Peters for Iowa Senate District 15

The gravest threat to the security of the United States is not Islamic fundamentalism or international terrorism. The greatest moral failing of the United States is not gay marriage or illicit drug use.

No, the gravest threat to our security, and our greatest moral failing, is our burgeoning debt.

I apologize in advance for the plethora of numbers and graphs that will follow, but our debt is the most important and immediate problem we face, and it is essential to understand the nature and implications of this problem as fully as possible. For the sake of simplicity and easy reference, most of the numbers that I will quote are taken from the U.S. Debt Clock (usdebtclock.org), which is in turn derived from sources such as the Department of Treasury, the Congressional Budget Office, the Office of Management and Budget, and which I have found to be reliable when compared to numerous other sources. Most of the graphs that follow (the blue ones) were generated at a website entitled usgovernmentspending.com, which I have found both useful and educational, and which I have again found to be reliable when compared to other sources. I have chosen to reference most of these graphs (again, the blue ones) in terms of 2005-inflation adjusted dollars per capita for clarity and consistency. Some graphs are expressed as percentages of GDP, but since GDP is a highly manipulated number, likely grossly overestimated, I have used these graphs only for additional illustrative purposes.

Total U.S. Government Debt

Total U.S. Government Debt now exceeds $13 trillion, and this is likely a conservative estimate. The magnitude of spending by the Federal Reserve is not entirely known, and will likely remain a mystery for the foreseeable future, as efforts to pass “Audit the Fed” legislation (auditthefed.com) by Representative Ron Paul and others have thus far failed. Furthermore, as highlighted in the recent Washington Post series entitled “Top Secret America” (projects.washingtonpost.com/top-secret-america), spending on behalf of our “national security” since 9/11 is similarly opaque.

Total U.S. Government Debt

As we can see in the above chart, our Total U.S. Government Debt has been growing rapidly since the mid-1980s, approximating an exponential rate of growth, and is entirely without precedent in the entire history of our nation. The debt spike following World War II is clearly visible, after which the debt gradually decreased but was never fully eliminated, and then began to grow markedly in the past 30 years.

If we look at the largest budget items in our annual federal spending, the primary sources of this debt become immediately obvious. Medicare and Medicaid spending is $783 billion, Social Security is $690 billion, and Defense spending is $675 billion. Interest payments alone on our existing debt is $198 billion! “Earmarks”, an example of government waste that is commonly bandied about by politicians when discussion deficit reduction, is a relatively paltry $17 billion.

U.S. Healthcare Spending

U.S. Welfare Spending

U.S. Defense Spending

Interest on U.S. Debt

U.S. Education Spending

I hope that the above numbers and graphs are as alarming to you as they are to me, but our government debt is, in fact, only a fraction of our total debt burden.

Total U.S. Debt

While our Total U.S. Government Debt now exceeds $13 trillion (and is likely much more), our Total U.S. Debt is in excess of $54 trillion. This figure includes the aforementioned government debt, but also includes debt held by households, corporations, and financial organizations. What is important to keep in mind, however, is that most of this debt is ultimately owed by you and me. The governmental and household debt are obviously the responsibility of U.S. citizens, but what about the debt held by corporations and financial organizations? Keep in mind that most corporations and financial organizations have shareholders, which could include you and me, and that our Federal Government has been all too willing to “bail out” many “too-big-to-fail” organizations, or to assume their outstanding debts, so it should be abundantly clear that we are each liable for a large proportion of this Total U.S. Debt.

According to the U.S. Debt Clock, the current Debt per Citizen, each man, woman and child, is nearly $175,000 (and, again, this is likely a conservative estimate). For my family of five, that equals $875,000. Even as a fairly successful surgeon, I don’t have that much money to spare. How about you?

Causes and Effects of U.S. Debt

One can point to numerous cases of our rising debt burden, and I will discuss some of those in a moment, but it is first necessary to discount one common theory. This is not a partisan issue, but a distinctly bipartisan failure. For example, our rising Federal Debt is not due entirely to increasing Welfare expenditure by Democrats, nor entirely to increasing Defense expenditure by Republicans; rather, our rapidly growing Federal Debt is largely due to increasing expenditures in both of these areas, and others, by both major political parties. It is, in essence, a quintessential example of bipartisan cooperation!

A major cause of our rising Total U.S. Debt is the important role played by central banking and the rise of a fiat currency in the past century. A full review of this process and its implications is beyond the scope of this post, but I will highlight a few important events, and the interested reader is encouraged to investigate further. The Federal Reserve System was first established in 1913.  In 1934, President Roosevelt issued an order to confiscate privately owned gold, followed by legislation which readjusted the exchange rate between USD and gold. Following a conference in Bretton Woods in 1944, the International Monetary Fund and what would ultimately become the World Bank were created, and most of the world’s currencies were pegged to the value of the USD. Following this agreement, most other countries abandoned a “gold standard” for their currencies, while a gold standard for the USD remained, at least in principle. In 1971, following years of increasing USD “printing” to finance the Viet Nam War, President Nixon abolished the last vestiges of the USD gold standard. The net effect of these events was to establish a U.S. central bank, the Federal Reserve, and a fiat currency, the Federal Reserve Note, which had no intrinsic value beyond which faith in its buying power provided to it. Parenthetically, “fiat”, in Latin, means nothing more than “let it be done”.

