I’m growing increasingly tired of and frustrated by arguing with people – on the right, mostly – who haven’t the first clue about how things actually work in the U.S. I recently wrote a piece about what U.S. Foreign Aid really is (http://progressive-liberal.com/dont-share-it ) and how that system actually works and why it works the way it works, as people, again, especially on the right, were and are entirely ignorant about what it’s all about.
Along those same lines, in the following piece I will attempt to explain the basics of our National Debt and show you why you can stop worrying about it.
First of all, unlike us “regular folk,” the United States Government doesn’t walk into a bank to ask for a loan nor does the country ask for money from another country or from an individual or a Multi-National Corporation, although any or all of these entities (and/or even certain parts of the U.S. government itself) can (and do) own some or all of our national debt.
What the U.S. does is sell bonds. That’s right, the National Debt is outstanding U.S. (mostly Treasury) Bonds! The Congress votes to sell a certain dollar amount of U.S. Bonds (the “Debt Ceiling”) to finance our various projects and adventures and those bonds are bought by just about every moneyed-interest on the planet. From infrastructure (i.e.: roads and bridges) to the Iraq and Afghanistan and Libyan Wars to the Centers For Disease Control in Atlanta to all of our vendors, contractors and government employees, most if not all, paid for in some part by U.S. Bonds! And that’s our National Debt, ladies & gentlemen.
Outside of a few brief, specific remarks, I’m not even going to mention the U.S. Military Budget, an amount so large that the next 8 Largest Military Budgets on Earth PUT TOGETHER still don’t equal it. Exactly how are they spending that much money? We have to cut-off a poor country that needs our help in order to have enough money available to help our own vets? And the military has all this f—king money!?! What are they doing with it!?! Buy a couple less bombs and help the vets, you a—holes!
But, that’s a for another time. So…Let’s just move on past it for right now.
Now, why is everybody with a bunch of money to spend – and I mean literally everybody with a bunch of money – so willing (and, if fact, eager) to finance us by buying our bonds? Simple, America has never defaulted in it’s entire history (even in our “Revolution” and “Civil War” periods) on it’s bonds; if the U.S. Bond you hold matures in March of next year, you will get ALL your money in March of next year plus the agreed upon interest. Even the U.S. Government itself owns some of the debt (See Social Security Admin. - those very secure U.S. bonds held by Social Security are, in fact, the money the U.S. "borrowed" from Social Security that we hear so much about). U.S. Bonds are the safest and most reliable investment on the planet. In an increasingly insecure and uncertain world that counts for a lot. And I mean a lot, a lot.
(NOTE: This is why the recent attempt by Republicans in Congress to block increasing the debt-limit – i.e.: which only means selling more bonds to pay off bonds/interest of those bonds already sold that are becoming “mature” – was such an incredibly ignorant, stupid and dangerous idea: Unless you’re severely mentally handicapped, you know that you don’t ruin your 200+ years of perfect credit as a whiney protest. So, let’s deal with this a little…)
We all hear about Congress “Increasing the Debt Limit” or “Debt Ceiling,” which freaks Conservatives out, but it only means that the U.S. Congress is allowing the Treasury to sell more bonds to pay back the bonds previously bought that have matured. In other words, increasing the debt limit doesn’t mean the government has decided to buy every poor person a new Cadillac Convertible this Summer. What it means is the U.S. will cover its already agreed upon, outstanding debt obligations (by selling more bonds – bonds that everybody wants!). And whether you like increasing the debt limit or not, I think any rational person would agree that paying off our current outstanding debts is a good thing (if you don’t believe that, please remind me not to ever lend you any money).
Another thing we hear pretty regularly, especially from the right-wing, “What if the Chinese (or whoever) call in the debt and cash in their bonds early? We'd immediately face economic disaster and fall into a Great Depression the likes of which we've never seen with no end in sight!” Actually, just the opposite is true. As most people know, even those not very educated about how bonds work, there is a huge financial downside to cashing in a bond before it matures; 1.) you lose all the interest, plus 2.) you pay a significant penalty. China (or anybody else) want to cash in their treasury bonds before they mature? PLEASE F-CKING DO! No greater favor could you do for the United States!
Deficits/debt does matter because if the debt becomes too large (currently it is 60-65% of GDP) interests' rates can go up making it increasingly difficult to service the outstanding/existing debt, or if China sold off a lot of the U.S. Bonds at one time (i.e.: flood the market with U.S. Bonds) we’d have to increase interest rates to entice more country's into buying our bonds.
