due to low taxes on the rich and super-rich.
Another chunk of the National Debt is due to predatory financial practices, which have generated huge
incomes for some. And another chunk of the National Debt is due to membership in the World Trade
Organization and unfair trade practices that have stolen American jobs. Overseas factories and
interests in shipping have also benefited the super-rich.
And finally QE1 and QE2 have eroded the buying power of the middle class while leaving the super-rich
almost untouched. Not dealing with the unbalanced budget and the National Debt except by creating
vast amounts of new money has a price, high inflation, and the middle class and the poor are paying it
with reduced buying power.
Both Republicans and Democrats have continued a thirty year policy of low taxes for the rich and
super-rich. They continue to tell you that this is necessary for the economy. Nonsense! The economy is
best served by the strong buying power of the middle class.
So, should America pay off the National Debt. There are good reasons for paying it off, doing so would
preserve America's currency as the most trusted the world. If the people who profited from low taxes
for the last thirty years take responsibility for paying off the National Debt (by allowing the Congressmen
that they own to vote to raise their taxes), then it is for the best that the National Debt be paid off.
Any other plan will crash the economy for years by destroying the buying power of the middle class. I
include in this category QE3 and a default on the National Debt followed by creating money to pay it off.
The former will lead to more inflation, the latter will lead to hyperinflation. One will wipe out the middle
class slowly, the other will wipe out the middle class quickly.
If the only solution to the National Debt, that the rich who rule America will allow, is for the National Debt
to be paid off by the misery of the poor and the destruction of the middle class, then it should just be
unpaid, defaulted on and written off, and damn the consequences. However, what I expect to happen is
that the National Debt will hang like an albatross around the neck of the average American for a
generation, as the super-rich strive to preserve their doomed debt money system and force others to
pay their debt. With the exception of a few professions, the middle class will cease to exist.
The truth of the matter is that the electorate has been so hoodwinked by media and politicians (which
are owned by the rich), that they simply have no idea of what is happening in America. Most have no
idea of what quantitative easing is, let alone that it threatens both them and the economy. They don't
understand the problem of the National Debt. They don't know that there are reform candidates. A great
candidate, Buddy Roemer, remains hidden. Once again they are only going to be allowed to choose
among candidates approved by special interests (except for Ron Paul, whose Internet presence has
made him impossible to hide).
So, should we pay off the National Debt? It would be good if it could be paid off without destroying the
middle class, whose buying power fuels the American way of life. If it can't be paid off without destroying
the purchasing power of the middle class, it should be written off.
How big a mess defaulting on the National Debt creates depends on how unbalanced the budget is
when the default happens. This President and Congress have gone 800 days without agreeing on a
budget. As the country comes closer to default, the lack of leadership this dithering and political
posturing suggests is dangerous for America.
In closing, I have a question for the idle rich. You probably have the power to force the poor and the
middle class to pay your tab. Are you that lost to right and wrong?
"He hath shewed thee, O man, what is good; and what doth the Lord require of thee, but to do justly, and
to love mercy, and to walk humbly with thy God?" (Micah 6:8)
Amo Paul Bishop Roden