With no fundamental value underlying the Federal Reserve Note (FRN), whether gold, silver, or some other measure of the wealth of our nation, “money” could be “printed” without regard to underlying restrictions on its value. The resultant effect is clearly obvious in the following graph, which shows the declining value of the FRN in terms of 1913 inflation-adjusted dollars. Since 1913, the FRN has lost more than 90% of it value!

Value of the Federal Reserve Note

Our current debt crisis can be directly traced to policies of our Federal Reserve System and our Federal Government. In keeping with the prevailing fascination with Keynesian economics, our Federal Government and the Federal Reserve have repeatedly attempted to “stimulate” our economy out of nearly every economic downturn. In effect, they have created more debt, and monetary surplus, trying to supplement that which was not being naturally produced by a healthy free-market economy. This strategy was indeed effective, temporarily, until the next economic downturn inevitably followed. In theory, this practice might even be practicable, if the existing debt were eliminated after each cycle of “recovery”, but we have not witnessed such debt repayment in the past century. Instead, this debt has been allowed to accumulate, decade after decade, leading to our current state of affairs.

The examples of Federal Government and Federal Reserve System influence in our economy are numerous, but I will discuss one in particular, one that is especially relevant to those impacted by our current “housing crisis”. What is particularly important to understand about this “crisis” is that it is actually a “housing bubble”, and it is only the latest in several “equity bubbles” that have been artificially inflated by our Federal Government and Federal Reserve System, particularly in the last three decades. Again, a full review of this event is beyond the scope of this article, but the interested reader can learn much by referencing multiple online resources. Suffice it to say that many, including most of those in political office, denied that a housing bubble even existed, until it began to deflate. This was despite the protestations of many others, to include even a mainstream publication such as The Economist, which stated, in 2005, that, “the worldwide rise in house prices is the biggest bubble in history”. An extraordinarily illustrative graph is the following, by Yale economist Robert Shiller, which examines the prices of existing homes in inflation-adjusted 1890 dollars.

If you purchased a home in the last decade or so, do you now feel comfortable knowing that your homes’ value may be worth one-half of what you paid for it? No, neither do I. I fear we are a long way from the “bottom” of this most recent bubble, and commercial real estate seems well poised to be the next bubble to deflate.

Debt as a Security Issue

Security is easily understood from the perspective of defense and military spending, but this is only one issue of concern. The United States is fundamentally insolvent, as it owes more than it can currently pay, and this fact has far-reaching implications. The percentage of our debt held by other nations is in excess of 25%, and the two nations to which we are most indebted are China and Japan. We have three options before us, or some combination of the three. We can pay our debt, default upon our debt, or inflate our way out of debt. All options, or any combination of the three, will have profound implications upon our economy, our current standard of living, and our security. There is simply no escaping this reality. With any option, we will have to reduce our military presence overseas (which, I feel, would be a prudent move), but would also have to drastically reduce our commitment to “welfare” spending. Medicare, Medicaid and Social Security are all functionally insolvent, and the recently passed Health Care Reform and Education Reconciliation Act (Obamacare) will do nothing to alter matters. We should expect that our current “welfare state” will eventually fail, either gradually or precipitously, and that fact also has potentially dramatic security implications.

Debt as a Moral Issue

Regardless of which choices we make regarding our current debt, as outlined above, the ramifications of those decisions are particularly relevant for future generations of Americans. Let us imagine for a moment that we collectively decide not to engage in further debt expansion, and to pay all outstanding debts in full, which, in my opinion, would be the more honorable choice. Collectively, we owe in excess of $54 trillion, and this is ignoring an estimated $100 trillion in outstanding financial derivatives. In contrast, our (likely inflated) annual GDP is around $14 trillion. So, if we diverted every single thing we produced, year after year, with nothing spent for housing, food, etc., we could be completely debt-free in just under four years. This, of course, is not practicable, so we must admit that we must pass this debt burden to future generations. Talk about taxation without representation! Some of these future Americans have not even been born! This, to me, is the height of hubris; we have borrowed from the future, expecting that future generations of Americans will pay our bills!

Conclusion

We have important decisions to make, and those involving our burgeoning debt burden are, in my opinion, the most important and immediate. If only from a moral standpoint, which I personally find the most pertinent, but also from the standpoint of our collective security, we must take action now. Recognize that partisan differences are unimportant, and are in fact likely causing our current problems. Campaign and vote for candidates who recognize the severity of the problems we face. Understand that we cannot maintain the course upon which we are currently set. Realize that our current comforts are not worth the discomforts we are bequeathing to those that will follow us. Accept the likely suffering which we will experience, and reach out to those around you to lessen their suffering. Reestablish connections with family and local communities. Engage in local governance and mutual support.

To borrow a phrase from a trusted online friend of mine, “let’s create a world worth inheriting”.

Relevant Links

The Economist: A Special Report on Debt: Repent at Leisure: .economist.com/node/16397110?story_id=16397110

The New York Times: The Technocracy Boom by David Brooks: nytimes.com/2010/07/20/opinion/20brooks.html?_r=2&scp=1&sq=Technocracy+&st=cse

The Crash Course by Chris Martenson: chrismartenson.com/crashcourse