But we really don't know what percentage of GDP would cause a serious problem and we don’t know what the interest rates would be on future bond sales if China dumped our bonds. Not to mention, if China were to flood the market with our bonds they would be devaluing their own considerable investment all in the name of a scheme which ultimately may or may not work. I don’t see them taking that chance and risking that amount of money. Whether trade or bonds, China has every interest in America doing well.
It should be kept in mind that during WWII the debt was over 100% of GDP and it's thought by many prominent economists that the Great Depression only really ended because of WWII government spending. And nobody’s ever dumped a huge amount of our bonds at one time. In other words: It's something to keep an eye on but nothing to panic about at this point (NOTE: The “Tax Reform” bill Republicans are proposing now if passed as is, the debt is predicted to surpass 100% of GDP in the next few years – so I guess we'll find out - see: https://www.msn.com/en-us/news/politics/ryan-trillion-dollar-deficits-were-inevitable/ar-AAvUpo2?li=BBnb7Kz&ocid=mailsignout).
Okay, I’d bet that the Fiscal Conservatives reading this right now are screaming, “You sell bonds to pay back other bonds and sell more bonds to pay back those bonds! IT NEVER ENDS!” That’s actually a fair point. It is a never-ending model that never really ever gets us 100% out of debt ever. Simply put: That is true.
Fortunately, there are other ways of getting the money we need to run the country, to finance all our desired projects, endeavors and adventures! And, they’ve all been used at one time or another, so they’re all tested!
The most obvious, of course: Increase Individual Taxes as individual taxes pay for a lot right now! Can you imagine what would have happened if George, Jr. had said to the public, “Because of 9/11, even though the Taliban had nothing to do with it, I want to attack Afghanistan so everybody in America is going to have to pony-up an extra couple of thousand dollars in taxes this year and every year for over a decade with no end in sight! Oh, and even though they too had nothing to do with 9/11, I'll need several more thousands for Iraq and Saddam right after! Same, every year, year after year. Oh, and there’s this really cool weapons system I like a lot, so that’s going to be a couple of thousand for each American for that this year as well, but that’ll only go on if there’s a problem with the development of said weapon, and as everybody knows by now: there always a problem! Thank Christ!”
On the plus side, those “adventures” and “weapons systems” would probably never have happened.
So that’s one way.
Another: Tariffs (i.e.: money/cost added to every foreign made product brought into and domestic products sold outside of the U.S.). Did you know that the entire Federal Government was financed by Tariffs almost completely (except for during the “Civil War”) right up until 1913? We could do that again, but then costs are going to go way up on everything and everybody’s going to have to pay up. But it’s doable.
On the plus side, manufacturing in the U.S. will increase (cheaper then buying foreign made – what with the new Tariffs – although we won’t be exporting much) and there will be a lot less off-shoring, meaning more income for the average person (good thing, too; we will need that extra money to pay for the added expense of all those more expensive products), so that’ll be good.
It should be noted that before 1913 neither the U.S. Federal Government nor Local Governments did much for the common folk, so going back to that model would be a major culture shock for the nation. (I hope you're ready to take into your house your Mom and your Grandma and your Aunt's and Uncles and just about all of your extended family. It'll be nice. Everybody will be together like the good old days.)
But that too is doable. If that’s what you want.
Of course you could always just increase (by a lot) Fees and Corporate Taxes! Taxes, say, only on Corporations, of course, would have all the corporations (that are still here) leaving the country – so without the Tariff thing (see above), that would be pointless and will never happen (especially with the “Free-Traders” in power) – and the Fees issue: how many people would pay an extra $6,000.00 to fly from San Francisco to Honolulu? I would think not many.
The bottom line, to my thinking, is that the way we do it right now, selling bonds (see above), is pretty much the absolutely least painful way to be America, as we know it. Moreover, Interest Rates are in the tank right now, meaning the interest rate on our bonds is incredibly low (i.e.: the pay-back in interest is peanuts right now!). This is the time to issue bonds; especially if everyone is still interested in buying them at these ridiculously low rates – and everyone is! WOO! HOO! If you want to do it any of these other ways, then may somebody please have mercy on all our souls.
Here’s the thing I really want to impress upon the readers: If you want to argue about something, finance, foreign aid, spending, politics in general – and everybody has the right to do so, regardless – STILL! please! at least have a basic understanding of the most basic facts and concepts of the subject you’re arguing about if you want to be taken even remotely seriously. Being ignorant is not an attribute you should be proud of.