America lives on borrowed time because its politicians are more concerned about reelection than saving the nation that guarantees their public offices.
America is about to be destroyed by debt. And we’re acting like it’s business as usual.
In the push to resolve America’s impending debt crisis, much has been done to ensure politically favorable positions for those engaged in the debt talks, and the possibility of a default has been addressed in largely academic terms, with complete disregard for the gruesome realities a default implies. Our leaders are living in a fantasy world, indulging in partisan gamesmanship, concerned only about their reelections. The time has come for our leaders to be Americans first, and do what needs to be done to save us from collapse.
Default has been discussed as a valid option, even by some at American Thinker. But its effects will be cataclysmic. Default must not be viewed in either political or strategic terms. Default spells one word for America: death, and death not only to the pocketbooks of the consistently demonized richest one percent (coincidentally also the tax bracket that creates jobs), but death to the thin veneer of “civilization” keeping the aging, post-Christian American culture from wanton acts of violence. Hyperbole? Ask our British friends.
It won’t happen tomorrow, and the day after we default the sun will rise, and that’s why it’s so easy to deceive ourselves. But once we cross that line, there will be no going back. The slide toward disaster will be inexorable, the consequences irreversible.
Then why not just keep raising the debt ceiling? Simple: if I’ve maxed my credit cards to pay for the “necessities” of my family, I can’t go to my credit card companies and demand they increase my limits. No matter how much my family “needs” things. And any debt counselor will immediately have me look at ways to cut my expenses. Why should government never have to live within its means? And why is it such an outrage when Republicans suggest even modest cuts?
General principles of macroeconomics paint a vivid picture of what awaits. Debt default would mean the collapse of the U.S. stock market, as foreign investors perpetuating U.S. market capitalization will divest holdings of U.S. securities, both public and private, since both are linked and will fall in value simultaneously. Market trends already indicate an imminent collapse. This will translate into business failure on a massive scale, followed by potentially the greatest increase in unemployment in U.S. history. Businesses are already slashing employment rolls yet again to prepare for a sudden shortage of cash.
It is further likely that banks will cease lending. Over half of all U.S. investment is foreign. When the investment goes, so will the lending. Loans will be unavailable, since interest will out of necessity be very high to accommodate the sudden decline in buyers of U.S. debt. Businesses aside, this will mean nearly zero credit for average Americans, a paradox, since hyperinflation will also be a definite consequence of default, the effect of both rapid sales of dollar-denominated assets and a Federal Reserve practice called “debt monetization.” Debt monetization is already the stated method of choice for neutralizing a default scenario, but this method carries equally destructive consequences — namely Weimar Germany levels ofhyperinflation. But unlike 20th-century Germans, who carried wheelbarrows full of worthless Reich marks to pay for a loaf of bread, 21st-century Americans will likely turn to plastic — now void — to pay for groceries. A cashless society sounds convenient when credit is readily available, but what happens when the cash being used to support delayed payment loses its face value, and high interest rates make alternative means of payment impossible? Do we let people starve?
The chaos will ripple throughout the global economy, much as the 2008 liquidity crisis did, with one significant change: whereas 2008 represented a tightening of credit, 2011 would be the first time Western nations would lack credit (defined as the timely payment of interest on government bonds), destroying credit and currencies alike in one fell swoop. Some new means of acquiring essentials and wants would need to be established. Christians would suggest that a mark would be imminent.
To understand how America and the West arrived at the present juncture, a little historical context is needed. Fueling global economic recovery in the postwar world required debt, and America was the only economic entity with the wherewithal to pay. America propped up global prosperity, much of it export-driven, with large quantities of debt. Other nations reinvested their surplus dollars back into the United States by purchasing stocks, bonds, and Treasury securities. This system works as long as demand exists for dollars. When dollars exceed demand, supply must be adjusted, resulting in dollar-sales. The problem exists because the number of dollars in circulation is astronomical, and even a partial move away from dollars may disrupt global liquidity and by extension consumer spending capability.
America is now bankrupt. But the American people have not yet come to grips with this reality. The illusion of prosperity continues, as artificially low interest rates and government buyouts of entire industries prop up the teetering house of cards just a little while longer. New statistics available because of litigation reveal that TARP was much more extensive than originally believed. The total operating costs of major banks were fully paid with taxpayer dollars in 2008. Liquidity was so excessive that banks could not cover basic operating costs out of deposits. The official price tag for this intervention was $1.2 trillion, not $500 billion as we were originally led to believe.
The banks are no longer private, temporarily averting runs and rioting, but government buyouts cannot continue indefinitely. Government spending depends on a taxable base. Government must have something to tax.
Rational investors retain an investment only as long as it is profitable to do so. If an investmentbecomes unprofitable, the investor will sell at the best possible price. Treasury bonds have ceased to be a good investment, owing to the unprecedented growth in U.S. debt.
These nations will ultimately do what is necessary to stay in the black, America’s global importance notwithstanding. Investors won’t continue to purchase a bad investment, which necessitates taking a loss, on the basis of sentimental value. It’s not personal; it’s just business.
What should really chill the average American is the knowledge, largely unreported by the mainstream press, that America’s creditors are also bankrupt. China, the Red Dragon sensationalized in the media as the greatest threat to American economic security, is also deeply in debt, with no adequate means of financing except for the continued investment of American multinationals, propping up the revenue edifice in China with unbridled economic growth. Foreign investment accounts for some 40 percent of Chinese GDP, the Institute for International Economics (IIE) estimates.
But instead of treating the debt crisis with the gravity it deserves, public officials on both the political right and left have decided that the fate of billions worldwide — who would be crushed by a U.S. default — is fair game for political opportunism. This mode of thinking is dangerous, and potentially suicidal. Default was temporarily averted by raising the debt ceiling. This is like giving a drunken sailor the keys to the liquor cabinet. And this new wiggle-room has already been consumed with new spending.
America lives on borrowed time because its politicians are more concerned about reelection than saving the nation that guarantees their public offices. There was a time when the safety of America wasn’t a Republican or Democrat “viewpoint,” but a transcendent value that united all blessed to live in this land, no matter the race, religion, or political point of view. But there is still hope. We are brothers and sisters, part of the same legacy of freedom. Do we really want it to end this way?
One thing is certain: default must be stopped at all costs. The time for political posturing is past. Let’s be Americans.
This article is from The American Thinker